Last April, Gamestop Corp. (GME) opened a store on Facebook to generate sales among the 3.5 million-plus customers who’d declared themselves “fans” of the video game retailer. Six months later, the store was quietly shuttered.
Gamestop has company. Over the past year the following brands all opened and subsequently closed their Facebook ecommerce stores:
- Gap Inc.
- Nordstrom
- J.C. Penney Co.
- Nordstrom Inc.
- 1-800-FLOWERS
Facebook, which this month filed for an initial public offering, has sought to be a top shopping destination for its 845 million members. The stores’ quick failure shows that the Menlo Park, California-based social network doesn’t drive commerce and casts doubt on its value for retailers, said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge, Massachusetts.
Mulpuru said in a telephone interview.
“There was a lot of anticipation that Facebook would turn into a new destination, a store, a place where people would shop. But, it was like trying to sell stuff to people while they’re hanging out with their friends at the bar.”
A year ago, investors hailed so-called F-commerce as the next big thing, speculating that the company had potential to threaten Amazon.com Inc. and PayPal Inc. Facebook is the most- visited website in the world. Some people thought that persuading visitors to shop would be easy, Mulpuru said.
David Fisch, Facebook’s director of business development, said in June that the site would be more appealing than competitors because it could replicate the social experience of a brick-and-mortar shopping mall.
Hanging Out
Fisch said at the Internet Retailer Conference & Exhibition in San Diego.
“This is where people are hanging out.”
Facebook planned to profit from retailers buying ads to drive traffic to their on-site stores. Business consultant Booz & Co. predicted in January 2011 that physical goods sold through social commerce would balloon to $30 billion from $5 billion by 2015, with Facebook contributing a majority of sales.
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Even as some businesses shut storefronts, many companies continue to devote advertising dollars to the social network. Facebook’s sales surged 55 percent to $1.13 billion in the fourth quarter. The company aims to use e-commerce more as a way of getting users to stay longer than as a way to boost revenue, said Krista Garcia, an analyst at EMarketer Inc. in New York.
Chris Kraeuter, a Facebook spokesman, declined to comment.
Shut Quickly
Customers had no incentive to shop at Gamestop's Facebook store rather than the company’s regular website because purchasing online is already convenient, said Ashley Sheetz, who is the Grapevine, Texas-based company’s vice president of marketing and strategy.
Sheetz said in a telephone interview.
“We just didn’t get the return on investment we needed from the Facebook market, so we shut it down pretty quickly. For us, it’s been a way we communicate with customers on deals, not a place to sell.”
Gap, which has 5.6 million Facebook fans from its namesake, Banana Republic and Old Navy pages, opened and discontinued a storefront last year, said Liz Nunan, a company spokeswoman. The San Francisco-based company also discovered customers preferred shopping on its own sites, she said.
Nunan said in an emailed statement.
“We will continue to evaluate if this is something we want to bring back in the future.”
Nordstrom tested ways to make shopping “seamless through Facebook” and decided on a broader social media focus, Colin Johnson, a spokesman, said.
J.C. Penney featured assortments in a Facebook “shop” tab beginning in 2010, and took it down in December 2011, Kate Coultas, a spokeswoman said in an emailed statement.
Cracks in Model
Wade Gerten, chief executive officer of social media developer 8thBridge, previously known as Alvenda, opened a Facebook store for the florist 1-800-FLOWERS. Minneapolis-based Gerten went on to develop commerce strategies for Delta Air Lines Inc., Diane Von Furstenberg Studio LP and denim-maker Seven for all Mankind.
Cracks in the model showed quickly, Gerten said in a telephone interview. Clients “have taken a different approach,” shutting stores or scaling back their offerings.
Gerten said.
“It was basically just another place to shop for all the stuff already available on the retailer websites. I give so-called F-commerce an ‘F.’”
COMMENTARY: If you've been following my blog posts about Facebook commerce, or F-commerce, as it is commonly referred to, you know that I have not been as optimistic about the potential for F-commerce as forecasted by Booz & Company in the above article. In fact, I have been outright negative on F-commerce in several previous posts: March 28, 2011, April 19, 2011, July 4, 2011, and July 9, 2011.
I highly recommend that you read my blog post of July 4, 2011, because I cite an article dated April 8, 2011 appearing in Social Commerce Today, which makes one of the strongest cases against f-commerce I have ever read, so I present it in its entirety:
• Small Market - The market for selling on Facebook is tiny – even the most enthusiastic projections forecast a market size of only $1.8 billion or 1% of total ecommerce by the end of 2011 and a maximum of $13 billion or 4% of total ecommerce by 2015.
• Lack of Interest - Online shoppers don’t want to buy on Facebook – the Booz & Allen report on social commerce found that 73% of online shoppers would not purchase goods on Facebook or through other social networking sites.
• Questionable eCommerce Platform - Facebook's user growth is no longer exponential, and reaching saturation in the U.S., the UK and European markets, its ad-supported revenue model is greatly flawed and reached a Critical Inflection Point.
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• Lack of Supporting Evidence - Very few major brands or retailers have provided compelling evidence that selling on Facebook unequivocally drives ROI or CLV (customer lifetime value).
• Poor Social Media ROI's - A recent WPP survey found that 23% of marketers said they were convinced that they were getting a good sales return on their social media investment, while 18% said they think their ROI is “average” and 9% described it as “poor.” (see slides below). Businesses find social networks to be the least effective new customer acquisition tool.
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• Facebook Credits Is A Non-Starter For Most Retailers - This is the “currency” that consumers can use to buy, say, potatoes on Farmville. Facebook however has little to no credibility with respect to financial services among consumers and the same retailers reluctant to implement PayPal (which so many large merchants are) will be ten times more resistant to a less-tried, less-reliable, newer payment mark.
• Facebook Fails To Drive Traffic - In terms of driving e-commerce traffic, Facebook is failing, ads are getting more expensive yet driving ever less traffic.
• F-Commerce Detracts From Original Mision - Facebook CEO and founder Mark Zuckerberg's original mission was "Giving people the power to share and make the world more open and connected." Facebook is a people focused forum, not a brand focused forum. Facebook was designed for connecting people that share similar interests. F-commerce runs counter-productive to the the original mission. The original mission was never to "bring buyers and sellers together". Brands and businesses were introduced into the social network mix only after site monetization came into being, and it seemed appropriate to have brands and businesses open pages to "connect" with their customers.
Facebook believes that the leveraging of the social web is part of a much larger technology shift in which social could become a larger driver of web traffic than search, he said. That’s because Facebook has seen several elements on its site, such as photo sharing and gaming, gain significant traction even though they were less sophisticated than the competition. Fisch said.
“We focus on people first and functions second.”
According to a Booz & Company's 2010 Survey,
"To date most companies’ social commerce activities have focused on branding and user-generated content in support of existing marketing initiatives. This is the topmost part of the marketing funnel—the level of simple awareness—and it would be hard to find a sizable B2C company anywhere in the world that isn’t doing anything at all in this area."
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"In the U.S., many companies are past the looking stage; as of the end of 2009, approximately 69 percent of U.S. retailers had social network pages, 54 percent used microblogging sites such as Twitter, and 58 percent published customer ratings and reviews. Most of this early activity, however, has been decentralized and uncoordinated, making it impossible for companies to accurately assess their ROI from these efforts."
"At least for the moment, awareness seems to have limited value in actually spurring social commerce. In Booz & Company’s 2010 survey, 71 percent of social networking users said their “liking” a company on Facebook would have no impact on their propensity to buy from that company."
"Social commerce will almost certainly have the biggest impact at the lower end of the funnel, in the consideration, conversion, and loyalty and service stages. These are areas where it is possible to establish clear metrics—including conversion rates, incremental revenue, and repeat business—and thus more accurately measure ROI. The key for companies will be understanding how to use social media in each of these stages."
"Social commerce will have the biggest impact in the consideration, conversion, and loyalty and service stages of the client relationship."
What truly amazed me is the speed with which the brands mentioned in the above Bloomberg article closed their Facebook F-commerce stores. The results from the F-commerce "experiment" were so bad evidently that they had no other choice but to close them quickly. Albeit, there are a few F-commerce successes, including Starbucks, but we are still very early in the F-commerce experiment, but a pattern of negative F-commerce results is already developing, and this is not good.
A lot has happened since the above referenced Booz & Company study, including the formation of numerous startups that have developed applications that allow merchants and brands to setup their own F-commerce store on Facebook. One of them even asked if I would promote them on my blog. Incidentally, a couple of them disagreed with my assessment of the future potential of F-commerce, but none of them were willing to provide conclusive evidence that proves beyond a shadow of a doubt that F-commerce is an overwhelming success as they claim on their sites. I take those criticisms with a grain of salt.
Courtesy of an article dated February 16, 2012 appearing in Bloomberg, an article dated May 10, 2011 appearing in Social Commerce Today and Booz & Company's 2011 study titled, "Turning 'Like' to 'Buy' Social Media Emerges as a Commerce Channel"
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