15 online retail

7/31/2019 15 Online Retail

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Online Retail

Retailing Present, Past, and Future


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Learning Objectives

Understand the environment in which the onlineretail sector operates today

Discuss the early vision, and todays reality, for

online retailing

Describe the advantages and disadvantagesassociated with online retailing

Identify the challenges faced by the different types ofonline retailers

Recognize the factors that impact the evolution ofretailing and how this led to Internet retailing


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The Retail Industry

By any measure, the size of the US retail market ishuge

In a $14.2 trillion economy, personal consumption ofretail goods and services accounts for $10 trillion

(about 70%) of the total GDP Examination of personal consumption shows that

61% is for services, 10% for durable goods, and29% is for nondurable goods

Durable goods are those that are consumed over alonger period of time, such as automobiles,appliances, and furniture


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Composition of the US Retail Industry

The retail industry is composed of many types offirms that each fit into one of the following eightsegments: Consumer durables 29%

General merchandise 16%

Gasoline and fuel 12% Specialty stores 12%

Food and beverage 10%

Eating and drinking 10%

Online retail 6% MOTO 5%

Which of these segments has been most impactedby e-commerce?


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E-Commerce Retail: The Vision

In the early days of e-commerce, literally thousandsof entrepreneurial Web-based retailers were drawnto the marketplace for retail goods

The was primarily because it offered the largest

market opportunities in the US economy Many entrepreneurs initially believed it was easy to

enter the retail market

Predictions were that the existing retail industry

would be revolutionized and blown to bits


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E-Commerce Retail: The Vision (cont.)

The basis for this revolution was fourfold: Because the Internet greatly reduced both search costsand transaction costs, consumers would use the Web tofind the lowest cost products

It was assumed that the entry costs to the online retail

market were much less than those needed to establishphysical storefronts

As prices fell, traditional offline store merchants would beforced out of business

In some industries such as electronics, apparel, and

digital content the market would be disintermediated asmanufacturers and distributors sold directly to consumers

As it turned out, few of these assumptions werecorrect


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The Online Retail Sector Today

The Internet has created an entirely new venue formulti-channel firms that have strong offline brands

And in some situations the Internet has supportedpure-play online-only merchants

The new online channel can conflict with amerchants other channels, such as direct sales

forces, physical stores, and mail order, but this multi-channel conflict can be managed and turned into a

strength Consumers like channel choices

Online intermediaries continue to play a powerfulrole in online retail


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The Online Retail Sector Today (cont.)

Although online retailing is one of the smallestsegments of the retail industry, constituting about 6%of the total retail market today, it is growing at afaster rate than its offline counterparts

Despite the high failure rate of online retailers in theearly years, more consumers than ever are shoppingonline

Online retail revenue is expected to be about $189

billion in 2012, $207 billion in 2013, and $223 billionin 2014


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Online Retail Advantages

Lower supply chain costs Lower cost of distribution

Ability to reach and serve a larger geographic market

Ability to react quickly to changes in customers

tastes and demand Ability to change prices nearly instantly

Ability to rapidly change visual presentation forgoods

Avoidance of direct marketing costs for catalogs andphysical mail

Increased opportunities for personalization

Ability to gather information about consumers


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Online Retail Disadvantages

Consumer concerns about the security of transactions Consumer concerns about privacy of personal

information given to websites

Delays in delivery of goods when compared to store

shopping Inconvenience associated with returning damaged goods

or exchanging goods

Overcoming lack of consumer trust in online brand

names Added cost for website multimedia

Added complexity for product offerings and customerservice

Higher price competition and lower profits


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E-Tailing Business Models

Virtual merchants Single-channel Web firms that generate almost all their

revenue from online sales (Amazon)

Multi-channel merchants: bricks and clicks A network of physical stores as the primary retail channel,

but also have introduced online offerings (Wal-Mart, JCPenney)

Catalog merchants Have a national offline catalog operation that is the largest

retail channel, but also have developed online capabilities(Lands End, L.L. Bean)

Manufacturer-direct Sell directly to consumers without intervention by retailers

(Dell)


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The Evolution of Retailing

The next question is: how did we get from theearliest forms of retailing to today?

What is the earliest example of retailing?

What societal changes provided the basis forcreation of these early retail markets?

What phases in the evolution of retailing haveoccurred following the development of these earliest

retail markets?


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Phases in the Evolution of Retailing

Catalog retailing Chain stores

Grocery supermarkets

Mass merchandise discount chains

Internet retailing


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Forces Affecting the Evolution of Retailing

The growth of mail order catalogs, supermarkets,and mass merchandise chains was driven in eachcase by three distinct forces:

declining costs of accessing a larger market that had priorretail formats,

providing customers with lower prices to achieve highersales volumes in the new retailing format, and

providing customers with convenience in shopping byoffering a wide range of products at a single location


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Internet Retailing

The same basic forces that drove the growth inprevious revolutions in retailing are also driving thegrowth of this new Internet retailing format

declining importance of distance and larger potentialmarket,

increasing focus on providing attractive prices, and

offering added convenience by offering more goods inone location (your home)


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The Future?

What is next? How could a new retail format improve on one or

more of the three forces related to the evolution ofretailing?

Efficiently reach a larger market Provide lower prices

Improve convenience

15 online retail

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