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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