Retailing on the Web

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Chapter
Retailing on the Web
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Learning Objectives

• Identify the major features of the retail sector
• Describe the vision of online retailing in the
  E-commerce I period
• Understand the environment in which online retail
  sector operates today
• Explain how to analyze the economic viability of
  an online firm
• Identify the challenges faced by different types
  of online retailers

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Possible Test Question

• What are the challenges faced by, and advantages
  enjoyed by, the different types of online
  retailers, including the virtual merchants, the
  clicks and mortar firms, the catalog merchants,
  online malls, and manufacturing direct firms

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Personal Consumption of Goods and Services

• Retail goods and services comprise 63 of gross
  domestic product (GDP)
• Services account 56 of total retail sales
• Durable goods account for 14 of total retail
  sales
• Nondurable goods account for 30 of total retail
  sales

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Sources of GDP in the United States

• Page 528, Figure 10.1

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Composition of the U.S. Retail Industry

• Page 529, Figure 10.2

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Online Retailing Vision (E-commerce I)

• Greatly reduced search costs on the Internet
  would encourage consumers to abandon traditional
  marketplaces in order to find lower prices for
  goods
• First movers who provided low-cost goods and
  high-quality service would succeed

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Online retailing visionEcommerce I

• Market entry easylow costs
• Online companies replace brick and mortar because
  traditional firms too slow
• Disintermediation
• hypermediation

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Results

• It didnt happen

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The Online Retail Sector Today

• Older traditional firms such as general
  merchandising giants and the established
  catalog-based retailers are taking over as the
  top online retail sites
• Disintermediation did not occur
• Online retailing has become an example of the
  powerful role that intermediaries play in the
  retail trade

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Online Retail is Alive and Well

• Page 533, Figure 10.3

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Top Ten E-tailers Ranked by Share of Online
Purchasing Audience

• Page 534, Table 10.3

Note, half are traditional firms, pure plays are
in information intensive businesses
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Online Retail Market Product Penetration Rate ()

• Page 535,
• Table 10.4
• Despite Amazon, Books is not number 1. People
  still like to drink coffee in bookstores.

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Analyzing the Viability of Online Firms

• Economic Viability refers to the ability of firms
  to survive during the specified period as
  profitable business firms
• Can be analyzed by examining the key industry
  strategic factors

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Strategic Analysis

• Barriers to entry
• Power of suppliers
• Power of customers
• Existence of substitute products
• Industry value chains
• Nature of intra-industry competition
• Firm value chain core competencies
• Synergies
• Technologies
• Social and legal challenges

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Financial Analysis

• Revenues
• Cost of sales
• Gross margins
• Operating expenses
• Net margins

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Online Business Models

• Virtual Merchants
• Single-channel Web firms that generate almost all
  their revenue from online sales
• General merchandiser Buy.com
• Niche player Ashford.com

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Online Business Models

• Click and Mortar
• Companies that have a network of physical stores
  as their primary retail channel, but also have
  introduced online offerings
• Wal-mart.com
• JCPenney.com
• Sears.com

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Online Business Models

• Catalog merchants
• Established companies that have a national
  offline catalog operation that is their largest
  retail channel, but who have recently developed
  online capabilities
• Lands End
• Victorias Secret

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Online Business Models

• Online malls
• A variation on the virtual merchant business
  model, they generate revenue from rents and
  services paid for by retailers who sell under the
  malls umbrella
• Fashionmall.com

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Online Business Models

• Manufacturer direct
• single or multichannel manufacturers who sell
  directly online to consumers without the
  intervention of retailers
• Dell.com

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LLBean

• What do you think are some of the loyalty issues
  that L.L. Bean managers face as they grow online
  sales?
• How can L.L. Bean best pursue a multichannel
  retailing strategy? Is the current management
  making the right judgment about developing online
  capabilities slowly over a long period of time?
• Critics argue that L.L. Bean should be expanding
  its total retail operationsincluding storesat a
  much faster rate in order to meet the
  competition. Do you agree? Why or why not?

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Distribution of Retail Sales by Type of Retailer

• Page 564, Figure 10.4