E-commerce and Store Retailing: Introduction
and Issues
Charles SteinfieldProfessor and Chair
Department of Telecommunication, Information Studies, & Media
Michigan State University
E-commerce has come a long way!
Amazon.com in 1995
Amazon today…
Tracking e-commerce growth
Source: U.S. Census Bureau: www.census.gov/estats
US e-commerce totals in 2007
Total
RetailE-commerce
% of total retail
2007 4.04 trillion 127.7 billion 3.16%
Summing quarterly estimates from last full year in Commerce’s most recent e-stat report.
If e-commerce only 3% of total retail, is it an important channel alternative?
Steady increase over past decade Higher rate of growth than other retail Underestimates overall influence
One report: 92% research online before buying Some product types heavily impacted
Yes!
Comparing growth rates
e-commerce
total retail
Summing quarterly estimates from Commerce Dept. estats
Estimates and forecasts of e-commerce influences on purchases
Source: Forrester Research, via Shoplocal.com
Differential Impact by Type of Product
Apparel & Accessories
Electronics & Appliances
Books, Sporting
Goods, Music, Video, etc.
Food & Beverages
2006 Total Sales
$226.6 Billion $126.5 Billion $95.7 Billion $535.5 Billion
2006 Internet- Derived Sales
$13.8 Billion $19.3 Billion $12.4 Billion $2.5 Billion
2006 Internet Share of Sales
6.1% 15.2% 13.0% 0.5%
Internet Share of 1999 - 2006 Growth
19.6% 32.7% 46.0% N/A
Source: Dougal M. Casey, Development Metrics Consulting
Early views on e-commerce
Emphasis on channel characteristics predicted superiority of e-commerce over traditional retail formats 24x7 availability Lower brick and mortar investment Automation - lower labor costs Deeper selection, without inventory holding costs Pricing flexibility - ability to respond to market
demand more quickly (lower menu costs) Potential for almost infinite depth of information etc.
Later view: complementarities between on and offline channels
Traditional retailers could capitalize on synergies between online and offline retailing
Started flocking online by end of 1990s, but many tried to beat the dot coms at their own game Did not pursue integrated multichannel strategies,
but rather a parallel e-commerce approach Was this rational channel use?
Synergy vs. parallel strategy for e-commerce
Pre-Purchase Purchase Post-Purchase
Physical
Virtual
Pre-Purchase Purchase Post-Purchase
Physical
Virtual
Synergy
Parallel
We started examining multi-channel retailers - US and abroad
Initial focus on high profile cases - firms in a variety of sectors explicitly pursuing a multichannel approach
Highlighting: Sources of synergy Benefits Management strategies
Sources of synergy
Leverage complementary assets physical infrastructure organizational infrastructure - business
operations marketing and sales force
people who know the product common buyers and suppliers
Types of Benefits/Advantages Cost reductions
inventory reduction labor: reduce cost of providing routine services save on distribution costs lower costs to advertise, promote specials
Trust use of physical store for pickup and payment community focus emphasize brand name
Value adding services inventory expansion “on-demand” production, build to order mobile ordering and notification
Market extension serve new markets - home bound, new geographic area, new products
But had to proactively manage for synergy - avoid channel conflict Goal aligning strategies
Creating consensus Attention to indirect benefits Focus on existing customer base and communities where firm
has physical presence
Coordination and control strategies Improving channel interoperability Incentive schemes that foster cooperation Active cross-promotion between channels Use of each channel’s strengths by specializing services
Expand capabilities Alliances Affiliates
More recently
Multichannel retailers appear to be catching on with shoppers - at least for larger chains
Strategies for integrating online and offline growing more sophisticated
Perhaps a new opportunity to study channel choice?
Current example of a strong “click and mortar” approach: Best Buy
What about the general population of retail firms? Are they effectively integrating online and offline channels?
Acquired sample of approx. 3100 firms in 9 retail sectors - spring of 2002
Searched for any form of web presence: found 1689 (54%)
After cleaning, 979 active retail Web sites found (31.5%)
Examined web presence for evidence of click and mortar strategy
Sample
Sector NAICS N Revenue* Employees
Auto dealers 441 200 362.7 594
Furniture 442 138 64.2 495
Electronics 443 144 359.2 1715
Building Supply 444 121 737 4186
Health 446 58 1,114.5 5937
Clothing 448 97 833.2 8465
Sports, Hobby, Books and Music 451 140 120.9 1143
Dept. Stores 452 51 7,108 51,157
Misc. 453 29 674.1 4196
* in USD millions
Content Analysis Categoriesphone site lists phone number of business
address site lists physical address of business
maps site provides store locator or map to store
hours sites lists physical store hours of business
history site provides company background
local links site contains links to other businesses in same city of store
store info site contains info about physical store specials, sales or events
coupons site offers coupons redeemable in stores
appointments customers can make an appointment at physical store
full purchase customer can complete a full transaction online
inventory customer can search physical store inventory online
pickup customer can order online and pickup at physical store
order status customer can look up details on online order status
acct mgmt customer can manage accounts online
gift registry customer can register items online for others to view and order
returns customer can return online purchases to physical store
Proportion of Sites With Each Feature
phone 96%
address 96%
maps 71%
history 58%
hours 52%
store info 45%
full purchase 33%
acct mgmt 27%
coupons 25%
order status 21%
inventory 19%
appointments 15%
returns 8%
local links 7%
gift registry 7%
pickup 6%
}Simple info
}Real integration
Click and mortar applications not very sophisticated
Simple Informationphone, address, maps, history, hours, store
info70%
Complex online/offline integrationcoupons, inventory, appointments, returns,
local links, pickup13%
Online rather than offline focusfull purchase, account management, order
status, gift registry22%
A simple click and mortar index
Items Mean S.D.
10 items
map/locator, hours, history,
local links, store info, coupons, appointments, inventory, pickup, returns
3.06 1.7
note: since address and phone were universal, they were not included in the index
Differences by Sector
Sector NAICS N C&M Mean
Auto dealers 441 200 4.34
Furniture 442 138 2.79
Electronics 443 144 2.07
Building Supply 444 121 2.69
Health 446 58 2.34
Clothing 448 97 2.85
Sports, Hobby, Books and Music 451 140 3.10
Dept. Stores 452 51 4.00
Misc. 453 29 2.41
Going forward: click and mortar aided by other players, technologies
Shoplocal, other location based services capture location from IP address, tailor offer
Mobile devices - GPS, bar code readers in camera phones, comparison shopping apps.
In-store technologies - smart carts, smart shelves, RFID
Social media online social networks can be tied to location harness peer influence
2D Bar Codes (QR codes)
Let window shoppers connect to info, online shopping
Or connect from ad in paper, magazine, or street poster
Call in to customer service, tech support, or other line
RFID store applications
smart dressing rooms smart shelves checkout services anti-theft smart shopping carts
Revisiting topic of channel choice People are using multiple channels to shop
Not a simple single channel choice – have to look at sets of interactions to explore use of several channels to complete a task
Need to look at joint channel synergies to explain choices
Social influences becoming implicated in complex ways Recommender systems, reviews, social network sites
New technologies extending reach, blurring online and offline boundaries Pervasive networks and mobile devices and applications
Critical choices by retailers – supply channel choices: Or lose their customers Need to rethink role of physical outlet – design with e-commerce in
mind Emphasize online services, applications that continue to give
people a reason to visit the physical outlet