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