1. Chapter 9 (Sections 9.1 and 9.3)
Online Retail
Chapter 9 (Sections 9.1 and 9.3)

2. Learning Objectives
Understand the environment in which the online retail sector operates today
Describe the evolution of retailing and how it led to Internet retailing
Identify the challenges faced by the different types of online retailers

3. The Retail Industry
By any measure, the size of the U.S. retail market is huge
In a $17.8 trillion economy, personal consumption of retail goods and services accounts for over $12.2 trillion (about 68%) of total GDP
Services account for about 65% of that number and retail (durable and non- durable) accounts for the remaining 35%
Figure 9.1 illustrates the major segments of the overall retail industry
Durable goods are those that are consumed over a longer period of time such as automobiles, appliances, building supplies and furniture

4. Composition of the us retail industry (figure 9.1)

5. The Evolution of Retailing
Town Square Markets
Previous centuries
Catalog Retailing
late 1800s to early 1900s
Chain Stores
1920s and 1930s
Grocery Supermarkets
1940s and 1950s
Mass Merchandise Discount Chains
1970s and 1980s
Internet Retailing
1990s and 2000s

6. Forces Affecting the Evolution of Retailing
The growth of mail order catalogs, supermarkets, and mass merchandise chains was driven in each case by three forces:
declining costs of accessing a larger market that had prior retail formats,
providing customers with lower prices to achieve higher sales volumes in the new retailing format, and
providing customers with convenience in shopping by offering a wide range of products at a single location

7. Internet Retailing
The same basic forces that drove the growth in previous revolutions in retailing are also driving the growth of this new Internet retailing format
declining importance of distance and larger potential market,
increasing focus on providing attractive prices, and
offering added convenience by offering more goods in one location (your home)

8. Question
What is next?
How could a new retail format improve on one or more of the three forces related to the evolution of retailing?
Efficiently reach larger market
Provide lower prices
Improve convenience

9. E-Commerce Retail: The Vision
The early vision for e-commerce included the following predictions:
Consumers would use the Web to find the lowest-cost products
Entry costs to the online retail market would be much less than those needed to establish physical storefronts
As prices fell, traditional offline physical store merchants would be forced out of business
Disintermediation would impact a wide range of retail industries
Few of these assumptions and visions were correct
The structure of the retail marketplace in the U.S., with some notable exceptions, has not be revolutionized
However, the Internet has created an entirely new venue for omni-channel firms
And, in some instances, it has supported the development of online-only merchants

10. Online Retail Revenues by Category
(Figure 9.2)

11. The growth of online retail in the us (figure 9.3)

12. Online retail advantages and challenges
Lower supply chain costs
Lower product distribution costs
Ability to reach a large market
Ability to react quickly to customers tastes and demands, change prices, and change visual presentation
Avoidance of direct marketing costs
Increased opportunities for personalization and customization
Ability to deliver more information and knowledge to customers
Ability to lower consumers’ transaction costs
Concerns about security and privacy
Delays in delivery of goods
Inconvenience for returns
Overcoming lack of consumer trust in online brand names
Added expense for online multimedia (image, video, etc.)
Online marketing costs
Added complexity for product offerings and customer service
Greater customer information can lead to price competition and lower profits

13. E-Commerce in Action: E-Tailing Business Models
There are four main types of online retail business models:
Virtual merchants
Omni-channel merchandisers
Catalog merchants
Manufacturer-direct firms

14. Virtual Merchants
Single-channel Web firms that generate almost all their revenue from online sales (Amazon, etc.)
Face extraordinary strategic challenges
Must build a business and brand name from scratch, quickly, in an entirely new channel with many competitors
Do not bear the costs associated with building and maintaining physical stores
Do have large costs for building and maintaining their website, order fulfillment infrastructure, and developing a brand name

15. omni-Channel Merchants: Bricks-and-Clicks
Numerous examples including Wal-Mart, Sears, Staples, etc.
Have a network of physical stores as their primary retail channel, but also have online offerings
Typically have advantages such as a brand name, a national customer base, warehouses, large scale, and a trained staff
Challenges include coordinating prices across channels and handling returns of Web purchases in their retail outlets
Need to leverage their strengths and assets to the Web, building a credible Web site, hiring new skilled staff, and building rapid-response order entry and fulfillment systems

16. Catalog Merchants
Established companies that have a national offline catalog operation, but who have developed online offerings (Lands’ End, L.L. Bean, CDW Corp., etc.)
Face very high costs for printing and mailing millions of catalogs each year
Have developed centralized fulfillment and call centers, extraordinary service, and excellent fulfillment in partnership with package delivery firms
Why was it easier for catalog merchants to begin selling their products online when compared with other forms of retail?

17. Manufacturer-Direct
Either single or multi-channel manufacturers that sell directly online to consumers without the intervention of retailers (Dell)
Predicted to play a very large role in e-commerce, but this has generally not happened
Sometimes face channel conflict challenges
Must develop a fast-response online order and fulfillment system, acquire customers, and coordinate their supply chains with market demand
It has been difficult for existing manufacturers to switch from a supply-push model to a demand-pull model for managing their production operations

18. Common Themes in Online Retailing
Need to attract a large number of shoppers, charge high enough prices to cover the costs of goods as well as marketing, and develop highly efficient inventory and fulfillment systems
Consumers look to online purchasing for convenience and time saving
Disintermediation did not occur
Established merchants need to create an integrated shopping environment
Growth in online specialty merchants selling high-end, fashionable and luxury goods
Continued extraordinary growth in social commerce
Increasing use of Big Data in retailer marketing efforts