Copyright © 2002 Pearson Education, Inc. Slide 10-1

Copyright © 2002 Pearson Education, Inc. Slide 10-1


CHAPTER 10

Created by, David Zolzer, Northwestern State University—Louisiana

Retailing on the Web


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


The Retail Sector

Durable goods are goods that are consumed over a longer period of time (generally more than one year)

Nondurable goods are goods that are consumed quickly and have shorter life spans


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


Sources of GDP in the United States

Page 528, Figure 10.1


Composition of the U.S. Retail Industry



The Top Ten General Merchandisers

Page 530, Table 10.1


The Top Ten MOTO Retailers (2000)

Page 530, 10.2


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



Market entry costs would be much lower that those for physical storefront merchants, and online merchants would be more efficient at marketing and order fulfillment than their offline competitors because they had command of the technology (technology prices were falling sharply)



Online companies would replace traditional stores as physical store merchants were forced out of business.

Older traditional firms that were too slow to enter the online market would be locked out of the marketplace



In certain industries, the “middleman” would be eliminated (disintermediation) as manufacturers or their distributors entered the market and built a direct relationship with the consumer

The cost savings would ensure the emergence of the Web as the dominant marketing channel



In other industries, online retailers would gain the advantage over traditional merchants by outsourcing functions such as warehousing and order fulfillment, resulting in a kind of hypermediation, in which the online retailer gained the upper hand by eliminating inventory purchasing and storage costs


The Online Retail Sector Today

Few E-commerce I assumptions about future online retail were correct

Structure of the retail marketplace in the United States has not been revolutionized



Online consumers are not primarily cost-driven -- instead, they are brand-driven and influenced by perceived value as their offline counterparts

Online market entry costs were underestimated, as was the cost of acquiring new customers



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


Online Retail is Alive and WellPage 533, Figure 10.3


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



Online Retail Market Product Penetration Rate (%)

Page 535,

Table 10.4


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


Strategic Analysis

Barriers to entry Can new entrants be barred from entering the

industry through high capital costs or intellectual property barriers (such as patents or copyrights)?

Power of suppliers Can suppliers dictate high prices to the

industry or can vendors choose from among many suppliers?

Have firms achieved sufficient scale to bargain effectively for lower prices from suppliers?


Strategic Analysis

Power of customers: Can customers choose from the many competing suppliers and hence challenge high prices and high margins?

Existence of substitute products: Can the functionality of the product or service be obtained from alternative channels or competing products in different industries? Are substitute products and services likely to emerge in the near future?


Strategic Analysis

Industry value chain Is the chain of production and distribution in

the industry changing in ways that benefit or harm the firm?

Nature of intra-industry competition Is the basis of competition within the industry

based on differentiated products and services, price, scope of offerings, or focus of offerings?

How is the nature of competition changing? Will these changes benefit the firm?


Strategic Factors

Firm value chain Has the firm adopted business

processes and methods of operation that allow it to achieve the most efficient operations in the industry?

Will changes in technology force the firm to realign its business processes?


Strategic Factors

Core competencies Does the firm have unique

competencies and skills that can not be easily duplicated by other firms?

Will changes in technology invalidate the firm’s competencies, or strengthen them?


Strategic Factors

Synergies Does the firm have access to the

competencies and assets of related firms either owned outright or through strategic partnerships or alliances?


Strategic Factors

Technology Has the firm develop proprietary

technologies that allow it to scale with demand?

Has the firm developed the operational technologies (e.g. customer relationship management, fulfillment, supply chain management, inventory control, and human resources systems) to survive?


Strategic Factors

Social and legal challenges Has the firm put in place policies to address

consumer trust issues (privacy and security of personal information)?

Is the firm the subject of lawsuits challenging its business model, such as intellectual property ownership issues?

Will the firm be liable to changes in Internet taxation laws or other foreseeable statutory developments?


Financial Analysis

Revenues Are revenues growing and at what rate?

Cost of sales What is the cost of sales compared to

revenues? Gross margin

What is the firm’s gross margin (gross profit divided by net sales) and is it increasing or decreasing?


Financial Analysis

Operating expenses What are the firm’s operating expenses, and

are they increasing or decreasing? Net margins

What is the firm’s net margin, and is it increasing or decreasing?

Net margin (net income or loss divided by net sales/revenue) sums up in one number how successful a company has been at the business of making a profit on each dollar of sales


Summary Balance Sheet

Balance sheet provides a financial snapshot of a company on a given date and show it financial assets and liabilities

Assets refers to stored value Current assets such as cash, securities,

accounts receivable, inventory, or other investments that are likely to be converted to cash within one year


Summary Balance Sheet

Liabilities are outstanding obligations of the firm

Current Liabilities are debts of the firm that will be due within one year

Long-term debt are liabilities that are not due until the passage of a year or more


Amazon’s Balance Sheet

Page 539,

Table 10.5


Online Business Models

Virtual Merchants Single-channel Web firms that generate

almost all their revenue from online salesGeneral merchandiser -- Buy.comNiche player -- Ashford.com


Buy.com’s Balance Sheet

Page 543,

Table 10.6


Ashford.com’s Balance Sheet

Page 546,

Table 10.7



Click and Mortar Companies that have a network of

physical stores as their primary retail channel, but also have introduced online offeringsWal-Mart.comJCPenney.comSears.com


JCPenney’s Balance Sheet

Page 551,

Table 10.8



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 Victoria’s Secret


Lands’ End’s Balance Sheet

Page 555,

Table 10.9



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 mall’s umbrella

Fashionmall.com


Fashionmall.com’s Balance Sheet

Page 562,

Table 10.10



Manufacturer direct single or multichannel manufacturers

who sell directly online to consumers without the intervention of retailers

Dell.com


Dell.com’s Balance Sheet

Page 567,

Table 10.11


Distribution of Retail Sales by Type of Retailer



Profitability Per Order by Online Retail Category


Documents

Copyright © 2002 Pearson Education, Inc. Slide 10-1