Copyright © 2004 Pearson Education, Inc. Slide 10-1 E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Second Edition

Copyright © 2004 Pearson Education, Inc. Slide 10-1

E-commerce

Kenneth C. Laudon

Carol Guercio Traver

business. technology. society.Second Edition


Chapter 10

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 Explain how to analyze the economic viability

of an online firm Identify the challenges faced by the different

types of online retailers


Wal-Mart Moves Online Wal-Mart the world’s largest retailer, but its performance on

Web does not yet match its offline results Wal-Mart story mirrors much of the overall online retail picture

– learning from trial and error Web site originally launched 1995; redesigned several times

since them Today, operations much more deeply integrated with stores Online merchandise compliments rather than duplicates what

is in stores Wal-Mart’s advantages include strong brand name, efficient

retailing distribution system, loyal customer base Competition includes JCPenney, Target, Sears, Amazon


Wal-Mart Moves OnlinePage 571


The Retail Sector Most important theme in online retailing is effort to

integrate online and offline operations U.S. retail market accounts for about $7 trillion of total

GDP (2/3rds of all economic activity) Retail industry can be divided in segments, each of

which offers opportunities for online retail Biggest opportunities for online retail sales: Those

segments that sell small ticket items (specialty stores, general merchandisers, mail-order catalogs, groceries)

Mail order/telephone order (MOTO) sector most similar to online retail sector


Seven Major Trends in Online Retail 2003-2004Table 10.1, Page 575


Sources of Gross Domestic Product in the United StatesFigure 10.1, Page 575


Composition of the U.S. Retail IndustryFigure 10.2, Page 576


The Top 10 General MerchandisersTable 10.2, Page 577


The Top 10 MOTO RetailersTable 10.3, Page 578


Online Retailing: The E-commerce I Vision

Greatly reduced search costs on the Internet would encourage consumers to abandon traditional marketplaces in order to find lower prices for goods

Market entry costs would be much lower than those for physical storefronts, and online merchants would be more efficient than offline competitors

Traditional offline physical store merchants would be forced out of business

Some industries would become disintermediated as manufacturers built direct relationship with consumer

Ultimately, few of the above assumptions proved to be correct, and structure of retail marketplace in the U.S. has not be revolutionized


E-commerce II: The Online Retail Sector Today

Online retailing segment, although smallest segment of retail industry, is growing at exceptionally fast rate

Market size: $95-$100 billion, 75 million consumers estimated for 2003

Primary beneficiaries of growing consumer support: Established offline retailers with an online presence


Online Retail is Alive and WellFigure 10.3, Page 580


Top 15 Shopping Designations, Week Ending Dec. 12, 2002Table 10.4, Page 581


Online Retail Market Product Penetration Rate (%)Table 10.5, Page 582


Insight on Business: eVineyard.com Is a Survivor: Merlot by Mail Anyone?

eVineyard one of surviving wine retailers; acquired Wine.com/Virtual Vineyard in 2001

Now known as Wine.com Successful in part because it went got state retail

liquor licenses that allowed it to sell directly to consumers (most other competitors had not, and had to sell through intermediaries)

However, changes in laws may open up national wine marketplace to more competitors


Analyzing the Viability of Online Firms Strategic analysis of economic viability of a firm focuses on both industry as a

whole and firm Key industry strategic factors:

Barriers to entry Power of suppliers Power of customers Existence of substitute products Industry value chain Nature of intra-industry competition

Strategic factors that pertain to firm include: Firm value chain Core competencies Synergies Technology Social and legal challenges


Analyzing the Viability of Online Firms (cont’d)

Financial analysis helps us understand how a firm is performing

Includes two main parts: Statement of Operations and Balance Sheet

Statement of Operations: Tells us how much income or loss a firm is achieving based on current sales and costs

Balance sheet: Provides a financial snapshot of a company’s assets and liabilities


Analyzing the Viability of Online Firms (cont’d) Factors to look for when assessing Statements of Operations

Revenues: growing and at what rate? Cost of sales: compared to revenues Gross margin (gross profit divided by net sales): increasing or

decreasing? Operating expenses: What are they; increasing or decreasing? Net margin (net income or loss divided by net sales or revenue):

increasing or decreasing? Factors to look for when assessing a Balance Sheet:

Current assets Current liabilities Ratio of current assets to liabilities Long-term debt


E-commerce in Action: E-tailing Business Models

Four main types of online retail business models: Virtual merchant (Amazon, etc): Single channel Web firm

that generates almost all its revenue from online sales Clicks and bricks (JCPenney, etc): Company that has a

network of physical stores as primary retail channel, but also online offerings

Catalog merchant (Lillian Vernon, etc): Established company that has a national offline catalog operation as its largest retail channel, but also has online capability

Manufacturer direct (Dell, etc): Single or multi-channel manufacturers who sell directly online to consumers without intervention of retailers


E-commerce in Action: Amazon.com Vision: Earth’s biggest selection,most customer-

centric Business Model: Virtual merchant that sells

merchandise owned by Amazon, online storefronts for other merchants, merchandise owned by individuals; e-commerce services,

Financial Analysis: Greatly improved overall operational position, but not yet consistently profitable


Amazon’s Consolidated Statements of Operations and Summary Balance Sheet Data 1998-2002Table 10.6,

Page 591


E-commerce in Action: Amazon.com Strategic Analysis – Business strategy: Maximize

revenue while cutting costs Strategic Analysis – Competition: General

merchandisers who are both offline and/or online Strategic Analysis – Technology: Largest,most

sophisticated collection of online retailing technologies available

Strategic Analysis – Social, Legal: Securities, anti-trust lawsuits

Future Prospects: Long-term profitability still uncertain


Insight on Society: Internet Taxation: The Tax Man is Coming

Internet Tax Freedom Act placed moratorium on e-commerce sales taxes until November 2003

State and local government, local businesses think this is unfair

Online retailers feel it is unreasonable for them to have to determine appropriate tax rate, and who should receive tax dollars

Movement to simplify and rationalize sales tax collection underway (National Governors Association Streamlined Sales Tax Project), but moving slowly

Some major online stores that also have physical stores have begun collecting taxes


E-commerce in Action: JCPenney.com

Vision: nationwide department stores and mail-order catalog

Business Model: Clicks and bricks multi-channel general merchandiser

Financial Analysis: Flat revenue growth,operating costs, 2003 net margin of 1.3%, ample current assets


JCPenney’s Consolidated Statements of Operations and Summary Balance Sheet Data 1999-2003Table 10.7,

Page 598


E-commerce in Action: JCPenney.com Strategic Analysis – Business Strategy: Move to

online retail a major strategy to shore up poorly performing catalog and store operations

Strategic Analysis – Competition: Traditional retail department stores; Amazon and Buy.com

Strategic Analysis – Technology: Leveraging existing systems to Web

Strategic Analysis – Social and Legal Challenges: Nothing material

Future Prospects: Experiencing rejuvenation of sorts from rapid growth of Web operation


E-commerce in Action: Lillian Vernon Vision: Reasonably priced products offered

by direct mail Business model: Catalog merchant with

online capability Financial Analysis: Financial performance has

been stagnant


Lillian Vernon’s Consolidated Statements of Operations and Summary Balance Sheet Data 1999-2003Table 10.8, Page 603


E-commerce in Action: Lillian Vernon Strategic Analysis – Business Strategy: Launch of

additional catalogs, new owners intend to focus on continued development of online channel

Strategic Analysis – Competition: Catalog retailers and companies such as Williams Sonoma, Crate and Barrel

Strategic Analysis – Technology: Newly redesigned and upgraded Web site

Strategic Analysis – Social and Legal Challenges: Class action lawsuit related to sale of company

Future Prospects: Return to profitability depends on redefining brand image toward younger audiences without losing loyal repeat customers


Distribution of Retail Sales by Type of Seller (or Company)Figure 10.4, Page 606


E-commerce in Action: Dell.com

Vision: Custom-build computers to eliminate middleman and more effectively meet needs of customers

Business Model: Manufacturer-direct, “produce on demand” (demand-pull)

Financial Analysis: Impressive revenue growth, high net margins


Dell Computer’s Consolidated Statement of Income and Summary Balance Sheet Data 1999-2003Table 10.9, Page 609


E-commerce in Action: Dell.com Strategic Analysis – Business Strategy: Attempting to

broaden offering beyond pure product sales, search for ways to diversify revenue streams

Strategic Analysis – Competition: Traditional computer retailers, corporate systems integrators and computer dealers

Strategic Analysis – Technology: Sophisticated management information systems

Strategic Analysis – Social and Legal Challenges: Nothing material

Future Prospects: Continued reliance on PC computing a long-term risk factor


Common Themes in E-commerce II Online Retailing

Online retail fastest growing channel, has fastest growing consumer base, growing penetration rate across many categories of goods

Since 2002, many online retail firms have begun to raise prices

Disintermediation has not occurred, and most manufacturers use Web primarily as an informational resource

Most significant online growth has been that of offline giants who are focusing on extending brand to online channel


Insight on Technology: Predictive Modeling Builds on CRM

Predictive modeling software: Can be used to study and recognize patterns and trends in data, to help forecast sales, identify market opportunities and manage retail inventory levels

Example: CVS.com


Case Study: L.L. Bean Webward Bound

L.L. Bean: catalog retailer that is beginning to focus more intently on Web channel

Biggest challenge: Integrating its catalog, Internet and physical store channels

Web site introduced in 1995, revamped in 1996, gets high marks for usability


L.L. Bean: Webward BoundPage 615

Documents

Copyright © 2004 Pearson Education, Inc. Slide 10-1 E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Second Edition