E-Tail Not What Some Cracked It Up to Be

Discussion
Jul 09, 2009
George Anderson

By George Anderson

A Financial
Times
piece about e-commerce in the U.K. points out that, back in the
dot-com boom, there were evangelists predicting that online purchases would
represent 25 percent of all retail sales by now. Similar predictions were
made on this side of the pond. In reality, e-tail has yet to reach 10 percent
of total retail in either the U.K. or the U.S. and the rate of growth slowed
as the recession took hold.

Another belief
from the dot-com daze was that many pure play e-tailers would emerge as major
forces displacing some large brick and mortar operations. In reality, Amazon.com
and a few others have hit it big as online only merchants while the major conventional
chains have become forces in e-commerce.

Maureen Hinton,
lead analyst at the retail consultancy Verdict, told the Financial Times, “The
trust that you have in brands still needs that physical engagement to begin
with and so [online retail] is more of a complementary channel than a supplementary
channel.”

Discussion
Questions: How much of the overall retail business will online eventually
become? Are there opportunities for more pure-play Amazon.com-like success
stories to emerge? What will it take to make that happen?

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13 Comments on "E-Tail Not What Some Cracked It Up to Be"


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Nikki Baird
Guest
Nikki Baird
11 years 9 months ago
You know, I could believe that eventually we will reach 25% across all categories being purchased online. It’s just that, as with almost all technologies, it takes longer than people assume to get there. We as an industry have by no means plumbed the depths of the online or even multi-channel potential–multi-channel here to include the emerging mobile channel. And when I look at cross-channel, and have retailers tell me that buy online/pick-up in store generates 50% incremental trips to the store and those incremental trips add 50-75% of an average basket, that tells me that online has not done its best in cross-selling to consumers, and there is a lot more potential to be gained. The bigger question in my mind is the implication. Because 25% online sales is not 25% incremental sales. It will cannibalize store sales, and fundamentally alter the economics of retailing. The structural and cost implications for stores are big (how many retailers do you know budget store labor hours to support online sales, for example?), and no one seems… Read more »
Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
11 years 9 months ago
Here’s the key quote: “The biggest mistake retailers make is that they see their online business as a separate business from their offline business. They don’t apply the same efforts or energy.” As for predictions, here were mine from the same time period: Will online sales grow to the sky? No, they’ll plateau eventually. E-commerce sales will continue to grow at a double-digit pace for the rest of the decade, reaching 4.3% of total sales by 2010 (Global Insight). But the rate of year-over-year growth will likely decline from 24% last year (Jupiter Research), to 20% this year (Cowen & Co.), to below 10% by 2011. The reason? The industry is maturing; most of the people who are going to spend money online are already logged on and shopping. There are no new fish coming into the pond (or, at least, rates of population and consumer growth are declining). But the influence of the Web on retail sales will continue to grow this year, next year, and every year beyond. That is because use of… Read more »
Ben Sprecher
Guest
Ben Sprecher
11 years 9 months ago
Ultimately, this is a question of economics and the cost of the “last mile.” Bricks-and-mortar retail has one great advantage over internet retail–the consumer bears the cost of the last mile without it appearing explicitly in the price of an item. For more expensive and/or higher margin items, internet retailers can afford to make delivery inexpensive or free, but for low margin, low price, perishable, and bulky/heavy products, the economics just don’t work. So, a cashmere sweater or an iPod make sense for delivery to your doorstep, but frozen peas, canned tomatoes, fresh salmon, and the like just can’t be price-competitive when delivered. There will always be consumers who are willing to pay more for the convenience, but there will always be more who won’t. So, in short, the level of online retail penetration is ultimately going to vary dramatically. For standardized, shippable, high-value items (music, electronics, books, etc.), I suspect that we’ll get to the point where the vast majority of sales occur online. But for grocery, it will take a fundamental shift in… Read more »
David Dorf
Guest
11 years 9 months ago

I don’t think e-commerce as a whole will exceed 10%, but certain areas will continue to grow. Some products are just easier to sell online than others. I’m not sure we’ll ever see another mega success, pure-play like Amazon.com, but sites like Zappos.com and Alice.com have great potential.

Evan Schuman
Guest
Evan Schuman
11 years 9 months ago

First, how are we defining online? If we include mobile commerce purchases, then the numbers will continue will climb for a few years.

We then have to factor in online-influenced sales. Is buy-online-pickup-in-store a Web sale? Probably. What about a sale that happened because of a text message sent to a consumer’s cellphone while the consumer is in the store? How do you account for a kiosk sale, where the kiosk data is actually online?

The very act of trying to split the channels and answer these questions is the wrong way to go. Think of it as one merged channel. If online whets the appetite for an online purchase or home (or the other way around), it’s fine. Different channels will be more and less convenient to different customers throughout the day. Call center, mobile, in-store, online, self-service kiosk…we need to think of these all as part of the sales channel. Focusing on boosting online sales is almost as silly as trying to push more sales from the South entrance instead of the West entrance.

Barton A. Weitz
Guest
Barton A. Weitz
11 years 9 months ago
The Internet channel will certainly account for more that 25% of the sales of some merchandise categories such as books, DVDs, CDs, and video games. Other categories such as apparel and shoes might peak between 10 to 15% of sales. But simply looking at sales through an Internet channel underestimates the effect of the Internet on retailing. The Internet and retailer websites provide valuable information that consumers scan and collect before they go to stores. Over 50% of consumers consult websites before they go to stores to purchase consumer electronics. Thus the Internet channel has substantial influences on where consumers shop and what they buy. Except for niche product categories like pet pharmaceuticals, it will be difficult for pure play Internet retailers to compete against multi-channel retailers–retailers that sell to consumers through stores and non-store channels. Multi-channel retailers, by operating the channels synergistically, can provide more value to consumers than pure-play Internet retailers–order on Internet and pickup or return to store, order merchandise not stocked in the store from an Internet enabled kiosk, etc. Finally,… Read more »
Suzy Teele
Guest
Suzy Teele
11 years 9 months ago

E-tail will continue to grow and play an increasingly more significant role in the decision making and purchase of non-perishable items.

Why? Because when my 8 year old daughter is interested in buying something, her first instinct is to ask me to “go shopping” on the internet, not hop in the car. We are raising a generation of children who have no qualms about linking their checking accounts or parent-funded credit cards to Paypal and buying online; children who will spend a rainy afternoon perusing the web for the perfect prom dress instead of going to the mall.

David Biernbaum
Guest
11 years 9 months ago

I recall when prognosticators predicted that by the year 2010 some 25% of the CPG all commodities volume would be e-commerce. Such predictions were unrealistic for any number of practical matters; however, I view the e-tail market share of 10% in a very positive way. Consider that:

1. Just ten years ago e-commerce was still almost non existent. To have a 10% market share this soon is actually very impressive.

2. It turned out that most online volume is produced by the same retail brick and mortar retailers. Therefore, the class retail chains are controlling much of what happens online.

3. Many CPG purchases are in shopping baskets with spends under $25 to $50 which means that inexpensive commodities are not likely to be purchased on-line due to shipping and handling charges. Therefore, a huge percentage of CPG sales will never be strong online for this reason alone.

Jonathan Marek
Guest
11 years 9 months ago

Evan Schumann is right–it is a far more complex picture when you consider channel interactions (such as online-influenced in-store sales). While buy-online-pick-up-in-store is one such model, I don’t think that will ever be a major share of most categories either. I think the most underestimated multi-channel behavior is “research-online-and-buy-in-store.” For many types of goods, the internet is becoming the most critical place where the consumer learns what she wants, and where she wants to buy it. Using the power to their advantage, smart retailers can drive sales to stores.

Carol Spieckerman
Guest
11 years 9 months ago

I agree with the complexity factor; “multi-channel” is no longer limited to bricks and clicks and all channels are now inextricably linked. I’ll also point out that the goals for online have not stayed static; they’ve evolved as retailers gain greater insight into the full range of shoppers’ needs, desires and brand interaction habits (see our coverage of walmart.com’s recent presentation http://is.gd/1snsX).

As more websites realize the promise of becoming comprehensive information hubs for shoppers, those that only peddle products will feel old school and ham-handed by comparison.

Sales increases are always the ultimate goal; however, where they “happen” is up to the shopper. It’s up to retailers to make the connections seamless.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 9 months ago

My thinking is similar to Ben’s, and his analysis of the cost of the last mile. I think consumer staples will continue to be monitored by brick ‘n mortar, both because of the cost of the last mile, but also because quick is as important as convenient, and going to the store is quicker.

Where I think online will continue to penetrate is in the Long Tail, where goods don’t sell at volumes that can support a bricks ‘n mortar presence. This is much of the story in books, movies and music, but it also applies to any number of specialized categories.

What’s interesting about this downturn in this regard is the narrowing of assortments at retail, and the potential impact on ecommerce. As retailers in all categories cull assortments at the edges, this could increase the ecommerce share, both for cross-channel sites moving categories to online-only, as well as for the Amazon’s of the world.

Lee Peterson
Guest
11 years 9 months ago

The economy will help push that etail percentage, but what’s been missing is a true tipping point (thanks Malcolm Gladwell). Free Gov sponsored broadband? Better, 3D commerce sites from the likes of Walmart or Target? Something as horrible as a terrorist attack in a mall? Whatever that impetus is or could be, it hasn’t happened yet. But it will (not necessarily only the ones I listed). For the simple reason that sooner or later, the reality of the online advantage will sink in to the center of the bell-curve consumer and take hold en masse.

W. Frank Dell II
Guest
11 years 9 months ago

There have been many false starts to e-tailing and some very expensive failures. Longer term, e-tailing will represent over 35% of consumer purchases and 75% of business purchases. The key for E-tailing is making it simple and easy. Another key component is not to charge for delivery. The furniture store does not charge me for delivery. Best Buy does not charge me when I buy something in their store, yet they had to pay for delivery from their DC to their store.

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