As the Internet gained entrance in a large amount of homes and businesses across America a retail revolution was becoming a much-anticipated reality. However, many of these new "cyber" entrepreneurs found that the acceptance of the American public to this new type of retailing was harder to obtain than previously thought. Even more illusive were the profits, which would allow the "dot.com" marketplace to become a reality. Only those online retailers that were able to cut costs and provide the service and products demanded by their customers have survived to this date. Whether these current business models will insure survival in the future is yet unknown, however the mistakes of those companies which have failed are very clear.
Around 1998 the Internet was becoming a necessity in most household, business and schools across the nation. This opened our eyes to a world of opportunity. A retail revolution was seen on the horizon as a profitable asset to aid in consumer purchasing. This concept was to generate an easier and more accessible method of buying almost any product desired, ranging from groceries to automobiles. The new age technology of the Internet has made this possible without ever having to leave your house.
Online retailing has been referred to in many different ways such as online commerce, e-commerce, and e-tailing. If these phrases seem difficult another approach to understanding this concept is simply consumer shopping on the Internet. Shopping online is and has been made possible through many companies such as Priceline.com, E-Bay.com, Autobytel.com, and Amazon.com, to name a few. The Internet was becoming so popular on Wall Street that numerous investors started to dump large amounts of money in to the Web startups to "get rich quick". These Web startups were created solely for online purchases. They did not have any history of traditional retailing. The four companies previously named were among the many Web startups. These are most often referred to as the pure dot-coms.
Another approach to online retailing is the “bricks-and-mortar groups.” These companies currently use the traditional method of retailing and have expanded to the online method. These groups include large companies such as Barnes & Noble, Toys ‘R’ Us, Staples, and Victoria Secret.
The Christmas of 1999 was predicted to be America’s first “e-Christmas.” Online purchases tripled from the previous year to more than 10 million. The success of the e-tailers such as Amazon.com, Priceline.com and E-Bay.com soon sparked a notion in the “bricks and mortar” retailers to get in on the action. Many soon jumped on the bandwagon and created their own websites. (“Dot.Coms”) As the competition increased all online retailers had to find a way to keep their business successful. The increase in competition had forced some of the smaller dot-coms to fail and placed a greater amount of pressure on the bigger ones to put a dent in the traditional method of retailing. The dot-coms that failed did not provide a retail experience that was unique to the customer. The prices did not compete with the traditional retailers. The companies often concentrated mainly on the attractiveness of the website and neglected to fulfill the underline notion of retailing such as the means of filling orders and delivering them to the customers. In addition, the intricate sites that were developed to please the user, were in fact so complicated that a person would be confused or lost trying to purchase an item. On the other hand, James Overstreet a writer of the Memphis Business Journal concluded, “distribution is success”(Overstreet). He found that some of the leading e-tailers have established various strategies to maintain an excellent distribution process, keep clientele happy and increase customer satisfaction, but is this enough in the long run?
Amazon.com, one of the original online retailing pioneers, can arguably be called the nations top online book distributor once running very close with the “brick and mortar” group Barnes & Noble. The close contest forced Amazon to come up with a plan that would allow them to maintain a steady amount of competition. A spokesman for the company stated, “It is the shopping experience that keeps the customer coming back, and distribution is absolutely critical in customer service”(Overstreet). To improve customer satisfaction Amazon.com focused on making web sites that were customer friendly. These sites were designed to target all ranges of customers. This enabled customers to find a book that they were looking for quickly and at a low cost and also helped other customers find books that were of the same interests, as they preferred. These sites also included lists of best sellers, award winners and many others to browse through. Amazon also offered 10-30% discounts on most titles keeping the prices very affordable and lower than some traditional retailers. To enhance distribution the company carried only about 2,000 titles in stock when they first began. They worked out of small warehouse in Seattle, which served as a customer support and shipping and receiving area. Wholesalers and publishers mainly placed Amazon’s orders so it made it easy to receive the books and ship them directly to the customer in just a few days. (“Amazon.com Inc.”)
These procedures have currently allowed Amazon.com to expand their products to millions of books, CD’s, videos, DVD’s, toys, games, and electronics, at a price level usually less than that of the traditional retailers. After five successful and emergent years the company seemed to be on the right track. Until, Amazon’s “shares plunged 15% after it disclosed that its fourth-quarter sales would come in below some analysts’ expectations despite tripling its ad budgets and that losses would widen because of higher inventory costs,” after the Christmas of ’99 (“Dot.Coms”). Share prices continued to fall throughout the first half of 2000. While they maintained incredible sales results Amazon was unable to uphold a steady net income. The online retailer is a low margin business that has not yet established a large customer base to ensure profitability which one of the largest "brick and mortar" companies in the world also had to do to become the most profitable company in the world, Wal-Mart. Despite the ups and downs that Amazon faced, it currently is the leading online shopping site catering to more than 29 million people in 160 countries across the globe. (“Amazon.com Inc.”)
The retail revolution may one day make it possible to purchase all of your automobile needs online. This means the end of traditional showrooms and the cheesy tactics of the car salesman. The ability to purchase an automobile on the Internet may be enjoyable for the customer by evading the confrontational occurrences of the desperate dealers and car salesmen. Currently, the US’s, Autobytel is the world’s leading online automotive retailing service. This company expands the globe to countries across North America the UK and Nordic markets. Tim Burt a writer for the Financial Times explains that the “Boston Consulting Group, estimates that this company is processing more than 60,000 purchase requests a day and in some parts of the US represents more than 30% of total sales for dealers” (Burt). One of the most positive aspects to this type of automotive Web startup is that it is possible to research and compare the price range of many sports utility vehicles in the same markets in less than 15 minutes. Right now the Internet service providers are not allowed to sell cars on the Internet. They simply act as the middleman bringing the buyer and seller together. The seller then pays the Internet service a fee. Despite the fact that Autobytel is one of the leading online retailing services, it does not produce a strong profit if any at all. In February 2000, Autobytel declared a “fourth-quarter loss of 4.9 million dollars on sales up 70%”(Burt). The idea that automobiles would be sold on the Internet directly from the dealer to the customer is a concept with very much merit and demand. A change in this industry could result in massive amount of profit for the producers of the automobiles. One of the chief executives of Autobytel UK argues that it is not a lack in customer interest but the trading regulations that have to be followed that is holding back automotive e-tailing. Sources from Autobytel explain that if they could purchase cars direct from the manufacturers rather than act only as a middleman, that this format would save the consumer at least 1,000 dollars from reduced dealer costs. It seems very difficult to label the automotive e-tailing aspect to be a success or failure because they are not profiting from this concept. Instead, they are thriving towards a change in the way cars are marketed and sold. (Burt)
The uprising of the e-tailers has presented the idea that the traditional way of retailing would fade away. This has not been the case because large companies that sustain an existing infrastructure have also taken advantage of the online craze and many have emerged as leading online retailers. These “brick and mortar” groups have been able to create a new sales opportunity at a low cost by expanding on their existing infrastructure. The online retailing opportunities that the “brick and mortar” groups have made possible can also be referred as “bricks-to-clicks” groups.
Victoria’s Secret is one of these “bricks-to-clicks” groups. They are one of the leading retailers in women’s lingerie with hundreds of chains all over the United States. They have now made it possible to purchase all of you Victoria Secret requests through their own Internet service. To keep costs low Victoria Secret uses the photographs from their existing catalogues on their web site. This company also cuts costs by advertising online ordering to existing customers and printing the web address across their retail bags. Also, the Victoria Secret web site has attracted an enormous amount of orders from men. Many men are too embarrassed to go into a store and purchase the lingerie and they do not receive catalogues because they are not on the mailing list; therefore they are able to place orders online. One third of all online purchases at Victoria Secret.com are made by men. Victoria Secret actually started out as strictly a catalogue that was marketed to men. Although, their traditional retailing shops cater to women, they found a way to make the transition from their original method of retailing to online retailing by utilizing the same marketing techniques. By maintaining a quality product, that they can market using beautiful models and pictures that display the lingerie as well as, keeping costs low is their means of selling these products. Victoria Secret.com has been successful and profitable in online retailing because they were able to imitate the same purchase experience and provide the same level of service created previously in their catalogue and retail operations. (Griffith)
Similarly, the office supply group Staples has jumped to the technological opportunity at hand. In early January 2000, the executives of Staples were giving orders to buy up as much computer equipment as possible. The idea was to launch a Staples.com web site for purchasing office products online. While doing this, the company spent $125 million dollars for computer equipment. At first Staples aimed to expand business growth but have now decided that the idea is to lower costs. (“Era of Efficiency”) This was not a challenge for Staples because they already have the distribution capability through a direct mail and contracting business. By connecting the existing warehouses and truck operations to the online business it gives Staples the advantage over smaller competitors. Shipping costs have always been a concern of online consumers. Staples.com has calculated that the average online order is around $150 dollars, and the average gross margin is around $45 dollars so “the company decided that they could afford to provide next-day delivery service for free” thus putting them above some of the competition (Griffith). The CEO of Staples comments that online retailing has not hurt their sales, instead the customer will go into the store to see and touch the products, but will return to the Internet to reorder. He predicts that in 2001 online retailing will contribute to around $200 million in corporate revenue and one day 10-15% of company sales will be from the Internet. (Ioannou) The efficiencies, which Staples has gained by providing online ordering, are their key to creating online profits.
The online retailing trend is also very alive in countries across the globe. Tesco is an existing grocery chain in the UK. It is also ranked as the top online retailer by sales in its class. The deputy chairman of Tesco believes that “you have to sweat your existing assets” in order to be a profitable online retailer (Griffith). Tesco planned to use their existing stores therefore; only $56 million dollars was invested in to the online business. In 1996, Tesco expanded from smaller gifts to a delivery service. Many other companies have tried this but failed, such as Webvan, Homeruns, and Streamline. The difference is that Tesco has managed to be very profitable. Tesco charges 5 pounds for every order as compared to failed online grocery sites that offer the service for free. Also, Tesco has found a way to target certain customers by gathering customer information through online sales. This allows them to figure out what customers are buying and focus on direct mail promotion. (Griffith) Profitability has made it possible for Tesco to expand to the United States in a joint venture with the nationwide grocery chain Safeway in hopes of expanding the clientele and continuing the increase of revenue. It is important to remember that Tesco does have an existing infrastructure that does assist in the functioning of the grocery chain.
The two main e-tailers that I have previously reported about, Amazon.com, and Autobytel.com, as well as the previous “bricks to clicks” groups, VictoriaSecrets.com, Staples.com, and Tesco.co.uk are just a few of the hundreds of remaining online retailers today. These few online retailers seem to have survived the initial challenge of entering a new business arena because they are still functioning on the Internet, but the level of profitability continues to be a problem. Many of them have fallen short of making any profit at all and will take years to gain back startup costs. Some just break even, but the fact that they still exist proves that businesses can thrive online. To put online retailing into perspective the combined market capital of the three largest online retailers, Amazon.com, E-Bay.com, and Priceline.com which account for 90% of the US online retailing segment, together approaches 27.6 billion dollars which would only buy 11% of stock in Wal-Mart which is the leading “brick and mortar” retailer in the world. In 1999, online sales were expected to be only 2% of the retail market that year. (Edgecliffe-Johnson) The concept of online retailing does not seem that obscure and being successful at it is possible but it is necessary for two scenarios to exist. First, when many of the original dot-coms began they did not take into consideration the fact that the amount of people that own or have access to a computer is a very small percentage of the population. This may continue to change because the price of computers is decreasing; therefore more people are purchasing them and will gain access to the Internet. Second, as these people become more comfortable with the capabilities of the computer and its benefits they will be more likely to shop online. Both of these scenarios will help all online retailers reach an efficient amount of clientele that is necessary to turn over a profit.
The once anticipated retail revolution appears to be put on the back burner of new age technology for so many. Some small e-tailers have not survived online retailing. Boo.com, an online sportswear retailer only traded for 18 months before they ran out of funds. (Colburn) Cookexpress.com did not get enough business for its online delivery service and was forced to shut down operations. These and many more have been forced to call in the liquidators. The smaller dot.com companies have thrown away an estimated 1.7 billion dollars in advertising fees in order to promote their business to a large range of consumers. Angeltips.com started by placing their ad on the “greatest marketing event of them all” the Super Bowl (“Dot.Coms”). MotherNature.com spent an estimated $15 million in marketing. Many analysts agree that this will only force large companies to put more money into Web sales therefore pushing the smaller Web startups out of business (“Dot.Coms”). Many of the small online retailers spent so much energy on building the physical means of retailing that they failed to provide the variety of competitively priced products and ease of use which would allow them to cater to a wide variety of customers as Amazon.com has. Others were unsuccessful at providing the ease that comes with the simplicity of the Victoria Secret website and experience. Another reason that the online retailers may fail is because they over estimate how interested their customers would be in online shopping and overlooking the small amount that actually have access to the Internet (Colburn).
To avoid the pressures of a small-scale dot.com company and develop a “successful” web based company or simple expanding on a “brick and mortar” company is realizing that it is not possible to be all things to everyone. Every company is individual and should expand on the strengths that it possesses, for instance Victoria Secret attracts male customers and Amazon developed user friendly web sites that makes it easy for anyone to utilize them. Promoting good customer service, having help desks making it easy to return items when unhappy, and maintaining a quick and reliable distribution service appear to be necessities. Direct mailing, low shipping costs, and in stock accessibility has helped to keep the “successful” retailers afloat. Also, it is important to keep company costs controlled, the more simple the better. For example, Tesco uses employees to bag orders by hand without the use of fancy conveyor belts, or computer systems. Most of all while it is necessary for any online company to keep their customers happy it is crucial to the survival of the company that the investors are happy. Phrases such as “we’re moving down the path to profitability” will keep their attitude positive and suggesting “we continue to opportunistically assess other financing options to ensure our capital needs through our expected break-even point in fiscal 2002” raises the question of the need for more capital (Edgecliffe-Johnson).
The road to success in online retailing is already littered with the carcasses of failed companies with ill-conceived business plans that did not address the needs of their customers. Those online retailers, which are still with us, provide a glimpse of what will probably become the keys to success in this rapidly changing environment. It is too soon to tell if the volume of online retail purchases will reach a critical mass sufficient to support low margins and still provide profits. However, at places like Amazon.com and Victoria Secret.com, the signs are encouraging.
Work Sited
“Amazon.com Inc.” Business & Company Resource Center Online. Internet. 11Nov. 2001 Available: http://galenet.galegroup.com/servlet/BCRC/hits?c=2&code=sic&year2=&year1=&secondary=false&month2=&month1=&docNum=DC858094&companyType=all&day2=&day1=&contents=&tab=tab_cp&origSearch=true&t=KW&s=1&r=d&o=DocTitle&n=25&l=de&locID=regis_main&CO=Amazon.com
Burt, Tim. “Rush is on for Online Sales: Retailing.” The Financial Times 1 Mar. 2000: 2.
Colburn, Charles. “Online Retailing.” In-Store Marketing Mar. 2001: 41.
“The DotComs Falling To Earth.” Business Week 3664 (2000): 38.
Edgecliffe-Johnson, Andrew. “E-Revolution Shelved.” The Financial Times 3 Aug. 2000: 16.
“The Era of Efficiency.” Business Week 3737 (2001): 92.
Griffith, Victoria. “How the Fittest Survived the Dotcom Meltdown: Online Retailing.” The Financial Times 27 Aug. 2001: 7.
Ioannou, Lori. “Online or Bust! The CEO of Staples wants you to join the “dot com” revolution--even if it means cannibalizing your business.” Your Company 9.7 (1999): 48.
Overstreet, James. “Distribution.com: Memphis Likely to Benefit From Next Retailing Trend: Online Everything.” Memphis Business Journal 20.42 (1999): 31-32.