Learning Center
Plans & pricing Sign in
Sign Out



Understanding the concept of online retail.

More Info
  • pg 1

                                                                            Learning Objectives
                                                                               Understand the environment of online retail sector
                                                                               Explain the challenges faced by online retailers
    ONLINE RETAIL / E-TAILING                                                  Describe the major features of online retail sector
                                                                               Discuss trends in online financial service sector
                                                                               Discuss trends in online travel service sector
                                                                               Discuss trends in online career service sector

Retail / Retailing
   Retail / Retailing includes all the activities
    involved in selling, renting and providing goods
    and services to ultimate customers for personal,
    family, business or household use.

   In the channel of distribution retailing is where the
    customer meets the product.

   It is via retailing the exchange occurs.

Major Trends in Online Retail                                               The Retail Sector
       Social shopping                                                            Most important theme in online retailing is effort to
       Online retail increasingly profitable                                       integrate online and offline operations
       Buying online becomes normal, mainstream experience                        U.S. retail market accounts for over $8.7 trillion of
       Selection of goods online increases, including customized goods             total GDP (2/3rds of all economic activity)
       Average annual amount of purchases increases                               Retail industry can be divided into segments, each of
       Specialty retail sites show most rapid growth                               which offers opportunities for online retail
       Increased emphasis on improved shopping experience                         Biggest opportunities for online retail sales: specialty
       Increased use of interactive multimedia marketing                           stores, general merchandisers, mail-order catalogs,
       Retail intermediaries strengthen in many areas                              groceries
       Retailers increasingly efficient at integrating multiple channels          Mail order/telephone order (MOTO) sector most
       Personalized goods, especially in apparel, become financially               similar to online retail sector
       Online shopping becomes more multi-seasonal
       Most online shopping occurs at work, evenings at home


Composition of the U.S. Retail Industry
                                                                               The Online Retail Sector Today

                                                                                         Online retailing segment, although smallest
                                                                                          segment of retail industry, is growing at
                                                                                          exceptionally fast rate
                                                                                         Online retail revenues: $137 billion, 120
                                                                                          million consumers estimated for 2007
                                                                                         Primary beneficiaries of growing consumer
                                                                                          support: Established offline retailers with an
                                                                                          online presence

 SOURCE: Based on data from U.S. Census Bureau

Online Retail and B2C E-commerce is                                            Analyzing the Viability of Online Firms
Alive and Well
                                                                                 Economic viability ability of firms to survive as profitable business
                                                                                    firms during a specified period (1-3 years)

                                                                                 1.      Strategic analysis
                                                                                 2.      Financial analysis

                                                                                        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 supplier - the ability suppliers of the inputs of a product or service to lower a firm’s
                                                                                                 competitive position e.g. building companies/ contractors
                                                                                                Power of customers - the ability of buyers to use their market power to decrease a firm’s
                                                                                                 competitive position
                                                                                                Existence of substitute products – (bic / ,ilk (kcc/powdered milk)
                                                                                                Industry value chain - value is a strategic advantage if a firm possesses accurate information
                                                                                                 regarding its customer such as: which products are valued? Where can improvements be made?
                                                                                                Nature of intra-industry competition

Analyzing the Viability of Online Firms:
Financial Analysis                                                             E-tailing Business Models
   Factors in assessing Statements of Operations                                        Four main types of online retail business
       Revenues: growing and at what rate?
       Cost of sales: compared to revenues
       Gross margin (gross profit divided by net sales): increasing or                         Virtual merchant
       Operating expenses: What are they; increasing or decreasing?                            Bricks-and-clicks
       Operating margin: Indication of company’s ability to turn sales into                    Catalog merchant
        pre-tax profit after operating expenses are deducted
       Net margin (net income or loss divided by net sales or revenue):                        Manufacturer direct
        increasing or decreasing?
   Factors in assessing a Balance Sheet:
       Current assets
       Current liabilities
       Ratio of current assets to liabilities (working capital)
       Long-term debt


Virtual Merchants                              E-commerce in Action: Amazon.com
     Single channel Web firms that generate       Vision: Earth’s biggest selection, most customer-centric
      almost all revenues from online sales        Business Model: Amazon Retail and Amazon Services (merchant
                                                    and developer services)
     Example: Amazon                              Financial Analysis: Greatly improved, but not yet consistently
                                                    profitable; still heavy long-term debt
                                                   Strategic Analysis: Business strategy: Maximize revenue,cut costs
                                                   Strategic Analysis: Competition: Online and offline general
                                                   Strategic Analysis: Technology: Largest, most sophisticated
                                                    collection of online retailing technologies available
                                                   Strategic Analysis: Social, Legal: Antitrust, sales tax, patent
                                                    lawsuits; ToysRUs lawsuit
                                                   Future Prospects: Long-term profitability still uncertain

                                               Multi-channel Merchants: Bricks and Clicks
                                                         Companies that have network of physical
                                                            stores as primary retail channel, but also
                                                            online offerings
                                                           Examples: Nakumatt , Mr. Price, Sears, Walmart

                                               Catalog Merchants
                                                     Established companies
                                                        that have national offline
                                                        catalog operation as
                                                        largest retail channel, but
                                                        also have online
                                                       Examples: Oriflame,
                                                        Lands’ End, Victoria’s
                                                        Secret, Avon


                                                                 Single or multi-channel manufacturers who sell
                                                                        directly online to consumers without
                                                                        intervention of retailers
                                                                       Example: Dell

                                                             The Service Sector: Offline and Online

                                                                   Service sector: Largest and most rapidly
                                                                    expanding part of economies of advanced
                                                                    industrial nations
                                                                   In the United States, services employs about
                                                                    76% of labor force; accounts for $7.1 trillion of

What are Services?                                           Categorizing Service Industries
     Service occupations: ―Concerned with performing              Within service industry groups, can be further
      tasks‖ in and around households, business firms, and          categorized into:
      institutions                                                      Transaction brokers (intermediary)
     Service industries: ―Domestic establishments                      Hands-on service provider (legal, medical,
      providing services to consumers, businesses,                       accounting)
      governments, and other organizations‖
     Major service industry groups:
                                                                   Services industry features:
         FIRE (Finance, insurance, real estate)                        Knowledge- and information-intense, which makes
         Travel                                                         them uniquely suited to e-commerce applications
         Professional services                                         Amount of personalization and customization
         Business services                                              required differs depending on type of service
         Health services
         Educational services


                                                              Industry Consolidation and Integrated
Online Financial Services
                                                              Financial Services

     Online financial services (finance, insurance,
      real estate) example of e-commerce
      success story, but success is somewhat
      different from what had been predicted
     Multi-channel established financial services
      firms are showing fastest growth and
      strongest prospects

Online Banking                                                The Growth of Online Banking, 2000–2010

     Online banking pioneered by NetBank and
     Established brand name national banks have
      taken substantial lead in market share
     Over 80 million people use online banking,
      and around 40 million households
     Movement toward online banking is global

Online Insurance Services
     Online term life insurance: one of few product groups
      in which Internet actually lowered search costs,
      increased price comparison, and resulted in lower
      prices to consumers
     However, in other insurance product lines, Web has
      offered insurance companies new opportunities for
      product and service differentiation and price
     Online insurance industry affected by fact that
      industry is regulated at state as opposed to federal
      level; also impacted by channel conflict
     Leading players include InsWeb, Progressive and


Online Real Estate Services
     Early visions (that the historically local, complex, and
      agent-driven real estate industry would be
      transformed into a disintermediated marketplace
      where buyers and sellers would transact directly) has
      not been realized
     Major impact is influencing of purchases offline
     Despite revolution in available information, there has
      not been a revolution in the industry value chain

Online Travel Services                                           Travel as an Ideal Internet Product/Service
     Arguably, single most successful B2C e-commerce
      segment; attracts single largest audience, and largest          Information-intensive product
      slice of B2C revenues
     Internet becoming most common channel used to
                                                                      Electronic product in the sense that travel
      research travel and book reservations                            arrangements can be accomplished for the
     2007: $94 billion in revenue, expected to grow to                most part online
      $146 billion by 2010                                            Does not require inventory
     Popular because they offer consumers more                       Suppliers are always looking for customers to
      convenience (one stop; offers content, commerce,                 fill excess capacity
      community, customer service) than traditional travel
      agents                                                          Do not require an expensive multi-channel
     For suppliers, offers a singular, focused customer               presence
      pool that can be efficiently reached

Online Travel Services Revenues                                  Online Travel Services Components
                                                                      Airline reservations the largest single component ($42.6
                                                                       billion in 2007; $64 billion in 2010)
                                                                      Hotel reservations ($24.1 billion in 2002, $45.9 billion in
                                                                      Car reservations ($3.2 billion in 2005, $5.8 billion in
                                                                      Cruise/tour reservations: fairly slow growth since not as
                                                                       well suited for online environment
                                                                      Major segments:
                                                                          Leisure
                                                                          Business travel – expected to be a major growth area as
                                                                           corporations seek better control of corporate travel expenses


The Travel Services Value Chain                         E-commerce in Action: Expedia.com

                                                             Online travel services company that provides
                                                              access to information about and sales of
                                                              travel arrangements
                                                             Originally started by Microsoft, subsequently
                                                              purchased by InterActiveCorp, then spun-off
                                                              into separate public company in 2005
                                                             One of top players in online travel services,
                                                              generating revenues of $2.2 billion in 2006

                                                        Online Career Services
                                                             Next to travel services, one of Internet’s most
                                                              successful online services.
                                                             Dominated by CareerBuilder, Monster (owned by
                                                              Monster Worldwide), and Yahoo HotJobs
                                                             Online recruiting provides more efficient and cost-
                                                              effective method of linking employers and potential
                                                              employees, while reducing total time-to-hire
                                                             Enables job hunters to more easily build, update, and
                                                              distribute resumes while gathering information about
                                                              prospective employers and conducting job searches
                                                             Ideally suited for Web due to information-intense
                                                              nature of process

Why are Job Sites So Popular?
     Saves time and money for both job hunters
      and employers
     For employers: Expand geographic reach of
      search, lower cost, and result in faster hiring
     For job seekers: Make resumes more widely
      available, and provides a variety of related
      job-hunting services
     One of most important functions: Ability to
      establish market prices and terms (online
      national marketplace)


    Online retail environment
    Different types of online retailers—virtual
     merchant, multi-channel (brick-and-click),
     catalog, manufacturer direct
    Major features of retail industry
    Closer look at three successful online retail
     industries—financial, travel & job search


To top