The Future Of Retail by rraul

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									The Future Of Retail

Seema Williams
Senior Analyst
Online Retail
Agenda

    Consumers adopt eCommerce
    The new rule of engagement
    What’s happening to Dot Coms?
The Net takes off at home


    80   Millions of U.S.
         households                         70
                                       67        On-line
    70                            64
                             60                  households
    60                  54                  55
                                       52
                                                 On-line
                                  47
    50          44           42                  shopping
                                                 households
    40   33             35

    30          23
    20
         10
    10

    0
         1998 1999 2000 2001 2002 2003 2004
Three stages of Web buying

    Convenience spending
       Small-ticket, low-risk items
          Examples: books, music, apparel, gifts

    Researched purchases
       Information-intensive big-ticket items
           Examples: travel, appliances, computers

    Fulfilling essentials
       Low-information habitual purchases
          Examples: groceries, prescription
           medication
Retail Spending Growth

200   $Billions                                    $184
180
160
                                                   $37
140
120
100                                                $79
 80
 60
 40
 20
                                                   $69
  0
   1999       2000      2001     2002       2003         2004

          Convenience    Researched     Replenishment
The New Rule Of Engagement




  Dynamic Trade is the ability
   to satisfy current demand
   with customized response
Dynamic trade

  Services
   eclipse
  products


             Dynamic
              Trade
Service eclipses products

     Online services exceed pre-Web
      standards
       – Garden.com, Lands’ End
       – Carpoint
The Carpoint experience

If a dealer             The close
responds within . . .   rate is . . .

       24 hrs.          25%

       48 hrs.          11%

      >48 hrs.          <5%
Dynamic trade

  Services
   eclipse
  products              Demand
                         drives
                       production
             Dynamic
              Trade
Dynamic trade

    Online services exceed pre-Web
     standards
      – Garden.com’s landscaping
      – Carpoint
    Demand drives production
      – Herman Miller 2-day built-at-order chairs
      – BMW’s configurator points to future demand
Dynamic trade

  Services
   eclipse
  products                      Demand
                                 drives
                               production
                  Dynamic
                   Trade




             Pricing matches
                  market
                conditions
Dynamic trade

    Online services exceed pre-Web
     standards
      – Garden.com’s landscaping
      – Carpoint
    Demand drives production
      – Herman Miller 2-day built-at-order chairs
      – BMW’s configurator points to future demand
    Market pricing
      – Buy.com, Value America, eBay
      – Shopping engines MySimon.com DealTime
The Demise of Dot Com Retailers
Retailers focus on growth for 2000

         Grow the business                                  86%

        Improve site design                           48%

                Build brand                          46%

 Raise customer satisfaction                         42%

               Add content                   26%

      Synchronize channels               18%

        Achieve profitability            18%

        Build B2B business            10%

                Retain staff        2%



                Percent of 50 retailers responding
                 (multiple responses accepted)
What are your greatest challenges
this year?

    Differentiation                                    70%

    Customer satisfaction                              44%

    Fulfillment capabilities                           38%

    Financial health                                   34%

    Site design                                        32%

    Funding                                            24%




                  Percent of 50 retailers responding
                   (multiple responses accepted)
What are the most important assets of
your business?
    Brand                                          50%

    Staff                                          36%

    Partnerships                                   32%

    Site design                                    30%

    Fulfillment capabilities                       30%

    Customer service                               26%

    Customer data                                  24%

    Content                                        16%

    Channel synchronization                        14%



              Percent of 50 retailers responding
               (multiple responses accepted)
When will you be profitable?

                                             2000
      Don’t know/                            20%
       won’t say
         32%



                                                 2001
                                                 18%


     2004
     4%      2003
              2%           2002
                           24%


            Percent of 50 retailers responding
Where will funding come from this
year?

                                                  Don’t know/
                                                  won’t say
    42%            32%                            Parent company

                                                  Venture capitalist

                   34%                            Business angel
    24%
                                                  Public markets
    24%            18%
                              5%
    11%             11%
    1999           2000


     Percent of 38 retailers receiving funding in 1999 and 2000
         (Percentages do not total 100 due to rounding)
State of online retailers

       Focused on growth
       Challenge: Differentiation
       Asset: Brand
       40% expect profitability within 19 months
       Future sources of funding seem scarce
What ails online merchants?

     Funding dries up
 Online Retailers Watch Their Market
 Caps Plunge

              +300%
              +250%
              +200%
              +150%
              +100%
Stock price   +50%                                                   egghead.com
  relative
   to IPO        0                                                   drugstore.com
                                                                     eToys
               -50%
                                                                     Ashford.com
              -100%                                                  Value America

                      10/99   11/99   12/99   1/00    2/00    3/00



                                Note for comparison: Amazon.com
                                   is 4,444% above IPO price
What ails online merchants?

     Funding dries up
     Financial pressures -- price pressure
     Competition intensifies

     Consolidation is inevitable
What it takes to survive

     Scale
      – Registered unique users: 1M+
      – In-house fulfillment
      – Adult supervision
What it takes to survive

     Scale
     Service
       – Selling in multiple channels
       – The right product offering
What it takes to survive

     Scale
     Service
     Speed
       – 99.9% site up-time
       – Sophisticated commerce and merchandising
         skills
       – Outsourcing only emerging skills
Consolidation criteria

     Market maturity
       – Percent of category sales online
       – Amount of online revenues
       – Annual online revenue growth through 2004
     Product commoditization
       – Differentiation of product set
       – Operating profit potential
     Competition
       – Number and strength of competition
       – Dominance of current leaders
       – Stock performance
Categories at risk

     Commoditized, mature markets
       – Media, computer hardware, flowers
     Highly-competitive, adolescent markets
       – Autos, toys, sporting goods, replenishment,
         leisure travel, tools and garden
     Nascent, highly differentiable products
       – Furniture, appliances, apparel household goods
Who’s got it:

     Wal-Mart.com: Multiple channels,
      fulfillment expertise, lots of customers
     Amazon: Fulfillment, customers (20M),
      and technology
     eBay, Priceline: new selling models
     eZiba: New market that wouldn’t work off-
      line
Who doesn’t:

    Any brick and mortar holdout
    Dot-coms that don’t already have scale
      – (most besides Amazon)
Summary

    Consumers will spend more than $180
     billion online in 2004
    Dynamic trade rules
    Dot Com retailers struggle to survive
Thank you!


       Seema Williams
       617-613-5768
       swilliams@forrester.com

       www.forrester.com

								
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