Copyright © 2002 Pearson Education, Inc. Slide 10-1
Copyright © 2002 Pearson Education, Inc. Slide 10-2 CHAPTER 10 Created by, David Zolzer, Northwestern State University—Louisiana Retailing on the Web
Copyright © 2002 Pearson Education, Inc. Slide 10-3 Learning Objectives Identify the major features of the retail sector Describe the vision of online retailing in the E- commerce I period Understand the environment in which online retail sector operates today Explain how to analyze the economic viability of an online firm Identify the challenges faced by different types of online retailers
Copyright © 2002 Pearson Education, Inc. Slide 10-4 The Retail Sector Durable goods are goods that are consumed over a longer period of time (generally more than one year) Nondurable goods are goods that are consumed quickly and have shorter life spans
Copyright © 2002 Pearson Education, Inc. Slide 10-5 Personal Consumption of Goods and Services Retail goods and services comprise 63% of gross domestic product (GDP) Services account 56% of total retail sales Durable goods account for 14% of total retail sales Nondurable goods account for 30% of total retail sales
Copyright © 2002 Pearson Education, Inc. Slide 10-6 Sources of GDP in the United States Page 528, Figure 10.1
Copyright © 2002 Pearson Education, Inc. Slide 10-7 Composition of the U.S. Retail Industry Page 529, Figure 10.2
Copyright © 2002 Pearson Education, Inc. Slide 10-8 The Top Ten General Merchandisers Page 530, Table 10.1
Copyright © 2002 Pearson Education, Inc. Slide 10-9 The Top Ten MOTO Retailers (2000) Page 530, 10.2
Copyright © 2002 Pearson Education, Inc. Slide Online Retailing Vision (E- commerce I) Greatly reduced search costs on the Internet would encourage consumers to abandon traditional marketplaces in order to find lower prices for goods First movers who provided low-cost goods and high-quality service would succeed
Copyright © 2002 Pearson Education, Inc. Slide Online Retailing Vision (E- commerce I) Market entry costs would be much lower that those for physical storefront merchants, and online merchants would be more efficient at marketing and order fulfillment than their offline competitors because they had command of the technology (technology prices were falling sharply)
Copyright © 2002 Pearson Education, Inc. Slide Online Retailing Vision (E- commerce I) Online companies would replace traditional stores as physical store merchants were forced out of business. Older traditional firms that were too slow to enter the online market would be locked out of the marketplace
Copyright © 2002 Pearson Education, Inc. Slide Online Retailing Vision (E- commerce I) In certain industries, the “middleman” would be eliminated (disintermediation) as manufacturers or their distributors entered the market and built a direct relationship with the consumer The cost savings would ensure the emergence of the Web as the dominant marketing channel
Copyright © 2002 Pearson Education, Inc. Slide Online Retailing Vision (E- commerce I) In other industries, online retailers would gain the advantage over traditional merchants by outsourcing functions such as warehousing and order fulfillment, resulting in a kind of hypermediation, in which the online retailer gained the upper hand by eliminating inventory purchasing and storage costs
Copyright © 2002 Pearson Education, Inc. Slide The Online Retail Sector Today Few E-commerce I assumptions about future online retail were correct Structure of the retail marketplace in the United States has not been revolutionized
Copyright © 2002 Pearson Education, Inc. Slide The Online Retail Sector Today Online consumers are not primarily cost- driven -- instead, they are brand-driven and influenced by perceived value as their offline counterparts Online market entry costs were underestimated, as was the cost of acquiring new customers
Copyright © 2002 Pearson Education, Inc. Slide The Online Retail Sector Today Older traditional firms such as general merchandising giants and the established catalog-based retailers are taking over as the top online retail sites Disintermediation did not occur Online retailing has become an example of the powerful role that intermediaries play in the retail trade
Copyright © 2002 Pearson Education, Inc. Slide Online Retail is Alive and Well Page 533, Figure 10.3
Copyright © 2002 Pearson Education, Inc. Slide Top Ten E-tailers Ranked by Share of Online Purchasing Audience Page 534, Table 10.3
Copyright © 2002 Pearson Education, Inc. Slide Online Retail Market Product Penetration Rate (%) Page 535, Table 10.4
Copyright © 2002 Pearson Education, Inc. Slide Analyzing the Viability of Online Firms Economic Viability refers to the ability of firms to survive during the specified period as profitable business firms Can be analyzed by examining the key industry strategic factors
Copyright © 2002 Pearson Education, Inc. Slide Strategic Analysis Barriers to entry Can new entrants be barred from entering the industry through high capital costs or intellectual property barriers (such as patents or copyrights)? Power of suppliers Can suppliers dictate high prices to the industry or can vendors choose from among many suppliers? Have firms achieved sufficient scale to bargain effectively for lower prices from suppliers?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Analysis Power of customers: Can customers choose from the many competing suppliers and hence challenge high prices and high margins? Existence of substitute products: Can the functionality of the product or service be obtained from alternative channels or competing products in different industries? Are substitute products and services likely to emerge in the near future?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Analysis Industry value chain Is the chain of production and distribution in the industry changing in ways that benefit or harm the firm? Nature of intra-industry competition Is the basis of competition within the industry based on differentiated products and services, price, scope of offerings, or focus of offerings? How is the nature of competition changing? Will these changes benefit the firm?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Factors Firm value chain Has the firm adopted business processes and methods of operation that allow it to achieve the most efficient operations in the industry? Will changes in technology force the firm to realign its business processes?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Factors Core competencies Does the firm have unique competencies and skills that can not be easily duplicated by other firms? Will changes in technology invalidate the firm’s competencies, or strengthen them?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Factors Synergies Does the firm have access to the competencies and assets of related firms either owned outright or through strategic partnerships or alliances?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Factors Technology Has the firm develop proprietary technologies that allow it to scale with demand? Has the firm developed the operational technologies (e.g. customer relationship management, fulfillment, supply chain management, inventory control, and human resources systems) to survive?
Copyright © 2002 Pearson Education, Inc. Slide Strategic Factors Social and legal challenges Has the firm put in place policies to address consumer trust issues (privacy and security of personal information)? Is the firm the subject of lawsuits challenging its business model, such as intellectual property ownership issues? Will the firm be liable to changes in Internet taxation laws or other foreseeable statutory developments?
Copyright © 2002 Pearson Education, Inc. Slide Financial Analysis Revenues Are revenues growing and at what rate? Cost of sales What is the cost of sales compared to revenues? Gross margin What is the firm’s gross margin (gross profit divided by net sales) and is it increasing or decreasing?
Copyright © 2002 Pearson Education, Inc. Slide Financial Analysis Operating expenses What are the firm’s operating expenses, and are they increasing or decreasing? Net margins What is the firm’s net margin, and is it increasing or decreasing? Net margin (net income or loss divided by net sales/revenue) sums up in one number how successful a company has been at the business of making a profit on each dollar of sales
Copyright © 2002 Pearson Education, Inc. Slide Summary Balance Sheet Balance sheet provides a financial snapshot of a company on a given date and show it financial assets and liabilities Assets refers to stored value Current assets such as cash, securities, accounts receivable, inventory, or other investments that are likely to be converted to cash within one year
Copyright © 2002 Pearson Education, Inc. Slide Summary Balance Sheet Liabilities are outstanding obligations of the firm Current Liabilities are debts of the firm that will be due within one year Long-term debt are liabilities that are not due until the passage of a year or more
Copyright © 2002 Pearson Education, Inc. Slide Amazon’s Balance Sheet Page 539, Table 10.5
Copyright © 2002 Pearson Education, Inc. Slide Online Business Models Virtual Merchants Single-channel Web firms that generate almost all their revenue from online sales General merchandiser -- Buy.comBuy.com Niche player -- Ashford.comAshford.com
Copyright © 2002 Pearson Education, Inc. Slide Buy.com’s Balance Sheet Page 543, Table 10.6
Copyright © 2002 Pearson Education, Inc. Slide Ashford.com’s Balance Sheet Page 546, Table 10.7
Copyright © 2002 Pearson Education, Inc. Slide Online Business Models Click and Mortar Companies that have a network of physical stores as their primary retail channel, but also have introduced online offerings Wal-Mart.com JCPenney.com Sears.com
Copyright © 2002 Pearson Education, Inc. Slide JCPenney’s Balance Sheet Page 551, Table 10.8
Copyright © 2002 Pearson Education, Inc. Slide Online Business Models Catalog merchants Established companies that have a national offline catalog operation that is their largest retail channel, but who have recently developed online capabilities Lands’ End Victoria’s Secret
Copyright © 2002 Pearson Education, Inc. Slide Lands’ End’s Balance Sheet Page 555, Table 10.9
Copyright © 2002 Pearson Education, Inc. Slide Online Business Models Online malls A variation on the virtual merchant business model, they generate revenue from “rents” and services paid for by retailers who sell under the mall’s umbrella Fashionmall.com
Copyright © 2002 Pearson Education, Inc. Slide Fashionmall.com’s Balance Sheet Page 562, Table 10.10
Copyright © 2002 Pearson Education, Inc. Slide Online Business Models Manufacturer direct single or multichannel manufacturers who sell directly online to consumers without the intervention of retailers Dell.com
Copyright © 2002 Pearson Education, Inc. Slide Dell.com’s Balance Sheet Page 567, Table 10.11
Copyright © 2002 Pearson Education, Inc. Slide Distribution of Retail Sales by Type of Retailer Page 564, Figure 10.4
Copyright © 2002 Pearson Education, Inc. Slide Profitability Per Order by Online Retail Category Page 569, Table 10.12