HED 460 Internet Retailing Stock prices down Demands for government regulation/taxation growing Margins are thin Supplier relationships testier

HED 460 E-retailers vs. bricks Revenue % 100% COGS % 87% GM% 13% Mkt./Adv. 24% Other op. exp. 23% Tot. Op. exp. 47% Op. Income -33% Revenue % 100% COGS 73% GM% 27% Mkt./Adv. 4% Other op. exp. 18% Tot. Op. exp. 22% Op. Income 4.5%

HED 460 Internet Retailing Internet makes everyone a retailer Internet service providers (ISP’s) Suppliers as retailers Channel conflict Wal*mart and Home Depot More competition but core retail skills give retailers an edge

HED 460 Internet Retailing Market discipline is king Etailers must be customer-centric Business to consumer market models Individual product auctions (ebay.com) “name your price” offers (priceline) Buyer aggregation (mercata.com)

HED 460 Internet Retailing New technology influences Wireless Creates new channels of Internet access New applications in the home and on the road (GPS systems) Networked home TV, refrigerator as control centers

HED 460 Internet Retailing The fall out has started Etailers have closed virtual doors etoys, pets.com, kozmo.com, webvan Some have partnered to increase portfolio Amazon/WaldenBooks, eBay/Paypal, FTD/Flowers Direct Some have restructured Some were close to going out of business

HED 460 Internet Retailing Some categories are saturated Pets Petopia.com, Petstore,com, Petwarehouse.com, PETsMART.com Sporting goods

HED 460 Internet Retailing Strategies Reducing marketing expenditures Using cheaper techniques like Dramatic decreases in average online customer acquisition costs Q4’99 - $71 Q1’00 - $45 Q2’00 - $40 Q3’00 - $20

HED 460 Internet Retailing Strategies Raising product prices Being less promotional Lowering/eliminating shipping charges*

HED 460 Internet Retailing Strategies Destination site Category focus to focus on all things related to the category Relevant content Product reviews Advice columns Celebrity interviews News

HED 460 Internet Retailing Strategies Destination site, cont. Building community on-line – interaction Message boards Chat rooms Lands’ End, CarsDirect, TechnoScout

HED 460 Results of chat Best for high-price, high-margin products Used to up-sell, cross-sell, convert Ave. order increased by 6% at Lands’ End Ave. order increased from $135 to $170 for TechnoScout (3.5% use chat feature) Conversion incr. from 2.2% to 3.1% from Abandoned shopping carts decreased from 53% to 47%

HED 460 Internet Retailing Strategies Multi-channel retailers Experience is paying off Only 2 of top 10 etailing sites 2001 are traditional “pure play” Pure-play e-tailers are forming alliances with store-based or catalogs

HED 460 Top 10 E-tailers 2001 (Revenue) Amazon.com* Office Depot Staples Gateway Costco BarnesandNoble Buy.com* QVC.com The Spiegel Group JC Penney

HED 460 Question #1 What percentage of U.S. households have a computer at home? 66%

HED 460 Question #2 What percentage of U.S. households have a Internet access at home? 63% Gap continues to narrow

HED 460 Question #3 What country has the highest percentage of Internet users? Finland – 58% Sweden – 44% Canada – 41% USA – 37%

HED 460 Question #4 What is it cost to service online customers? Phone - $ $9.99 Live Chat - $7.80 Self-service - $1.17 Forrester Research

HED 460 Question #5 What is the profile of online shoppers? 39% Upmarket 66% are younger/single and younger/parents 53% women shop to save time (41% men) 56% men shop to save money (40% women)

HED 460 Question #6 What are the 3 attributes of favorite web sites? Good product selection Competitive prices Ease of use

HED 460 Question #7 What is the greatest barrier to online purchasing? Fear factor - Credit card safety (69%), then privacy (61%)privacy

HED 460 Other barriers Other fears Returns Customer service questions answered Feel factor Feel, see, try out/on Prefer shopping at stores

HED 460 Try-out/”experience” Zanybrainy.com – selected toys 3D interaction to zoom in and out, “use” products (sharperimage.com) My model (Lands’ End)

HED 460

Other barriers Fulfillment factor Not willing to pay shipping/handling Don’t want to wait for products Frustration factor Difficult to shop online Completing transaction takes too long

HED 460 Question #8 What is the greatest barrier to online purchasing for clothing? Inability to try on clothes for fit before purchase (81%) Unable to feel material quality (45%) Concern about ease of return (44%)

HED 460 The Fit Issue Virtual models (landsend.com and jcpenney.com)landsend.com Fit guides and comparisons and

HED 460 Question #9 What is the cause of e-shoppers abandoning their shopping carts? Excessive shipping costs (1/2) 47% abandonment rate Present shipping costs up front

HED 460 Question #10 What is the most frequently purchased online category? Information-intensive (for sales volume) Digital cameras/camcorders, PC, Software Commodities (for conversion rates) Books, CD’s, women’s hosiery

HED 460 Question #11 Is there a link between # channels shopped and spend per shopper? Sears data 2 channels, 2x as likely to shop store and spend 2x more 3 channels, 3x as likely to shop store and spend 3x more 30-40% online purch = store pickup (20% buy more in the store when pickup)

HED 460 Question #12 How many Internet users are purchasing online? 55% (77% browsed/shopped) Vs. 51% and (75%) last year

HED 460 Question #13 What is the main advantage of being a pure-play e-tailer? Focused and nimble What is the main advantage of being a multichannel e-tailer? Brand name Synergies

HED 460 What has Amazon done right? Amazon simplifies shopping Equity built with consumers is saving Amazon with investors Selection, competitive prices Ease of navigating site/convenience Delivery speed and options Partnerships