1. E-commerce business. technology. society. Kenneth C. Laudon
Second Edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2004 Pearson Education, Inc.

2. Chapter 10 Retailing on the Web
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3. Learning Objectives Identify the major features of the retail sector
Describe the vision of online retailing in the E-commerce I period
Explain how to analyze the economic viability of an online firm
Identify the challenges faced by the different types of online retailers
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4. Wal-Mart Moves Online
Wal-Mart the world’s largest retailer, but its performance on Web does not yet match its offline results
Wal-Mart story mirrors much of the overall online retail picture – learning from trial and error
Web site originally launched 1995; redesigned several times since them
Today, operations much more deeply integrated with stores
Online merchandise compliments rather than duplicates what is in stores
Wal-Mart’s advantages include strong brand name, efficient retailing distribution system, loyal customer base
Competition includes JCPenney, Target, Sears, Amazon
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5. Wal-Mart Moves Online Page 571
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6. The Retail Sector
Most important theme in online retailing is effort to integrate online and offline operations
U.S. retail market accounts for about $7 trillion of total GDP (2/3rds of all economic activity)
Retail industry can be divided in segments, each of which offers opportunities for online retail
Biggest opportunities for online retail sales: Those segments that sell small ticket items (specialty stores, general merchandisers, mail-order catalogs, groceries)
Mail order/telephone order (MOTO) sector most similar to online retail sector
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7. Seven Major Trends in Online Retail 2003-2004
Table 10.1, Page 575
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8. Sources of Gross Domestic Product in the United States
Figure 10.1, Page 575
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9. Composition of the U.S. Retail Industry
Figure 10.2, Page 576
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10. The Top 10 General Merchandisers
Table 10.2, Page 577
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11. The Top 10 MOTO Retailers Table 10.3, Page 578
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12. Online Retailing: The E-commerce I Vision
Greatly reduced search costs on the Internet would encourage consumers to abandon traditional marketplaces in order to find lower prices for goods
Market entry costs would be much lower than those for physical storefronts, and online merchants would be more efficient than offline competitors
Traditional offline physical store merchants would be forced out of business
Some industries would become disintermediated as manufacturers built direct relationship with consumer
Ultimately, few of the above assumptions proved to be correct, and structure of retail marketplace in the U.S. has not be revolutionized
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13. E-commerce II: The Online Retail Sector Today
Online retailing segment, although smallest segment of retail industry, is growing at exceptionally fast rate
Market size: $95-$100 billion, 75 million consumers estimated for 2003
Primary beneficiaries of growing consumer support: Established offline retailers with an online presence
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14. Online Retail is Alive and Well
Figure 10.3, Page 580
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15. Top 15 Shopping Designations, Week Ending Dec. 12, 2002
Table 10.4, Page 581
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16. Online Retail Market Product Penetration Rate (%)
Table 10.5, Page 582
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17. Insight on Business: eVineyard
Insight on Business: eVineyard.com Is a Survivor: Merlot by Mail Anyone?
eVineyard one of surviving wine retailers; acquired Wine.com/Virtual Vineyard in 2001
Now known as Wine.com
Successful in part because it went got state retail liquor licenses that allowed it to sell directly to consumers (most other competitors had not, and had to sell through intermediaries)
However, changes in laws may open up national wine marketplace to more competitors
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18. Analyzing the Viability of Online Firms
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 suppliers
Power of customers
Existence of substitute products
Industry value chain
Nature of intra-industry competition
Strategic factors that pertain to firm include:
Firm value chain
Core competencies
Synergies
Technology
Social and legal challenges
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19. Analyzing the Viability of Online Firms (cont’d)
Financial analysis helps us understand how a firm is performing
Includes two main parts: Statement of Operations and Balance Sheet
Statement of Operations: Tells us how much income or loss a firm is achieving based on current sales and costs
Balance sheet: Provides a financial snapshot of a company’s assets and liabilities
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20. Analyzing the Viability of Online Firms (cont’d)
Factors to look for when assessing Statements of Operations
Revenues: growing and at what rate?
Cost of sales: compared to revenues
Gross margin (gross profit divided by net sales): increasing or decreasing?
Operating expenses: What are they; increasing or decreasing?
Net margin (net income or loss divided by net sales or revenue): increasing or decreasing?
Factors to look for when assessing a Balance Sheet:
Current assets
Current liabilities
Ratio of current assets to liabilities
Long-term debt
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21. E-commerce in Action: E-tailing Business Models
Four main types of online retail business models:
Virtual merchant (Amazon, etc): Single channel Web firm that generates almost all its revenue from online sales
Clicks and bricks (JCPenney, etc): Company that has a network of physical stores as primary retail channel, but also online offerings
Catalog merchant (Lillian Vernon, etc): Established company that has a national offline catalog operation as its largest retail channel, but also has online capability
Manufacturer direct (Dell, etc): Single or multi-channel manufacturers who sell directly online to consumers without intervention of retailers
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22. E-commerce in Action: Amazon.com
Vision: Earth’s biggest selection,most customer-centric
Business Model: Virtual merchant that sells merchandise owned by Amazon, online storefronts for other merchants, merchandise owned by individuals; e-commerce services,
Financial Analysis: Greatly improved overall operational position, but not yet consistently profitable
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23. Amazon’s Consolidated Statements of Operations and Summary Balance Sheet Data 1998-2002
Table 10.6,
Page 591
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24. E-commerce in Action: Amazon.com
Strategic Analysis – Business strategy: Maximize revenue while cutting costs
Strategic Analysis – Competition: General merchandisers who are both offline and/or online
Strategic Analysis – Technology: Largest,most sophisticated collection of online retailing technologies available
Strategic Analysis – Social, Legal: Securities, anti-trust lawsuits
Future Prospects: Long-term profitability still uncertain
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25. Insight on Society: Internet Taxation: The Tax Man is Coming
Internet Tax Freedom Act placed moratorium on e-commerce sales taxes until November 2003
State and local government, local businesses think this is unfair
Online retailers feel it is unreasonable for them to have to determine appropriate tax rate, and who should receive tax dollars
Movement to simplify and rationalize sales tax collection underway (National Governors Association Streamlined Sales Tax Project), but moving slowly
Some major online stores that also have physical stores have begun collecting taxes
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26. E-commerce in Action: JCPenney.com
Vision: nationwide department stores and mail-order catalog
Business Model: Clicks and bricks multi-channel general merchandiser
Financial Analysis: Flat revenue growth,operating costs, 2003 net margin of 1.3%, ample current assets
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27. JCPenney’s Consolidated Statements of Operations and Summary Balance Sheet Data 1999-2003
Table 10.7,
Page 598
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28. E-commerce in Action: JCPenney.com
Strategic Analysis – Business Strategy: Move to online retail a major strategy to shore up poorly performing catalog and store operations
Strategic Analysis – Competition: Traditional retail department stores; Amazon and Buy.com
Strategic Analysis – Technology: Leveraging existing systems to Web
Strategic Analysis – Social and Legal Challenges: Nothing material
Future Prospects: Experiencing rejuvenation of sorts from rapid growth of Web operation
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29. E-commerce in Action: Lillian Vernon
Vision: Reasonably priced products offered by direct mail
Business model: Catalog merchant with online capability
Financial Analysis: Financial performance has been stagnant
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30. Lillian Vernon’s Consolidated Statements of Operations and Summary Balance Sheet Data 1999-2003
Table 10.8, Page 603
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31. E-commerce in Action: Lillian Vernon
Strategic Analysis – Business Strategy: Launch of additional catalogs, new owners intend to focus on continued development of online channel
Strategic Analysis – Competition: Catalog retailers and companies such as Williams Sonoma, Crate and Barrel
Strategic Analysis – Technology: Newly redesigned and upgraded Web site
Strategic Analysis – Social and Legal Challenges: Class action lawsuit related to sale of company
Future Prospects: Return to profitability depends on redefining brand image toward younger audiences without losing loyal repeat customers
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32. Distribution of Retail Sales by Type of Seller (or Company)
Figure 10.4, Page 606
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33. E-commerce in Action: Dell.com
Vision: Custom-build computers to eliminate middleman and more effectively meet needs of customers
Business Model: Manufacturer-direct, “produce on demand” (demand-pull)
Financial Analysis: Impressive revenue growth, high net margins
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34. Dell Computer’s Consolidated Statement of Income and Summary Balance Sheet Data 1999-2003
Table 10.9, Page 609
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35. E-commerce in Action: Dell.com
Strategic Analysis – Business Strategy: Attempting to broaden offering beyond pure product sales, search for ways to diversify revenue streams
Strategic Analysis – Competition: Traditional computer retailers, corporate systems integrators and computer dealers
Strategic Analysis – Technology: Sophisticated management information systems
Strategic Analysis – Social and Legal Challenges: Nothing material
Future Prospects: Continued reliance on PC computing a long-term risk factor
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36. Common Themes in E-commerce II Online Retailing
Online retail fastest growing channel, has fastest growing consumer base, growing penetration rate across many categories of goods
Since 2002, many online retail firms have begun to raise prices
Disintermediation has not occurred, and most manufacturers use Web primarily as an informational resource
Most significant online growth has been that of offline giants who are focusing on extending brand to online channel
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37. Insight on Technology: Predictive Modeling Builds on CRM
Predictive modeling software: Can be used to study and recognize patterns and trends in data, to help forecast sales, identify market opportunities and manage retail inventory levels
Example: CVS.com
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38. Case Study: L.L. Bean Webward Bound
L.L. Bean: catalog retailer that is beginning to focus more intently on Web channel
Biggest challenge: Integrating its catalog, Internet and physical store channels
Web site introduced in 1995, revamped in 1996, gets high marks for usability
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39. L.L. Bean: Webward Bound Page 615
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