Internet Retailing and Future Perspectives

Eleonora Pantano, Bang Nguyen, Charles Dennis, Sabine Gerlach

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317378761
• Edition: 2
• Topic: Business
• Subtopic: Digital Marketing
• Index: Business

Since the first edition of this landmark textbook, online shopping has grown exponentially to the point that it now threatens to eclipse the high street. With online retail offering both advantages and challenges that are distinct from traditional commerce, this textbook provides new approaches to retailing and as suchhelps readers to take advantage ofnew digital technologies.

This long-awaited new edition provides a thorough and substantial update to its solid core principle of digital retailing and its relationship with conventional retail methods. These principles are explained clearly and practically to provide students, entrepreneurs and researchers with a reliable guide to the implementation and operation of a successful online retailing business.

Updates to this edition include:

• Search engine marketing and search engine optimization.
• New and updated case studies, including Tesco's virtual store, Ray-Ban's smart mirror, IKEA's mobile catalogue and Nordstrom's TextStyle.
• Social networks and electronic word-of-mouth communication.
• A new chapter on ubiquitous retailing.
• A brand new companion website to support tutors.

• 
  
  

With accessibly written features such as key learning points, questions, think pointsand further reading, Internet Retailing and Future Perspectives is ideal for anyone using, studying or researching digital commerce.

Chapter 1

The world of e-retailing

LINKS TO OTHER CHAPTERS

• Chapter 4 – Understanding and communicating with the e-consumer

• Chapter 6 – E-store design: navigability, interactivity and web atmospherics

• Chapter 7 – E-service

• Chapter 8 – Branding on the web

KEY LEARNING POINTS

After completing this chapter you will have an understanding of

What e-retail is, advantages and disadvantages for retailers

The (e-) retail mix

E-retailing trends

ORDERED LIST OF SUBTOPICS

What is e-retail?

Disadvantages of e-retailing for retailers

Advantages of e-retailing for retailers

The (e-) retail mix: sale the seven Cs

Growth and prospects for e-retailing

Conclusions

Chapter summary

Case study

Questions

Glossary

Further reading

References

Web links

WHAT IS E-RETAIL?

E-retail has been defined as the sale of goods and services via the Internet or other electronic channels, for personal or household use by consumers (Harris and Dennis, 2002).¹ This definition includes all e-commerce activities that result in transactions with end consumers (rather than business customers), i.e. B2C rather than B2B. Some digital marketing activities that do not directly involve transactions, such as providing (free) information, or promoting brands and image are considered to be part of B2C but are not normally considered as being within the scope of e-retail. This is common for luxury products where the website acts as an informational tool, but does not sell the products online, e.g. Omega (www.omegawatches.com).

Internet retailing has been growing in recent years and is expected to continue at a slower rate for mature markets like North America and Western Europe. Other countries are still in their infancy and have stronger growth potential through increased Internet access and household income, e.g. parts of Asia and Eastern Europe (Marketline, 2014). The global online retail market is predicted a Compound Annual Growth Rate (CAGR) of 15.7% (Marketline, 2014) from 2014 to 2019.

Table 1.1 Internet penetration rates in Europe

Country	Internet penetration %
Norway	97
Netherlands	93
Sweden	93
Denmark	90
Finland	89
UK	84
Germany	83
Switzerland	82
Belgium	81
Austria	80
France	80
Slovakia	79
Estonia	78
Ireland	77
Czech Republic	73
Latvia	72
Slovenia	72
Croatia	71
Israel	70
Spain	67
Hungary	65
Lithuania	65
Poland	65
Italy	58
Serbia	56
Portugal	55
Greece	53
Bulgaria	51
Russia	48
Turkey	46
Romania	44
Ukraine	34

Source: Adapted from Nielsen (2014)

The rise of multi-channel retailer and mobile technology adds to the convenience and attractiveness of e-retailing. Customers shop online more frequently and spend more money across a rising number of product categories; retailers who provide a smooth online experience will capture the most additional sales (Parro and Santorro, 2015).

The major growth areas comprise electrical/electronic goods, apparel including accessories and footwear, groceries, books, music, videos and furniture. The UK spent £104bn online in 2014, with orders made on mobile devices reaching 40% of the total by 2015 (IMRG, 2015). Research from RetailMeNot and the Centre for Retail Research projects that online sales will grow by 16.2% in the UK in 2016, with the average shopper expected to spend more than £1,000 online for the first time (Internet Retailing, 2014).

Giulio Montemagno, Senior Vice President at digital coupon marketplace RetailMeNot, said: “While the ecommerce sector is continuing to grow rapidly, we are starting to see the German, the UK and the US markets mature as shopping online becomes a commonplace activity” (Internet Retailing, 2014). Today, growth is being mainly driven by an increase in the frequency of consumers shopping online and spending more money through online channels, while in previous years growth came primarily from a growing number of first-time online shoppers.

The share of online retail of all retail sales grew from 6.3% in Europe and 10.6% in the US in 2013 to 7.2% and 11.6% in 2014, respectively (Internet Retailing, 2014). The online retail in the UK accounted for 12.1% of all retail sales in 2013 and increased to 13.5% in 2014 (Internet Retailing, 2014).

Figure 1.1 Global online retail sector value and growth forecast

Source: Adapted from Marketline (2014)

Table 1.2 European online retail sales 2014 and 2015

Source: Adapted from Centre of Retail Research (2013)

DISADVANTAGES OF E-RETAILING FOR RETAILERS

Major traditional ‘brick-and-mortar’ retailers have taken up online retailing over the past years. However, luxury retailers² like Chanel, Céline, Hermes and Dior, as well as some small high-street retailers, are holding back due to perceived disadvantages and problems. Retailers, for example, may lack the technical know-how, the substantial investment required or the order fulfilment capabilities. The start-up costs for a website for small retailers are low, as providers like Etsy (www.etsy.com) or Notonthehighstreet.com (www.notonthehighstreet.com) provide a trading website without monthly fees³ with templates and support. However, established retailers need to invest in order to provide a website which reflects their brand and fulfils various functions e.g. product videos, order tracking, personalised customer experience. In addition to the initial costs of website design and domain name registration, there are ongoing costs of website hosting and regular updating of the website to be considered. The rise of price comparison sites, e.g. www.pricerunner.co.uk, leads to increased price transparency and puts the online retailers in direct price competition with each other – with the result of prices being driven down even further.

Shipping costs influence the price conscious shopper in their final purchase decision and create a major disadvantage for smaller retailers. Major retailers often offer free shipping, or click-and-collect services, whereas smaller retailers cannot afford to bear delivery costs and have to pass them on to the consumer. For example, Country Attire (www.countryattire.com) offers free worldwide delivery to remove the barrier for its customers (Morrell, 2015). The footwear retailer Schuh (www.schuh.co.uk) offers a one hour buy and collect service on items held in store.

The opportunity to save time and/or money leads consumers to purchase from one of the major online retailers instead of from a small shop. One of the biggest pure players, Amazon, struggled to offer free shipping through its ‘Super Saver Delivery’ for their products the last few years, and therefore increased the minimum spend on orders in order to guarantee free shipping. In 2013, a £10 minimum spend was introduced to gain free delivery; this was raised to £20 in 2014. In 2015, Amazon introduced the Same-Day-Delivery for selected products in selected postcode areas in the UK, when the order is placed by midday. The service is free for Amazon prime members; otherwise the charge is £9.99. Return handling is required by law, but adds to further costs for small retailers through shipping costs and loss of sales.

The rising acceptance and popularity of click-and-collect services can be seen as a weakness for pure players due to the lack of physical stores. In any case, for each type of retailer, continuous costs will include fulfilment, warehousing and logistics. Successful e-retailers, such as Next (www.next.co.uk) and Lands’ End (www.landsend.com), have had the advantage of already operating profitable mail order catalogues.

Internet fraud and security issues require investment in the latest security software to protect the transactions and the brand. Customer concern about online security and privacy increases loyalty to established retailers and directs them to well-known and trusted brick-and-mortar retailers.

There can be legal problems. For example, if purchaser and supplier are in different countries, there may be conflict between the laws and taxation in the two countries. A further disadvantage is that e-selling is less powerful than face-to-face selling. (It is easier to say ‘no’ to a computer.) This viewpoint is linked to a concern of traditional high street retailers that e-retailing offers a diminished role for their expertise. For example, there are obvious difficulties with products sold by ‘atmosphere’ – touch, feel, smell – and impulse purchases. The lack of passing trade and difficulty browsing influence sales, as shoppers know what they want to buy and therefore spend less online (Mintel, 2014). In addition, consumers have a perception of lower prices online. This puts pressure on margins for e-retailing, and can lead to shoppers expecting consistency with online pricing in store.

Online retail comes with the danger of cannibalizing in-store sales and traffic. Therefore, some luxury retailers opt to preserve the quality of the brand and sell their products exclusively in store.

Finally, after c...