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Internet Retailing

Stock prices down Demands for government

regulation/taxation growing Margins are thin Supplier relationships testier

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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%

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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)

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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

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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

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Internet Retailing Some categories are saturated

PetsPetopia.com, Petstore,com, Petwarehouse.com, PETsMART.com

Sporting goods

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Internet Retailing Strategies

Reducing marketing expenditures Using cheaper techniques like email Dramatic decreases in average online customer acquisition costs

Q4’99 - $71 Q1’00 - $45 Q2’00 - $40 Q3’00 - $20

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Internet Retailing Strategies

Raising product prices Being less promotional Lowering/eliminating shipping

charges*

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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

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Internet Retailing Strategies

Destination site, cont. Building community on-line – interaction

Message boards Chat rooms

Lands’ End, CarsDirect, TechnoScout

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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

2000-2001 Abandoned shopping carts decreased

from 53% to 47%

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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

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Top 10 E-tailers 2001(Revenue)

Amazon.com* Office Depot Staples Gateway Costco

BarnesandNoble Buy.com* QVC.com The Spiegel

Group JC Penney

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Question #1

What percentage of U.S. households have a computer at home? 66%

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Question #2

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

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Question #3

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

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Question #4

What is it cost to service online customers? Phone - $33.00 E-mail - $9.99 Live Chat - $7.80 Self-service - $1.17

Forrester Research

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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)

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Question #6

What are the 3 attributes of favorite web sites? Good product selection Competitive prices Ease of use

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Question #7

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

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Other barriers Other fears

Returns Customer service questions answered

Feel factor Feel, see, try out/on Prefer shopping at stores

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Try-out/”experience”

Zanybrainy.com – selected toys

3D interaction to zoom in and out, “use” products (sharperimage.com)

My model (Lands’ End)

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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

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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%)

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The Fit Issue Virtual models (landsend.com and

jcpenney.com) Fit guides and comparisons (

pants@gap.com and eddiebauer.com)

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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

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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

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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)

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Question #12

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

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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

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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