Making the Move from Traditional to Online Retail

young couple shopping for electronics

Brick and mortar (B&M) retailers often face many daunting challenges as they attempt to develop an on-line presence.  Factors such as the stiff competition from online vendors and other B&Ms that have beat them to the punch, when it came to taking the plunge into online retailing, may be obstacles to their success.

Another hurtle is that many retailers and consumers and vendors are still stuck at a learning stage when it comes to internet shopping (Browne et al., 2004).  Many consumers particularly the “baby boomers”, as well as the generation behind them have yet to adopt the technology habits necessary for on-line shopping. Corporations had also shared this myopic viewpoint, as they struggled to get a grasp on the fast-paced information technology and e-commerce environment.

For other corporations, they struggled with the requisite skill-sets to deal with cyber-marketing. They just were not sure how to reach their target markets, after being dependent on print media, and radio and television advertising. Compound that fact with the fact that the afore-mentioned mediums themselves were in a state of flux, and many businesses found themselves without the tried and true marketing devices of a by-gone era. Additionally, B&Ms did not have an understanding of the customer service needs of an e- customer, prior to and after the sale.

Most telling was the B&M’s inability to deploy the logistics capabilities required in this new cyber environment. They found themselves unable to manage data, inventory, and other transactions that are integral to the success of a business.

The Future of Retail Is Here Now!

Why Consumers Shop Online

Wide variety of items.  Online sales are swiftly approaching $200 billion a year in the United States. The online percentage of total retail sales has gone from 5% in 2007 to 9% now (“Clicks and Bricks”, 2012). One of the many reasons is that the e-tailer is able to offer the consumer a far larger range of products.

Consider clothing, the B&M oftentimes just does not have the floor space to show the many items that the company offers. The e-tailer can feature different seasons, styles, as well as a wide range of color and sizes, particularly non-standard sizes.

The same can be said of the $99.5 billion spent on electronics by Americans yearly (Coster, 2010).  While consumers are often seeking “the latest and greatest” when they make a purchase, there is a huge market for refurbished and used electronics, as well as previous year’s models.  Once again, the B&M just does not have the physical space to display these items, other than say the occasional “open box’ or clearance item.

Convenience factor. An equally compelling reason for shopping online is the convenience factor (Browne et al., 2004). You have the ability at any time, or from anywhere, that you have Internet access, to shop for a hard to find electronic part, item of clothing, or this week’s groceries.  Further, you have the option to have your purchase delivered over-night, in a few days, or you can pick it up.

How Can the Brick and Mortar Compete?

Hybrid Bricks and Clicks Model

One method may be adopting a hybrid of the traditional B&M, and an on-line presence i.e. “clicks”, or bricks and clicks (B&C) (Prasarnphanich & Gillenson, 2003). In this model, there is a complete integration of both the online the B&M components, thus a pooling of resources and assets.  While there is the inevitability that there will be variances in pricing, product offerings, and exchange policies, these differences must be minimized as much as possible.

For B&C to be enjoyable by the consumer, the experience should be fairly easy and straightforward. To that end having shopping carts that they can place their items in, and then be able to add or delete items, is a huge plus.

When the order is complete, the customer should once again be able to add and delete items, as well as being made aware of any shipping and handling (S&H) costs and options, and taxes where applicable.

When payment is tendered, it is of the utmost importance that the customers’ financial information is secure, and that they are confident of that fact. They should also have multiple billing options, such as a credit / debit, card, PayPal, e-check, gift card, purchase orders, and other methods as appropriate.

With the sale confirmed, the item now needs to be delivered to the customer. In some instances, this may take the form of a download, as in software, music, or video. In most cases, the item is shipped to the customer, or may be picked up in the store. In either instance, consideration must be given to whether S&H costs are borne by the vendor, or the customer. They must also decide if S&H will be waived, if the customer elects to pick up the item in the store. Given fuel costs, the decision that they make may have a significant impact on their bottom line.

Information Technology Implications

Data Management

 Consumer data. An issue that B&Ms converting to a B&C may face is in managing the vast amounts of customer data they generate.  Mega-retailers like Wal-Mart, Target, Amazon, as well as many smaller retailers use their data warehouses to refine their marketing strategies and decision-support processes (Babcock, 2006). They are able to mine transactions to glean such information as; customer purchasing frequency and amounts, what marketing mechanism is most effective, what products sell well together, trends in products, detect fraudulent transactions, predict churn, et cetera.

  Inventory management. However, the transactional data gathered at the point of sale (POS), whether online or at the B&M can also lead to improved efficacy in financial forecasting as well as inventory management.  Wal-Mart is using Hewlett-Packard Co.'s (HP) Neoview data warehousing system in conjunction with its Retail Link system to process its one million customer transactions per hour, and to assist with Supply Chain Management (“Data, data everywhere”, 2010).

Both B&Ms and e-tailers must be concerned with managing their stock and the procurement of goods. Some purely on-line retailers rely on drop shipping to fulfill product demand (Chen et al. 2010). However, even with drop shipping the strictly online retailer will most likely not have the product variety of the B&C.  With B&Cs, the inventory will come from the inventory of the combined assets of the B&C, and the B&M, thus there is a strong likelihood that the item will be available somewhere in the supply chain.

Conclusion

 Love it or hate it, e-commerce is here to stay, and as the traditional retailer and consumer adjusts to it, they will find that it has benefits and challenges for the both of them. However, these challenges are far from insurmountable. The retailer must stay cognizant of the fact that they must still deliver the same level of customer care that they do in their B&Ms.  S/he must apply many of the same management doctrines that are used in the B&M. However, they must also realize that there are singular issues facing them, such as data management, logistics, and online security that is unique to e-commerce.

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