A study conducted by the Boston Consulting Group (BCG) on behalf of on-line retailer association shop.org has found that on-line retail revenues are currently tripling every year in North America.
The study, which was conducted in the first half of 1998 and compiled data from 93 retailers, found on-line revenues are growing by 200 per cent annually and are expected to surpass US$13 billion in 1998.
“It’s definitely a real phenomenon. The market is bigger than we expected and it’s growing more rapidly than we expected,” said Scott Stirton, a manager with BCG.
dispelling the myths
The study takes on several myths concerning on-line commerce and seeks to debunk them. For example, Stirton explained a common myth states that only certain products are appropriate for e-commerce, such as computers and books.
“Historically, analysts have said that things like apparel would be difficult to sell on-line, or food and vegetables, and really we see among some of the grocery retailers that fruit and vegetables sell well,” Stirton said.
Another myth debunked by the study is that on-line retailing will drive prices down as consumers learn to shop around for the best price.
“Consumers like to shop for bargains, and the Internet gives consumers more power to do that,” Stirton said, “however, we feel that there are two reasons why it won’t drive down prices: first of all, shopping isn’t always about price, it’s also about the experience you have and there’s a lot of loyalty; secondly, you can get a richer mix by the ability to customize products.”
Stirton pointed to Dell Computer Corp. as an example of a company that doesn’t have to drop its prices to compete on-line because the customizable computer options draw in more customers.
Heather Simmons, director of the Home and Small Business group at Dell Canada, agrees. Dell Canada’s on-line retail site at www.dell.ca opened in June 1997, and Simmons said from January to December 1998Dell Canada will likely earn about $130 million in revenue from the site.
“For the Home and Small Business group, Web sales for the last month have represented about 56 per cent of our total orders, which includes orders directly over the Web where the customer completes the transaction and puts in a credit card on-line, plus all of the phone calls we get from the Web. It surprised us, we were forecasting 43 per cent,” Simmons said.
’tis the season
Other retailers are jumping onto the Christmas bandwagon as well. Clothing retailer Land’s End, based in Dodgeville, Wis., is offering help for “procrastinating Santas” by claiming gifts ordered as late as Dec. 22 will be delivered in time for the holidays.
“We went on-line because our customers wanted to be able to shop with us electronically,” said Thane Ryland, spokesperson for the company’s Internet business.
“We have seen our Web site go from a customer communication tool to a customer service tool. We offer information on the Web site, everything from employment information to how to get information on products, on the company’s culture, requests for the catalogue,” and real-time inventory checks, Ryland said.
He said there are things Land’s End can do with the Web site that it can’t do with the catalogue, such as Your Personal Model. Customers can go to www.landsend.com and build a model based on their own body size and shape, although currently only female models are available. Customers can then load a virtual dressing room with various articles of clothing or pre-set outfits and see how they look, in various colours, on the model.
overcoming the hurdles
Still, there are barriers to on-line retail growth.
The study suggested six barriers that need to be considered by retailers: increasing consumers’ security and value comfort level; resolving technological issues such as lack of bandwidth; rapidly scaling internal operations, such as when a business becomes more popular than the servers, database and general infrastructure can handle; engineering convenience; developing low-cost distribution by integrating Web-based technologies between manufacturers and retailers for a more efficient on-line retail model and lower on-line prices; and, resolving conflict between channels or existing distribution partners and the Internet.
