The future of business-to-consumer e-commerce

The future of business-to-consumer e-commerce

A number of high-profile, pure-play (internet-only), business-to-consumer (B2C) retail providers have failed or posted disappointing results recently. The fourth-quarter earning report from Amazon.com precipitated a collapse in share values for all online B2C providers. In turn, numerous web retailers are restructuring, merging, and laying off staff. These changes have contributed to speculation that e-business can't meet retail needs.

Looking behind the negative hype

No one would argue that the retail catalog sector has failed

Doomsayers of pure-play e-tail neglect to compare these companies to the retail sector it most closely resembles: catalog companies. These organizations face similar benefits and challenges as do pure-play e-tailers. Benefits include low overhead costs, central distribution points, and a need for fewer employees. Challenges include order fulfillment and customer service issues. No one would argue that the retail catalog sector has failed. Instead, its vibrancy is based on appropriately targeted products, and customer service and satisfaction. Behind the scenes are good management, good planning, and an efficient supply chain that can cope with demand. E-tailers that emulate these qualities are more likely to succeed.

Of course, most pure-play e-tailers have existed for only a year or two, and some are experiencing funding difficulties. Funding difficulties are, in part, aggravated by investors' realization that revenues will not cover marketing expenses in the near future. The high-profile collapse of e-tailers such as Boo.com and Toysmart.com has contributed to investor reluctance to fund e-tailers with only a few months' cash in the bank.

While company restructuring and staff lay-offs can help these e-tailers extend their life span, other measures may work against them. For example, Furniture.com has decided to cut its marketing budget. This strategy could backfire in the long-term. The Internet is no different from the local shopping mall: the stores with the best brand recognition will attract the most customers. Research by Brand Forward into branding issues on the Web determined that over half of online shoppers find what they want by typing in a brand name as a URL. So, a beauty product pure-play e-tailer will immediately lose out to Clinique.com or Wal-Mart.com, unless they've invested a significant sum in advertising.

Current growth in the business-to-consumer sector

E-commerce sales rose in the first quarter of 2000

While a number of high-profile pure plays are struggling to survive and grow market share, the business-to-consumer online retail sector is hardly doomed. In fact, almost 40 percent of US e-commerce sites make a profit, and at least 50 percent of companies trading online for a year are profitable, according to a study carried out by the Boston Consulting Group. This study also reported exponential growth in sectors with highly publicized B2C failures, such as the toy sector. Additionally, the US Department of Commerce reported that e-commerce sales rose in the first quarter of 2000. Traditionally, there is a post-holiday downturn in retail sales. While these figures have not been seasonally adjusted, the Department believes the figures reveal that e-commerce is strengthening.

Traditional retailers pursue e-business strategies

Certainly some of this success arises from traditional retailers' online enterprises. Traditional retailers have built their success on targeted advertising, people-to-people customer service, and a traditional channel structure. These characteristics were sometimes ridiculed when pure-play e-tailer euphoria infected investors. But the changes and failures in the pure-play sector have only highlighted the benefits of these features.

As traditional retailers develop their "bricks-and-clicks" approach to selling, they rely on brand awareness and loyalty, to build online trade. They can take advantage of the brand-name-as-URL habits of shoppers, and they can rely on their existing reputation. For example, shoppers will trust BlueLight.com because its real-world partner, Kmart, has a hundred-year retail history. No one knows how long the latest pure-play discount superstore will last.

Shoppers can return any BlueLight-ordered merchandise to their local Kmart

Bricks-and-clicks e-tailers such as bluelight.com also take full advantage of their real-world links. Shoppers can return any BlueLight-ordered merchandise to their local Kmart. This facility is being more widely adopted by retailers, particularly those involved in the MerchantWired mall-based network services. MerchantWired-associated retailers also let customers shop on the web at the mall, and order out-of-stock items from other branches. All these facilities take advantage of the strengths of web-based selling as a means of supporting real-world retailers.

The failure of Boo.com's widely panned virtual sales assistant demonstrated how important site usability is, but it also emphasized the advantages of having human contacts available behind your site. Furniture.com provides live chat with an online design consultant to answer shoppers' questions. Borders.com supplements its search engine with consultants who will help you find a book or CD when all you can remember is the picture on the cover. Human customer service contacts help provide an emotional connection between shopper and retailer.

Good business practices are the basis of success

Bricks-and-clicks organizations have an advantage over new, pure-play, Internet business-to-consumer retailers. Bricks and clicks have income streams outside the on-line channel, an existing market share, and brand recognition. However, a company's survival won't be dictated by whether it's pure play or bricks and clicks. It will depend on the traditional ingredients of a business success. Good management, customer focus, web-site usability, and efficient order fulfillment will be the basis of success. Pure-players who capitalize on these qualities are likely to become as successful as their bricks-and-clicks counterparts.