Online Retailing

Online Retailing Slides

Industry Size

The National Retail Federation estimated that 2008 online sales would be $204 billion, with the largest segments being apparel ($26.6 billion), computers ($23.9 billion), and autos ($19.3 billion).

According to

  • 2007 online sales were about $174.5 billion (excluding travel)
  • Online retail sales grew 29% in 2007
  • Travel online sales expected to be $85 billion in 2007
  • Online clothing sales about $22 billion in 2007, 10% of total clothing sales
  • Computer hardware and software online sales at $17.2 billion
  • Autos and auto parts $16.7 billion
  • Home furnishings $10 billion

Online retail sales were $34 billion or about 3.4% of total retail sales in Q3 2007 in the U.S., according to the Census Bureau. The census figure does not include online travel services, financial brokers and dealers, and ticket sales agencies. See the Census Bureau classification for what counts as retail (it includes motor vehicles and parts, furniture and home furnishings, electronics and appliances, building materials, garden equipment, lawn equipment, food and beverage, health and personal care, gasoline, clothing, jewelry, sporting goods, books, music, department stores, florists, direct sellers of heating oil and a few others. You can start to see why only a small proportion are sold online).

Business Models

Intenet retailing was one of the first business models developed on the internet. There are three basic models:

What is a Retail Store For?

Retail stores serve several functions:

  • Stimulate demand (including impulse buy)
  • Acquire customers
  • Help customer search (for products N.B. risk)
  • Execute transactions
  • Distribute product/ fulfill order
  • Provide customer service (including returns)
  • Sell/persuade
  • Entertain

Online retailers need to figure out how to provide most of these functions to compete with bricks-and-mortar stores.

It's important to use information to provide quality customer service.

Issues for Pure-Play Online Retailers: Customer Acquisition, Distribution Costs

Pure online retailers avoid retail rental and retail staffing costs. However, they frequently need to pay (via advertising) for customer acquisition, and have to pay shipping and handling costs or pass those costs onto the customer.

Issues for Bricks-and-Mortar Retailers Selling Online

Bricks and mortar retailers have to try to avoid cannibalizing their own sales. Most do this by offering different products online and off.

Online Competition Puts Pressure on Bricks and Mortar Retail Prices

Online retailing increases competition for bricks and mortar stores. One study of wine sales showed that the legalization of online wine purchases resulted in a 40% drop in the difference between online and offline prices.

Blue Nile is a successful online seller of diamonds that is pushing down margins at traditional retail jewellers
* Sells at roughly 20% above cost
* Average jeweller sells at 48.7% above cost
* Suggests that reputation and branding can reduce customer perceived risk enough to allow online sales

Notable Online Retailers is the best known internet retailer. Barnes and Noble set up to compete with Amazon.

iTunes is the leading online music retailer. is the online retail part of the world's largest retailer.

Blue Nile is a successful online seller of diamonds that is pushing down margins at traditional retail jewelers

eBay tried to compete head-to-head with retailers like but now (as of early 2009) plans to retreat to specialize in used goods.

Spectacular Disasters

Online retailing has also been the source of some spectacular disasters, such as

How to Sell Online

Yahoo! Stores is a tool you can use to set up your own online store without having to create the web site from scratch.

Information Sources

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