Fight For Online Sales Grow

As the growth of mobile computing devices pumps adrenaline into online retail sales, a handful of major players are jockeying for position in the massive marketplace.

With $34 billion in 2010 sales, Amazon.com is the clear market leader. But auctioneer eBay and discount retailer Walmart also are emerging as powerhouses in online merchandising. Overstock.com, also known as O.co; Staples; Macy’s; J.C. Penney and Target are carving out significant online niches.

But the real online-retail juggernauts could be waiting in the wings.

Facebook and Google are exploring ways to add e-commerce to their heavily used Internet sites.

“Social media is trying to go from a meeting place to a selling place,” said Karla Martin, who heads the retail practice for international management consulting firm Booz & Co.

And Apple, which already is successfully selling music, videos, electronic books and other media products, also is looking for ways to expand its retail options.

Customers are increasingly comfortable with conducting online transactions, and the number of people who use their tablet computers and smartphones to shop is growing. Scottsdale resident Lisette Hill already has made the transition. She estimates she has done 90percent of her Christmas shopping online this year. She shopped Nordstrom’s online store and bought gift certificates from daily-deal site Groupon.

“It’s much more convenient,” Hill said.

She added she was particularly attracted to Nordstrom because of its offer of free shipping for online purchases and returns.

“I know exactly what I want, and I don’t want to be wandering around a store trying to find everything,” she said.

As more shoppers become like Hill, companies are fighting to become one-stop online shops and to attract customers. They are expanding their online inventories and services and developing software and applications, or apps, to help navigate their online stores, compare prices and make purchases. They also are leveraging social-network sites such as Facebook and Twitter to communicate with customers and glean important data about trends and products.

Online, mobile growth

Tablet computers and smartphones have vastly increased the opportunity for consumers to connect with online stores and for those stores to promote themselves to consumers.

Forester Research estimates that holiday online sales will jump 15percent this year to $60billion, outpacing a 2.8percent rise in overall sales forecast by the National Retail Federation, an industry group.

While the estimated $60billion in online sales is still a fraction of the $465.6billion in projected overall sales, the number gets bigger every year.

ComScore, a company that tracks online retail transactions, partially attributed a 22percent jump in online sales on Cyber Monday to more people using their tablet computers and smartphones to shop. Cyber Monday is the first Monday after Thanksgiving and a traditionally busy day for online retailers.

While the impact of smartphones on online commerce is still emerging in the U.S., Martin said the impact of tablet computers such as the iPad is already huge.

Online retailer eBay reported that payments via such mobile devices rose 550percent on Cyber Monday this year compared with a year earlier.

Office-supply chain Staples launched an iPhone app earlier this month that allows customers to shop and make purchases using their smartphones.

“More and more customers are turning to their mobile devices to not only shop but do research,” said Staples spokesman Mark Cautela.

Shifting marketplace

As technology improves and the marketplace changes, online retailers keep reinventing themselves to give customers what they want and to maximize their own profits.

As companies battle to become one-stop online superstores, they are adapting to changes in consumer behavior and technology. The business models are changing.

Instead of selling goods stored in company-owned warehouses, online retailers are increasingly fulfilling orders directly from manufacturers who maintain the inventory or hosting third-party vendors who use the sites as virtual storefronts.

About 40percent of Amazon.com’s sales now come through “Amazon Associates” and third-party sellers.

Third-party sellers allow online retailers to feature a vast inventory of products at various prices without having to physically warehouse them.

Even Walmart uses third-party sellers, known as marketplace vendors, to add variety to its product offerings without having to carry the products in inventory.

This model would make it easy for Facebook, Google and others to develop significant online retail presences by hosting third-party retailers instead of having to develop networks of warehouses and distribution centers.

Walmart’s strategy

With its network of 9,000 stores, Walmart is the world’s largest brick-and-mortar retailer, and it has made clear its intention to become the No. 1 online retailer, as well.

Analysts predict a long battle for online supremacy between Walmart and current leader Amazon but don’t venture to forecast a winner.

Ravi Jariwala, a spokesman for Walmart’s online retail operation based in San Bruno, Calif., said there are more than 1million different products in the company’s Internet catalog, compared with 100,000 to 150,000 in a typical Walmart Supercenter store.

“It significantly expands the assortment of product,” he said. He added that many of the catalog products have limited demand, so it would not be practical to stock those items at all 9,000 retail stores.

“The online component helps us manage the inventory at the traditional stores,” he said. Walmart also uses its online store to gauge demand for products and test the popularity of certain styles and colors.

Walmart allowed customers to pre-order certain electronic products for Christmas during the summer and used the information to determine the mix and quantity of products to be carried in its stores in November ad December.

“Our online operation and large network of physical stores is a powerful combination,” Jariwala said.

Apps and favorites

To compete for customers, Internet retailers are expanding their online inventories and services and developing software and apps to help navigate their online stores, compare prices and make purchases. They also are leveraging social media.

“We want to be where our customers are, and increasingly, this is on social media,” Cautela said. “We see Facebook and Twitter not only as an avenue to provide deals and savings but also to engage our customers in a meaningful way.”

Martin said that links with social-media and search sites such as Facebook and Google could enable retailers to offer products to specific users based on their individual likes and dislikes.

“With online catalogs of a million or more items, the ability to narrow down choices and make suggestions becomes a critical marketing tool,” Martin said.

But online retailers have to walk a fine line.

Martin said that some consumers could resent a social-network site being used for commerce, and while they want to get focused offers of merchandise targeted especially for them, they don’t like the idea of being spied upon.

Staples is the second-largest online retailer, after Amazon. The company sold about $10.2billion worth of goods via online channels in 2010, roughly 40percent of its $25billion in total sales.

While Staples’ niche is in office supplies, the company has successfully moved into electronics, back-to-school supplies and wireless telephones. Staples has 40,000 products in its online catalog, compared with 8,000 at its stores.

Consumers can also use Staples’ iPhone app to determine which stores have an item they are looking for in stock and in what quantity.

EBay’s iPhone app allows customers to search its 200million listings and comparison-shop with its barcode scanners. Barcode-scanner apps developed by eBay and Amazon have turned traditional stores into showrooms where customers can physically check out a product, then scan the barcode and find the cheapest price online.

Another eBay app called eBay Motors allows a customer to scan a vehicle’s identification number, or VIN, and then search for parts specific to that vehicle.

Walmart also has an array of apps to help customers shop using their tablet computers and smartphones.

The company formed @WalmartLabs to develop online shopping technologies. Earlier this month, @WalmartLabs released its first product called Shopycat. The app gives Facebook’s 800million users the ability to quickly find gifts for friends and family based on their tastes and interests. Shopycat mines “likes” and “dislikes” on Facebook pages and recommends specific gifts based on an individual’s preferences.

With a catalog of a million items, the ability to narrow the selection and make recommendations is a key marketing tool for Walmart and other online retailers.

Delivery innovations

In order to compete with traditional stores, online retailers have had to work to deliver goods faster and lower costs.

The gold standard now among consumers is free delivery in one to two days, and online retailers are scrambling to deliver.

Nordstrom offers free delivery and returns on all its online sales. For $79 per year, Amazon
.com’s Prime program gives customers unlimited free two-day delivery plus instant streaming of movies and TV shows and access to thousands of electronic books.

Staples offers free shipping during the holidays and also allows customers to order products online and pick them up at a nearby store.

Walmart offers free shipping of certain products to homes and will ship any product to a nearby Walmart store for free, often the same day it is ordered. Another service aimed at customers in areas where there are no nearby Walmart stores will ship the product for free to one of 650 participating FedEx offices.

Jariwala said the service is popular in urban areas such as New York where Walmart doesn’t have a network of physical stores.

What’s next?

As mobile computers and social networks make online shopping more convenient and relevant, analysts say the migration of retail sales from brick-and-mortar stores to the Internet will escalate.

That will create a fundamental shift in the traditional retail model, in which goods move from manufacturers to wholesalers and distributors and then to retail stores.

With more sales occurring online, there will be fewer physical stores, and they will be smaller. There also may be fewer individual retailers in general as online superstores such Amazon.com, Walmart.com and others emerge as one-stop shops for almost everything. Distribution channels also will change as more goods move directly from manufacturers to consumers. That could eliminate wholesalers and result in lower costs.

“We’re clearly on the cusp of a new era of e-commerce,” Jariwala said.

Fight For Online Sales Grow. (2011, December 17). Max Jarman. Retrieved from http://www.azcentral.com/arizonarepublic/business/articles/2011/12/17/20111217online-sales-fight-grows.html

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