This is a summary of an interesting article that appeared in the Wall Street Journal on Nov. 16, 2006 (written by Vauchni Vara and Mylene Mangalindan). The article provide some insights regarding how the online
retail is shaping up. It suggests that the two biggest online retailers, eBay
and Amazon, are giving way to the online business of the traditional
brick-and-mortar retailers such as Wal-Mart Stores Inc. and Target Corp. According
to Forrester Research Inc., about 41% of Internet shoppers in the
first online purchase within the past four years. The new web shoppers are not
necessarily the prototypical young, well-off and male, but are often less
affluent and less tech-savvy who care more about low prices name recognition of
the brands. According to Majestic Research Corp. of New York, with the ramped
up online operations of traditional retailers, the e-commerce spending on
web-only retailers has fallen to 52% in 2006 from 55% in 2005 and 60% in 2004.
To face
this competitive marketplace, the web-only retailers have adopted several new
business approaches. For example, Amazon is keeping prices low, giving more
choices which include products from other retailers, such as selling Target gift
certificates on Amazon site and quicker shipment of items by introducing new
membership program called Amazon Prime, offering two-day shipping on an
unlimited number of orders for a $79 annual fee. E-bay on the other hand
adopted strategic acquisition route. It acquired Shopping.com, a comparison
shopping site, thereby helping tap into the large group of mainstream customers
who are looking for new in-season items. Amazon’s sales growth in 2005 as 23% and
eBay’s sales growth was 39% a far cry from the triple digit growth rates that
they enjoyed in 1990s. The business innovations are initiated with an
expectation for steady sales growth in the coming years. According to
JupiterResearch, a division of JupiterKagan Inc., consumers are expected to
spend $132 billion on nontravel Web shopping in 2006, up 19% from $111 billion
in 2005. For the holiday season, eBay is promoting a new Web site called eBay
Express, where items are sold at fixed price and where only sellers with high
reputation are allowed to sell their goods. In 2005, eBay also purchased
Internet telephone service provider Skype Technologies SA for $2.5 billion. Amazon
unveiled a new video-download service in September. Investors are however not
very enthralled by these investments; this year the stock of Amazon is down by
10% and eBay’s stock is down by 22%.
The
traditional retailers have also initiated some innovative approaches to enhance
their online sales. Wal-Mart unveiled a redesigned Web site, adding independent
product reviews from CNet Networks Inc., offering advice for matching furniture
sets or outfits, and promising customers a path to buy any product in four
clicks.
Circuit City last year started promising
customers that they could order an item online and pick it up at a local store
within 24 minutes. Gap Inc., launched a Web site called Piperlime.com which
sells shoes ranging from cheap flip-flops to designer boots.