The Impact of E-commerce on traditional retailers

TheImpactofE-CommerceonTraditionalRetailersCaseStudy:NordstromAnHonorsThesis(HONRS499)byMeghanPattersonThesisAdvisorDr.AmyLeahyBallStateUniversityMuncie,IndianaDate:May2009DateofGraduation:May9,2009Abstract:Asanundergraduatestudentmajoringinmarketing,withaminorinfashionmerchandising,thebusinessofthefashionandapparelindustryisextremelyappealingtomycareerinterests.AfterspendingasummerworkinginthisfieldasaretailinternforNordstrom,notonlydidIgainconsiderableexperienceinthebusinessoffashionretailing,butdevelopedaninterestinhowNordstromconsistentlyoutperformsthenumerouscompetitorsinthisgreatindustry.UsingNordstromasacasestudy,Iexploredtheelectroniccommerce(e-commerce)trendthatisontheriseforretailersofallmerchandiselines,focusingontheapparelandaccessoriesindustry.Thishonorsthesisisaculminationofmyresearchofe-commerceandhowitisimplementedintoretailbusinessessuccessfully,aswellasananalysisofNordstromasatopretailerandprimeexampleofsuccessfule-commerceimplementation.Theimpactofamulti­channelstrategyisassessed,usingtheanalysisofNordstromdataassupport.MypersonalobservationsandexperiencesworkingforNordstromareincorporatedintothisthesis,andIofferrecommendationsformanaginginventoriesandsalesofbothonlineandin-storetransactions.Finally,Iaddressthepredictionsforasuccessfulfutureinretailing.2Acknowledgments:MyresearchandcompletionofthisreportwaskindlysupportedbytheBallStateUniversityHonorsCollege.IwouldliketoextendmanythankstoDr.AmyLeahyforadvisingmethroughoutthesemesterasIcompletedthisreport.Isincerelyappreciateherpatience,flexibility,andwillingnesstoguideandsupportmethroughouttheproject.IwouldalsoliketothankalloftheNordstrompersonnelinOakbrook,IL,forgivingmetheopportunitytogaininvaluableexperiencethroughparticipationintheinternshipprogram,andforhelpingmegrowbothpersonallyandprofessionally.3TheImpactofE-CommerceonTraditionalRetailersCaseStudy:NordstromTheunveilingoftheInternetinthemid1990swasanunprecedentedeventinthehistoryofinformationandcommunicationstechnology(Vulkan,2003,p.1).Likelyoverlookedatthetimeasalifechangingevent,nevertheless,theInternethasforeverchangedthewaymanyindividualsandorganizationscompletetasksonadailybasis.Businesseseverydayoperationsnowarecompletedviadigitalmedia.OnereasontheInternethasdevelopedsorapidlyisbecauseitservesasasubstituteformanyotherservices,products,andtraditionalformsofinteraction.Forexample,e-mailservesasaprimarycommunicationforbusinessandpersonalpurposes,andtaskssuchasmakingbillpaymentsortransferringmoneyintoabankaccountcannowbecompletedthroughtheInternet.Onlineretailingisonesuchsubstitute,whichoffersconsumersanewoutletformakingpurchases.AsreportedbytheUnitedStatesCensusBureauintheirmostrecentreport(2009),growthincomputerandInternetuseisincreasingateverylevelofeducation,ineveryagegroup,forpeopleofeveryrace,andamongbothmenandwomen.Internetusersareengaginginawidevarietyofonlineactivities.Accordingtothe2001Censussurvey,over39%ofInternetusersreportedmakingonlinepurchases.Abouthalfofthepeopleinthe25-34agegroup,aswellasthe35-44agegroup,usedtheInternetforonlineshopping.ThemarketdefinitionoftheInternetretailsectorconsistsoftotalrevenuesgeneratedthroughthesaleofretailgoodsviaonlinechannels,valuedatretailsellingprice(OnlineRetail,2009).TheUSdominatestheglobalonlineretailsectorwithashareof65.3%.TheUSonlineretailsectorgeneratedtotalrevenuesof$141.6billionin2007(OnlineRetail,2009).4In2000,thetotalvalueofproductsandservicesboughtbyUSconsumerswas$3trillion,withthevalueofthoseboughtonlineaccountingfor$12billionofthattotalvalue(Birkin&Clarke,2002,p.90).While$12billionmayseemlikealargevalue,itisrelativelysmallincomparisontothevalueoftheoverallmarket.Thismaybebecauseconsumers,althoughbecomingmoreacceptingofpurchasingonline,aremorelikelytoviewe-commerceaspredominantlyavehicleforwindowshopping.TherehasbeenarecentsignificantgrowthinUSonlineretailspending,however.Purchasinghabitsarebeginningtoshifttofavorinteractiveonlinechannels.Retaile-commercerevenueisexpectedtoincreaseatan11.3%averageannualgrowthrateduringtheperiod2007-2012(OnlineRetail,2008).AccordingtoForresterResearchInc.,consumersareprojectedtospend$19.3billiononlinethisyearonapparel,accessories,andshoes(Lamm,2008).By2011,thisamountisexpectedtoexceed$28billion.Inamarkethistoricallydominatedbyconsumerelectronicproducts,onlineretailinghasrecentlyseenashifttoapparelasthetopcategoryperformer.Thegrowingpopularityofapparelpurchasingonlinehasbeenboostedbyshippingoffersandsimplerreturns,aswellasincreasingtechnologicaladoptionbywomen(Brown&Riley-Katz,2008).TheU.S.CensusBureauReportfore-commerceshowsthatamajority60.9%oftotalsalesinclothingandclothingaccessoriesoccurredthroughe-commercetransactionsin2006(U.S.CensusBureau,2009).(SeeTable1)Table1:RetailSalesbyMerchandiseLine,2006MerchandiselineValueofsales.tolal.2005(mil.doL)2006Valueofsales(mil.dol.)E-commerceaspercentoftotalsalesPercentdistributionTotalE-commerceTotalE-commerceTotal....................164,345190.86575.23039.4100.0100.0Booksandmagazines............5,7296,306(8)(5)3.3(S)Clothingandclothingaccessori