Magazine article Industrial Management

Hybrid Retail: Integrating E-Commerce and Physical Stores

Magazine article Industrial Management

Hybrid Retail: Integrating E-Commerce and Physical Stores

Article excerpt

Executive Summary

Physical retail, e-retail, and hybrid retail companies offer different advantages and challenges. Which is best? The authors describe a comparative model to evaluate each type of retail operation and conclude that, despite a few disadvantages, hybrid retail stores combine the best of e-retail with the best of physical retail. They believe a hybrid model may be the formula for future successful retail businesses.

Truths once held to be self-evident are being challenged as traditional bricks-and-mortar retail stores implement ecommerce strategies to compete with pure e-retail companies. Traditional wisdom assumes that Web-based retail is a threat to long-established retailers such as Wal-Mart, Home Depot and Sears. The logic is that these national retail chains are burdened with an expensive network of physical stores that are supplied through a costly, complex distribution network. Recently Jeff Bezos, founder and CEO of Amazon.com, flatly stated that pure Web-based retail would always offer the consumer a greater selection of products at lower prices than traditional retail stores. Is this true? A closer look at the factors that drive Web-based sales indicates that many of the attributes enjoyed by traditional physical retail stores may actually prove advantageous for online retail success. Physical retail is considered first-generation retail.

The second generation of retail selling began with the advent of electronic retail (e-retail). Universal, 24-hour-aday access to a centralized order processing and distribution system is the hallmark of e-retail. A well-designed Web site provides the customer greater ease and speed in access, shopping, and buying than physical stores do. In addition, Web technology allows companies to personalize the shopping experience by guiding the consumer to parts of the site that are in line with the customer's interest profile. The process of online buying allows the business to create a consistent, personalized, and efficient shopping experience. In addition, the automated and centralized business processes of e-retail allow for a wide variety of highly discounted products.

Amazon.com, one of the leaders in e-retail, continually receives high marks for customer service. Their Web site is designed to speed the consumer through the process of selecting and ordering books, music, videos, toys, electronics, and home improvement tools, while giving reassuring, personal service at highly discounted prices. Products are typically drop-shipped using delivery services such as UPS and FedEx. The combination of efficiency, discounted prices, and personal service is why Amazon.com is frequently mentioned as a model of customer service for businesses on the Web.

Traditional retail companies have tried with varying degrees of success to compete with the e-retailers. Even though its Web site has yet to make a significant contribution to its total revenue, retail giant Wal-Mart has publicly stated its intention to stake a leadership position in e-commerce. At Office Depot, Bill Seltzer, executive vice president and chief information officer, spends nearly one-third of his time planning and initiating an electronic-business strategy. Sales through Office Depot's enhanced Web sites totaled $219 million for the first three quarters of 1999 and rose more than 492 percent from the previous year, according to an article by C. Wilder published in InformationWeek. Yet Web sales account for just three percent of the company's total annual revenue. Even lessaggressive retailers admit that the potential for synergy between physical stores and e-retail exists. For example, Rangnar Nilsson, chief information officer for Karstadt (Europe's largest department store chain), was quoted in Harvard Business Review as saying that he believes "e-commerce can be a true extension of shopping in the physical world, but not all stores are currently in a position to take advantage of it. …

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