December 2000 | Commentary | IT Matters

Online vs. Offline Shopping: Retailers Must Respond

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E- tailing has emerged as a significant retail force—consumers are shopping online. Now it's up to traditional brick and mortar retailers to respond.

With even more recent pressure on pure-play dot.com retailers, an integrated retail strategy seems to be in mode. Whether you adopt the creative label, or simply treat the Internet as a channel extension of the physical store, the virtual world has much to offer the offline shopping experience and vice versa.

Online information capture is more detailed and frequent. Click stream data provides details on the way a consumer shops, while virtual shopping carts play the role of loyalty cards that capture consumers' purchase habits. As a result, e-tailers can increase sales by targeting repeat buys based on personalized content for each shopper. More importantly, e-tailers can mine consumer behavior data to turn switching decisions or abandoned shopping baskets into operational indicators of how to stock merchandise and serve consumers.

With online shopping, consumers benefit from comparing product price and features instantaneously. How this translates to the offline world has yet to be precisely defined, but the opportunity to relate online content to offline sales may increase traffic to both sites, including the eventual purchase and delivery of goods through the traditional store format. Although shipping charges at first appear incremental, increased investments in e-commerce by delivery providers such as UPS and FedEx may challenge this burden and the eventual point-of-sale destination—online vs. offline.

Traditional retailers can take their brand to the web and gain instantaneous recognition and trust. This value is true for existing consumers and "aware" consumers who seek the benefits of the intimate, personalized experience and the more informative buy. If online buyers represent a new type of consumer or new types of purchases, however, the value of brand may not be as significant as the market thinks.

Relying on Returns

A physical store in geographic proximity to the consumer can position brick and mortar retailers for a more expedited return policy and a lower risk purchase via the web. The ability to visit a physical store that accepts returns from online purchases enhances the trust factor. Retailers should be cautious, however, about bold statements on return policies. Depending on the relationship of online assortment to offline assortment and the geographic distribution of like consumers, stores with targeted assortments may not efficiently be able to handle returns. Appreciating this financial picture requires an integrated merchandising and supply chain strategy.

The proposition of an extended channel has its challenges as well. As one retail executive said, "brick and mortar retailers will not become a showroom for products that are purchased through another channel."

For this reason, I believe that manufacturers will be required to manage merchandise closer to the point of sale. If manufacturers want the benefits of going direct to the consumer without damaging existing channel relationships, then they will have to accelerate their adoption of practices that keep inventory on their financial books until the merchandise is sold through to the consumer—regardless of channel.

Some innovative manufacturers use the Internet to test new item introductions before they physically distribute the products through the traditional channel. This approach provides a wealth of test market data that can be used to enhance the fact-based sale of the new items in expensive brick and mortar shelf space.

Many initiatives have advanced the proposition of manufacturing taking more responsibility of goods selling through to the consumer. It is more likely, however, that advanced processes such as Direct Store Delivery, Scan-Based Trading, and Collaborative Planning, Forecasting and Replenishment will be needed to manage this requirement effectively.

My prediction is that the market will quickly adopt these processes as manufacturers gain a sense of urgency to get to the web. With consumers facing so much redundancy and excessive choice, manufacturers will need to become more responsible. Retailers will undoubtedly force the issue.

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