Competitive Situation Between E-commerce and Traditional Commerce

The death of a thousand clicks

Introduction

With the advancement of technology and the proliferation of Internet, electronic commerce occupies an increasingly important position in the modern networked and interconnected world and daily lives. As a result, a great quantity of new business model with modern technology is rising, such as the Amazon.com in UK and the Taobao.com in China.

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This report aims to investigate the current competitive situation between e-commerce and traditional commerce and demonstrate the interaction of these two different business models, which will base on statistical data and practical case. In order to explore how to help traditional commerce to break through the dilemma and improve market share, the reaction of traditional retailing will be discussed in this report, in the face of customers increasing their purchases from online providers. This report also refers to some examples and use academic sources. Moreover, the future of retailing in the face of customers increasing their purchases from online providers will be discussed. The conclusion will provide recommendations for traditional retailers on how to cope with the advance of online retailing.

The development of e-commerce

    Electronic commerce (EC) refers to using the Internet and other networks (e.g., intranets) to purchase, sell, transport, or trade data, goods, or services. (Turban et al., 2018). E-commerce has the potential and capability to transform the business process of retailers, by shaping their business models, thereby contributing to changes in their market structure and finally offering competitive advantage over major competitors. (Quader and Quader, 2008)

    During this relatively short time, e-commerce has itself been transformed from its origin as a mechanism for online retail sales into something much broader. (Laudon and Traver, 2016), E-commerce has become the platform for media and new, unique services and capabilities that aren’t found in the physical world. There is no physical world counterpart to Facebook, Twitter, Google search, or a host of other recent online innovations from Pinterest and iTunes to Tumblr.

    Despite the slow traditional economic growth, e-commerce revenues have surged increment with month.

Figure.1 Growth in store-based sales compare with Amazon.com share

    This chart shows Amazon, in the categories that the company serves, growing its market share, as brick-and-mortar retail sales are on the decline. (Thomas, 2017)

The Competitive situation between e-commerce and traditional commerce

    With the impact of e-commerce, traditional business continues to decline. According to research by e-commerce expert Gary Hoover, the growth of e-commerce companies has soared over the past 14 years.

    In fact, growth forecasts estimate that by 2022, in the United States alone, e-commerce revenues will exceed $638 billion. Globally, e-commerce growth forecasts are also on the rise. (Moore, 2019).

    This statistic provides information on US retail e-commerce sales from 2017 to 2023. In 2018, online sales of physical goods reached $504.6 billion, and are expected to exceed $735 billion by 2023. By 2022, revenue will reach US dollars. The United States lags behind several countries in e-commerce sales, accounting for a percentage of total retail sales. – In 2016, nearly one-fifth of China’s retail sales came from the Internet, compared with 8.1% in the US. In terms of retail e-commerce share, the UK, South Korea and Denmark are also ahead of the US. (Statista, 2019).

Figure.2 Retail e-commerce sales in the United States from 2017 to 2023

More data strengthens the growth trend of e-commerce:

a)        ecommerce sales will increase 23.2% in 2017 and, for the first time, account for one-tenth of total retail sales. (eMarketer Retail, 2019)

b)        The retail e-commerce market – including products and services ordered through the Internet via any device – will total $ 2.290 trillion in 2017. (eMarketer Retail, 2019)

c)         

Figure.3 The primary reason why people in the US prefer to buy goods online

All data collected (Wallace, 2019) point to convenience, price and free shipping are the three reasons why generations of consumers in the United States choose to buy goods in a branded online store. And brand reputation and loyalty rewards are the 4th and 5th reasons.

    In addition to these, over 1.66 billion internet users ages 14 and older will purchase at least one item via any digital channel this year, up 9.4% from 2016. This will represent 60.2% of internet users and 26.8% of the global population. (eMarketer Retail, 2019).

    “Amazon as Lifestyle, Social Media as Downtime. The biggest generational consumer shopping difference is that younger demographics are more inclined to shop and purchase on mobile. These shoppers are used to the Amazon Prime lifestyle of convenience and delivery speed.” (Wallace, 2019).

The responses of traditional retailing

    According to the US Census Bureau, it is worth noting that Amazon accounts for only 5% of total retail sales nationwide, excluding food.

    “With an Amazon-Whole Foods deal in the making, pressure is about to hit traditional grocers head-on, as an internet giant takes on the “high-frequency” fresh foods market, MKM Partners added. “resource on traditional retailers will only get worse.” As of Thursday’s close, Amazon’s stock has gained 31 percent over the past 12 months, and shares are up about 29 percent in 2017.” (Thomas, 2017).

Figure.4 Stock status of five different types of retailers

1. Large retailers are forced to sell online.

The traditional retail industry has recently experienced a difficult period. Shopping centre traffic in Europe’s largest market has been declining. In the United States, the space per person shopping centre is about five times that of the United Kingdom. This kind of pain is very serious. Even the crumbling chain before the rise of Amazon is now in a more difficult state. Macy’s, a department store, said last year that it would close 100 of its 728 stores. Fung Global Retail & Technology, a consulting firm, expects nearly 10,000 stores to close in the US this year, about 50% higher than the worst of the 2008 financial crisis. And there will be more. (The Economist, 2017)

Purely physical organisations (companies) are referred to as brick-and-mortar (or old economy) organisations, whereas companies that are engaged only in e-commerce are considered virtual (pure-play) organisation. Click-and-mortar (click-and-brick) organisations are those that conduct some e-commerce activities, usually as an additional marketing channel. Gradually, many brick-and-mortar companies are changing to click-and-mortar ones (e.g., GAP, Walmart, Target). (Turban et al., 2018).

    In particular, one type of retailer has seen the significant impact of the rise of e-commerce: department stores. (Moore, 2019).

Figure.5.1 American online retailing is growing rapidly

    “The US retail industry is facing a growing headache with the cumulative number of bankruptcies in 2017 (data until July) already surpassing the total number of bankruptcies in 2016. More than 10% of US retail sales are transacted online and this number is growing exponentially, forcing big chains to shutter thousands of stores in recent years.” (BSIC | Bocconi Students Investment Club, 2017).

2. The solutions of traditional retailing

“User penetration in the eCommerce market is at 79.7% in 2019. In the eCommerce market, the number of users is expected to amount to 54.6m by 2023.” (Statista, 2018).

    By 2022, US e-commerce revenue is expected to reach 638 million US dollars, of which toys, hobbies and DIYs are the fastest growing vertically. (Statista, 2018).

Figure.6.1 Revenue in the eCommerce market (in million US$)

    In 2019, the revenue of the e-commerce market reached $93,082 million. (Statista, 2018).

    Despite the rapid development of e-commerce, traditional business has made this corresponding change – becoming a new business model combining physical stores and online stores.

Figure.6.2 Annual Dollar Increase of E-commerce and Bricks & Mortar in Sales

    Figure.6.2 illustrates that although e-commerce has developed rapidly, traditional business has not been completely surpassed.

    “Revenue in the eCommerce market amounts to US$93,082m in 2019. Revenue is expected to show an annual growth rate (CAGR 2019-2023) of 5.1%, resulting in a market volume of US$113,640m by 2023. User penetration is 79.7% in 2019 and is expected to hit 80.3% by 2023.” (Statista, 2019).

    Almost 70% of millennials shop online, but that doesn’t necessarily mean companies should give up entities. Americans are still 50/50. Whether they like online shopping or in-store shopping, the store is the main channel for baby boomers and seniors. (Wallace, 2019). Therefore, the physical store is still in the market. And changing to click-and-mortar ones is a good way to opposite this problem.

Figure.6.3 As percentage of total US retail sales

    Figure 6.3 shows that for the total retail sales, the percentage of Walmart still more than Amazon. (The Economist, 2016)

Wal-Mart has been trying to build its own online business for years, and its success is limited relative to the Amazon model. So, in 2016, Wal-Mart made two obvious deals to solve the problem of seeing the market trend. In June, it sold its China e-commerce business to JD.com in exchange for a 5% stake in the company. Then in August it acquired the fast-growing US online retailer Jet.com. Just last week, Wal-Mart acquired online shoe retailer ShoeBuy.com to further strengthen its online products. (Singleman, 2017).

    To summary, changing to click-and-mortar store which is the only way out for traditional retailers.

Recommendations and outlooks

    The competition between e-retailers and traditional retailers is obvious. E-commerce is dominant in the future, because e-commerce with big data support has many advantages, but traditional business does not. The most important point is that shopping is fast and convenient.

Figure.7 US retail sales: Consumers are at home, the trend of online shopping on the couch, rather than taking the risk to the store

Source: Bloomberg, BNP Paribas Asset Management; as of 17 January 2017

This chart shows the percentage of categories of “brick clicks” from April 2000 to December 2016. (Singleman, 2017).

    With the decline of physical stores and the rapid growth of e-retailers, physical stores must make changes in order to break through the predicament, increase their market share, and turn the crisis into opportunities, such as Walmart.

Figure.8 Percent of households that shopped these retailers

    From figure 8, Wal-Mart has been transforming from the beginning to the present, although the results are not particularly obvious compared to the development of Amazon, but it is also clear that the trend of Wal-Mart is regional stability and slow rise. And from another perspective, now, the share of Wal-Mart and Amazon is also flat. (Kowitt, 2018)

    Research predicts that the future of e-commerce is bright. Experts also predict that soon, most e-commerce interactions will become an omnichannel experience for shoppers. This means they want to be able to seamlessly research, browse, shop and buy between different devices and between different platforms (eg independent online stores, Amazon’s presence, etc.) (Moore, 2019).

    Other trends that e-commerce needs to pay attention to in the future include:

a)        Strong customer journey and personalization.

b)        Support artificial intelligence shopping.

c)        Digital currency.

In conclusion, we must remember that e-commerce is still quite new in the overall situation of the retail industry.

Reference list

• Quader, M. S. and Quader, M. R. (2008). THE UTILIZATION OF E-COMMERCE BY TRADITIONAL SUPERMARKETS IN THE UK THROUGH STRATEGIC ALLIANCES WITH INTERNET BASED COMPANIES. Journal of Services Research, 8(1).
• Schneider, G.P. and Perry, T.J. (2000) Electronic Commerce, Canada, Thomson Learning.
• Laudon, K. and Traver, C. (2016). E-commerce.
• Turban, E., Outland, J., King, D., Lee, J., Liang, T. and Turban, D. (2018). Electronic Commerce 2018. Cham: Springer.
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