The Impact of Online Apparel Stores on in-Store Shopping Essay

The Impact of Online Apparel Stores on in-Store Shopping Essay.

Due to the fast development of the Internet and the growing popularity of online shopping, some argue that the online shopping will substitute store shopping ultimately. For some products such as books and tickets, that might be true, however, for product like apparel – a kind of high-risk and hedonistic product, it is not the case. This essay demonstrates why it is less possible for online apparel shopping to substitute store apparel shopping and how it serves as a complement for store apparel shopping.

Finally, some implications on how to make the online apparel shopping more appealing are given.

1. Introduction

With the development of information technology and the growth of the number of Internet users, a new channel of shopping has been growing dramatically – online shopping. According to Boston Consulting Group (BBC, 2010), the “internet economy” was worth 121 billion pounds in 2010, more than 2,000 pounds per person, which made it bigger than the healthcare, construction or education sectors. In particular, online shopping contributes to 8.

3% of the UK economy, and is predicted to continue to expand at a rate of 11% per year for the next four years (ibid.).

There are numerous advantages for online shopping, both functional and non-functional. Functional motives include convenience, greater merchandise selection, unique merchandise offerings, and lower prices (Forsythe et al. 2006). While non-functional benefits are related to the enjoyment that gained from online shopping experience, which include “escapism” – offering an escape from the day-to-day world, “pleasure” – offering the feeling of joy and satisfaction, and “arousal” – making one feel stimulated, active or alert during the online shopping experience (Menon and Kahn, 2002).

As online shopping has so many advantages over in-store shopping, there is an increasing fear that it will devastate in-store shopping ultimately. Retailers are warned that the age of connectivity (“clicks”) would put traditional “bricks and mortar” retailers out of business (Flynn, 1995). It is, however, not the case for all sector and products. Liang and Huang’s (1998) empirical study of consumer willingness to shop online revealed that they preferred to buy some products (shoes, toothpaste, microwave oven) from traditional stores and other products (books and flowers) from online stores. As far as I am concerned, there are mainly two reasons why online shopping of some products are more likely to substitute in-store shopping of them. Firstly, consumers are more willing to buy low-risk products online than in store. Secondly, it is more enjoyable to buy some products in stores than online.

This essay will focus on the relationship of online and offline shopping of apparels. In the Ernst and Young’s Global Online Retailing Survey, apparel was ranked fourth among product categories frequently purchased through the Internet (Seckler, 2001). Despite the large number of online apparel purchases, I believe that online apparel shopping will not substitute in-store shopping for two reasons. Firstly, apparel is a high-risk product, one has to see, touch, feel, and try it on in person to ensure the quality. Secondly, apparel is much more enjoyable to buy in stores than online. However, instead of a substitute, online apparel shopping can be a complement to the store shopping by increase and improve the store shopping.

This essay will be divided into two parts. In the first part, I will illustrates the reasons why it is not realistic that online apparel shopping will replace in-store shopping. In the second part, I will discuss how online apparel shopping can complement the in-store shopping.

2. Why not a substitute?

Using the Internet as a substitute means that every shopping stage is handled online, which reduces the number of (or even eliminates) shopping trips to the city center (Salomon 1986). Travel agencies, newspapers and telecommunication providers have all suffered severe competition from internet- based substitutes (Grant, 1991). However, in-store apparel shopping is less substitutable by online shopping. On the one hand, it is a product of high risk; on the other hand, the apparel shopping trips to the city center can be more enjoyable.

2.1. Apparel – A product of high risk

According to Peter and Tarpey (1975), the risk here can be defined into six components: financial risk, performance risk, physical risk, psychological risk, social risk and convenience risk. Consumers perceive a higher level of risk when purchasing on the Internet compared with traditional retail formats (Lee & Tan, 2003). However, not all products have the same level of risks for online shopping. Bhatnagar, Misra, and Rao (2000) found that consumers might attempt to purchase low-risk or easy-to-examine products such as books, CDs, and airline tickets by Internet more than products more complex to assess online, such as apparel. In fact, the advent of online bookshops such as Amazon has already severely damaged the profits of conventional bookstores. However, for the products of higher risk, such as apparels, it is less possible that online shopping will substitute in-store shopping. Due to the word limit, I will only examine financial risks and performance risks that I think are mostly related in online apparel shopping.

The financial risk refers to the likelihood of suffering a financial loss due to hidden costs, maintenance costs or lack of warranty in case of faults (Peter and Tarpey, 1975). The financial risk related to online apparel shopping is higher than many other low-risk products, for example, books. That is because there are more hidden costs related to apparel online shopping. For example, while the delivery fee for books is usually free or very low (e.g. Amazon), the delivery of apparel is usually around four pounds. Moreover, if the product is not delivered on time, or a wrong product is delivered, or is not delivered at all (all of them have happened to me), there are hidden costs of contacting the company, returning the product and waiting. Sometimes one just bothers the complex process and thus chooses to suffer from the financial loss from the purchase, which is often a lot more than books. The higher financial risk involved deters the consumers to rely entirely on the Internet for apparel shopping. Many who actually do the online apparel shopping choose to buy online and collect in stores to reduce the possibility of the financial risks.

The performance risk refers to the chances of the item failing to meet the performance requirements originally intended of the purchase (Peter and Tarpey, 1975). The performance risk related to online shopping is largely due to the shoppers’ inability to accurately evaluate the quality of the product online (Bhatnagar et al., 2000). For product like apparel, there is a preference for traditional brick-and-mortar shopping methods because of the special importance of being able to personally handle and inspect the product before purchasing (Levin et al. 2003). Although many online apparel retailers have already started to use product virtualization technologies (eg. the 3D rotation views) to increase the customers’ involvement with the apparel, it is still different from examining with one’s own eyes – the color, the style and some details of the actual apparel can still be different from the one seen on the screen. Even the real one is actually the same with the “virtual one”, without trying it on, one cannot be sure that it suits him/herself. This high performance risk involved in online apparel shopping also makes it hard to replace the in-store apparel shopping. 2.2. Enjoyment of the apparel shopping trips

It is assumed that e-shopping does not satisfy the recreational functions of in-store shopping (Couclelis, 2004). The comparative leisure brought by in-store apparel shopping may be another reason that it can hardly be substituted by online shopping. Firstly, apparel is a hedonistic product. Feeling, touching and trying on a variety of new clothes is itself leisure. Due to this hedonic characteristic, apparel often tends to elicit ego involvement in its selection and use (Kapferer & Laurent, 1985), while the Internet provides little opportunity for this involvement – only a few pictures and descriptions are available for inspecting the apparel.

Secondly, the shopping center and shopping mall, which the apparel retailers are located, is a place of great pleasure. Numerous apparel retailers are located closely together in shopping malls or city centers, along with the cafes, restaurants, cinemas etc., making the shopping trip more attractive than shopping online. It is suggested that an attractive mix of both shopping and leisure activities in city centers can also limit the use of e-shopping (Gillespie et al. 2001). The third recreational function of apparel shopping trip that makes the substitution of which not likely to occur is that people like to socialize (Couclelis, 2004).

As a product such as apparel is largely consumed publicly and possesses public meaning (Sahdev and Gautama, 2007), the interaction with others when shopping can make it more enjoyable and reliable than online shopping. On the one hand, the face-to-face interaction with the sales assistants is only possible in store shopping. While for online shopping, it is much harder for the customers to reach and communicate with the sales people effectively. On the other hand, many people like to go shopping together as a way of socializing. They meet in shopping malls, do window-shopping or shopping together, and talk about and give each other suggestions on the latest fashion and whether to buy or not to buy. None of the above, however, could be achieved easily by online shopping. Thus, the socializing function of the shopping trips also implies that the online shopping would not lead to a decrease in shopping trips (Salomon & Koppelman, 1992).

3. Why a complement?

While using the Internet as a substitute means that every shopping phase is done online without any interactions of the physical stores, from pre-transaction (information search, trial, and evaluation), during transaction (purchase), to post- transaction (delivery, return and after-sales service) (Sindhav and Balazs, 1999), using the Internet as a complement refers to two interactions between the two ways of shopping. The first interaction is enhancement, which means that online shopping generates additional shopping trips that would not occur without the Internet (Weltevreden and Van Rietbergen, 2007). The second interaction is operational efficiency, which refers to situations where e-shopping improves shopping in stores (ibid.). I believe that online apparel shopping both creates and improves the store shopping, and I will illustrate the two interactions in more details in the following paragraphs.

Online apparel shopping can increase the number of visits to the stores (ibid.). First, information searching in the online stores can generate more shopping trips. A Study by USA Today shows that consumers that have used the Internet for information searching ultimately lead them to shopping in the traditional channels (USA Today, 1998 in Donthu & Garcia, 1999).

As apparel is a high-risk product, it is even more true. If one finds nice-looking apparel online but thinks it too risky to make the purchase without trying it on, he/she may naturally make a trip to the local store to buy it. This leads to additional shopping trips that the consumer would not have done without the online pre-transaction information searching (maybe because he/she has just visited the shopping center several days ago). Moreover, the information that is acquired via the Internet enables the discovery of new, hitherto unknown places (Farag, 2006). For example, from the newsletters from the online stores, we may get the information that a branch of the brand we love is opened in the city center, and thus make a shopping trip immediately before we actually hear the story from our friends or finds it with our own eyes months later. In addition, information on new arrivals and sales is also most readily gained from online stores, which triggers shopping trips.

Indeed, the Internet has replaced many of the traditional search methods such as word-of-mouth and hands-on-experience (Peterson and Merino, 2003), and the quicker way of gaining information creates more visits to stores. Second, despite the information searching online, social contacts via the Internet can also create more shopping trips by stimulating face-to-face interactions that require travel (Farag, 2006). As mentioned earlier, apparel, as a product that possesses public meaning, requires more face-to-face interactions. The interactions with the shopping advisors online is thus, not reliable enough. However, this type of online interactions can provide a better pre-transactional understanding of the apparel and triggers the consumers to visit the stores to chat with the shop assistants individually in order to have a deeper involvement in the apparel shopping.

Online apparel shopping can also improve the shopping in stores (Weltevreden and Van Rietbergen, 2007). On the one hand, the online information searching and interactions with the online shopping advisors makes the shopping in stores more effective and efficient. Without the online information searching and communication, it is likely that one needs to spend much more time in stores searching for what he/she wants; one may miss something he/she might be interested in because of the loads of clothes on display; and the shopping trip can even be a waste of time because of the size, color, style in need is out of stock.

Furthermore, it is more flexible to search information and interact online than in stores, as it is available to do it anywhere at any time (eg. on the way to the shopping center). In fact, increasingly, the time-pressured people start their shopping process with an information search on the Internet before they go to the store as a way to make their shopping trips more effective (Ward & Morganosky, 2002). On the other hand, the more available product information online may also increase the bargaining power of the consumers compared to the retailers as they become better informed. Sinha (2000) sees cost transparency, made possible through the Internet, as the biggest threat for a company to brand its products and extract price premiums from buyers. Thus, the online apparel stores also serve as a tool for the consumer to search for a bargain or compare for the cheapest one among the similar apparels.

4. Conclusion

This essay has demonstrated why online apparel shopping cannot substitute store apparel shopping. Although the online shopping has been substituting the in-store shopping of many products such as books and travels, it is less the case for in-store apparel shopping. On the one hand, it is a product of high risk: the financial risks involve high hidden cost of delivery fee and costs related to after-sales service; and the performance risks is caused by the inability of the consumers to evaluate the quality of the apparel accurately online. On the other hand, apparel shopping trips can be more enjoyable than online shopping: to feel, touch and try on different new clothes is itself an entertainment; numerous apparel retailers and places for leisure are usually located closely together; and the shopping mall also serves as a platform for people to socialize.

Rather than a substitute, the online apparel shopping is more likely to be a complement to the store shopping. First, it increases the visits of stores: the information searching in the online stores can generate more shopping trips; the interactions via the Internet can also stimulate face-to-face interactions that require travel. Second, online apparel stores also improve the shopping in physical stores: the information searching and interactions done online improve the efficiency of the store apparel shopping; the bargaining power of the consumers is increased as they become better informed of the product information through online stores.

This conclusion gives some important implications to the strategies of online apparel stores. In order to improve the online apparel shopping, the companies must focus on two aspects: reduce the risks of online apparel shopping and increase the entertaining factors of online apparel shopping. To reduce the financial risks, it is not enough to just reduce the fee for delivery and service phone calls, or just give quicker responses. The key is to make as few mistakes as possible and make this fact well-known to the public (For example, on the homepage of the online store, the company may announce that 99.9% of the products are delivered accurately on time). As for the performance risks, it is also not enough to just make a lot of descriptions by words or pictures, the best method is to have a virtual try-on – changing the model into the consumer’s size and face color.

After all, what the consumer wants to know is whether the apparel fits him/her, not whether it fits the model. To make the online shopping more entertaining, virtual try-on that I just mentioned could be one way, but more importantly, the online interactions with the consumers need to be improved. For example, chatting box can be used for online stores, and online sales people can be hired (may work part-time) to focus on the requests of online customers. Last but not least, in order to better complement the store shopping, the information given online should be made more comprehensive. For example, information on stocks, new arrivals and sales for different branches can be provided online.

Due to the word limit, this essay has not demonstrated all aspects on why online apparel store would only be a complement rather than a substitute of physical stores, and it is only based on the research that has been done in the past. However, it is the first research that focuses on the impact of online apparel stores on physical stores. I hope this essay could raise interests in more empirical research on this issue in the future.

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Amazon: Online Shopping and Amazon.com Essay

Amazon: Online Shopping and Amazon.com Essay.

Write a 1-page, single-space, 10-point font case analysis on the Amazon Case making sure to address the following questions:

1. On a scale of “1” (Very Poor) to “5” (Excellent), how would you rate Jeff Bezos as an entrepreneur? How would you rate him as an IT manager?

2. Trace the evolution of the Amazon.com business from the company’s launch in 1995 to the dot-com collapse in 2000. How did the company’s strategy change over time? How did capabilities evolve? What value did the company deliver to all stakeholders?

3. Do you agree with the decision to pursue the Toys “R” Us deal? Why did the company do the deal? Should Amazon.com do more deals like this? What impact does the Toys “R” Us deal have on Amazon.com’s business model in early 2000?

4. As a member of the Amazon.com board of directors in early 2001, what challenges did the company face and what actions would you take?

Amazon.com is a global leader in online-retail.

The company was founded by Jeff Bezos in Seattle in 1995, during the period of tech boom era of the 1990’s. Since founding as an online bookseller, Amazon.com drastically grown to expand its product offerings, fulfillment, and customer service. This growth required huge investments in technology and processes to support the complex business. Today, Amazon .com sells, or auctions, books, music, videos, toys, videogames, consumer electronics, software, and home products. On a scale of “1” (Very Poor) to “5” (Excellent), I would rate Jeff Bezos 5
out of 5 as an entrepreneur. “Our vision is to be the world’s most consumer-centric company, where customers can come to find anything they want to buy online.”-Jeff Bezos. In 1994, Bezos was already a successful investment banker with estimated six figure salary. Bezos definitely had huge potential to rise in the company ranking but Jeff had a vision driven by a secret desire for the business of electronic retailing.

And just four years after Bezos created Amazon.com, the virtual bookstore became the model for how e-commerce businesses should be run. Now there are thousands of online retailer following his steps. Amazon begun on its strong root by starting up the business in Seattle during the dot com bubble meant Amazon.com was entering a new industry from its earliest beginnings. And being located in Seattle meant the company had e-commerce’s top talent and leading experts nearby. Other thing Bezos drove Amazon as a very successful entrepreneur is that his decision to become a business that offered multiple product lines meeting various consumer needs. The company also created a barrier to entry by being the first large online bookseller and finally a huge online retailer. I would rate Bezos 5 out of 5 as an IT manager as well. The company experienced extraordinary growth during and after the tech boom with customers increasing from 14 million in 1999 to over 20 million in 2000 .

But with rising fulfillment costs, the company had not produced profits during these years. The challenge Bezos and Amazon faced was turning the company profitable before cash ran out and operations would have to cease or go bankrupt. In fact, were it not for the $318 million raised through stock options in 1999 and another $680 million borrowed in early 2000, the company surely would have run out of cash. Strengths: Amazon.com strengths begin in its roots. Starting up in Seattle during the dot com bubble meant Amazon.com was entering a new industry from its earliest beginnings. And being located in Seattle meant the company had e-commerce’s top talent and leading experts nearby.

The company’s next strength came from its decision to become a business that offered multiple product lines meeting various consumer needs. The talent and industry that Amazon.com was surrounded by made it easy for the company to switch from a bookseller to retailer by utilizing virtual resources versus traditional physical requirements such as store fronts and floor space. The company also created a barrier to entry by being the first large online bookseller.

Since its incorporation in 1994, Amazon’s business model had expanded from offering a simple internet marketplace for books to providing web services to online retailers, storage solutions and a dramatically expanded product line. Nevertheless, despite massive sales the company failed to produce a profit for shareholders and Amazon was on the brink of bankruptcy at the beginning of 2001. If I were a shareholder who received the company’s 2000 annual report, I would have strongly agreed with CEO Jeff Bezos that the company must achieve profitability by year-end 2001. I would recommend that the company accomplish this by cutting costs related to fulfillment and inventory and by increasing revenue by capitalizing on the previous year’s investments in infrastructure.

While many expenditures in 2000 were related to Amazon’s efforts to implement its strategy for growth, operating costs had also increased. Amazon’s fulfillment costs were 11 11% of sales in 1997 and 1998, increased to 14 14% in 1999. Because e-Commerce was still new and just beginning to establish customer trust, it’s critical that these costs be reduced without negatively impacting quality, speed of delivery or customer service. Because of Amazon’s large scale and repeatable processes, I would recommend a continuous improvement strategy such as lean Six Sigma.

Another area of operational cash drain is inventory. After adding multiple new product lines and distribution centers in 2000, inventory management became a challenge for Amazon. In 1999, inventory turnover was 20% that of competitor Barnes and Noble and contributed to negative cash flow in 2000. Amazon would be well advised to use IT technology such as an advanced ERP to better estimate the inventory needed to meet demand without overstocking. In addition to cutting costs, Amazon must increase revenue

From its birth in 1994 to the dot com collapse in 2000, Amazon.com implemented a number of changes to its business strategy in attempt to stay on top of the e-commerce industry. Amazon.com started in 1994 as a simple online book retailer. Under this initial strategy, Amazon was receiving all of its revenue from its book sales (sales revenue model), and was popular because it was the first online retailer to do so. Amazon created value for customers early on by providing a space for customers to purchase a large variety of books in one place, thereby reducing the customers product search drastically from the traditional method of going to brick & mortar book stores. In the early stages, Amazon benefitted from the first mover advantage, and had a dominating market share. This attracted huge investment capital in the late 1990s, and Amazon used this capital to broaden its offerings in order to stay on top of emerging competitors.

In 1996, Amazon focused on making the shopping experience on Amazon.com better for its customers. It revved up its browsing and search capabilities, and personalized the whole experience by offering customized layouts and recommendations based on what you had been looking at and purchasing. At this point, Amazon aimed to provide additional value to its customers by providing a personalized shopping experience. By 1998, Amazon started expanding into international markets and new products categories, turning into an online superstore and providing convenience and further reduced search costs to its customers. During 1999, Amazon began exploring complementary business models, such as auctions and marketplaces. Under these models, Amazon did not assume control of the inventory, and as such acted as an agent (generating additional revenues under the brokerage revenue model). In late 2000, Amazon saw additional opportunities to…

1994
: Bezos, a N.Y. investment banker with no book publishing or retail experience, identifies book retailing as an industry segment that could exploit the power of emerging Internet technologies. Chooses Seattle as a location to be close to one of the largest book distributors. Writes the business plan and chooses the company name while driving cross country with his wife. 1995

: Between July 1994, when the company was incorporated, and July 1995 when the Amazon.com online bookstore was officially launched, Bezos and a few employees built the software that powered the website. By September 1995, the company was selling over $20,000 per week out of the founder’s garage. 1996

: Amazon.com focused on enhancing its product and service offerings and capabilities with increasingly sophisticated browsing and focused search capabilities, personalized store layout and recommendations, shopping carts, 1 Click shopping (which was later patented), wish lists, and greeting cards. Efforts to redefine and enhance the online shopping experience continued and, in 1999, Amazon.com was one of the first online retailers to enable shopping through wireless devices. 1997

: By the first quarter of 1997, Amazon.com revenues had increased to $16 million (which was equivalent to the company’s yearly revenues in 1996). Amazon.com went public on May 15, 1997. 1998

: Beginning in 1998, Amazon.com began aggressively
expanding
into new product categories and into
international markets. By early 2001, the company was not just an online bookstore, it was an online superstore selling a wide variety of products in over 160 different countries. 1999

: During 1999, Amazon.com began
exploring
new business models including, auctions (low-end and high- end) and marketplaces (zShops). For these businesses, Amazon.com provided software and services but did not assume control of inventory. As such, it acted as an agent—not a retailer. 2000

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