Online Only Retailer Challenges

With the internet boom in the mid to late 1990s, many analysts suggested that online retailing, or e-tailing would be a dominant development in the retail industry, into the millennium.  While the internet certainly did have an impact on retailing, it was mostly used in a way that did not directly result in sales.  In spite of the fact that many consumers use the internet for product research, especially with higher priced purchases, only a very small percentage (2-3%) of actual purchases are made online.

Part of the initial perception of growth in the new marketplace was the thought that online only businesses would be gold mines.  Similar to the unrealistic expectations that lead to the dot.com stock market crash in 1999-2000, it was not practical to think that store-based retailing would become obsolete or dramatically reshaped because of the new technology channel.

Over the last decade, many e-tailing startups have failed miserably and quickly.  Very few ventures have been successful, let alone survived.  While the online venue offered a new opportunity for larger market potential and broader communication, it did not guarantee a successful business model, effective marketing, or customer traffic.  What many entrepreneurs discovered was that to be successful in e-tailing, they had to have a good understanding of retail business factors as well as technology and web development.  E-tailing did not operate with an ‘if you build it, they will come’ flow.

While multi-channel retailing, the use of multiple retail channels, such as store-based, internet, and catalog has flourished, online only businesses have largely failed.  This fact can be greatly attributed to the lack of retail experience, brand name leverage, and other retail capabilities these companies operated with.  While it is true that the internet offers customers benefits in convenience, it also must deliver other channel-neutral factors that customers look for from a shopping experience.  Customers generally want trusted brand names, reasonable services, consistency and reliability from retailers.

One of the greatest disadvantages e-tail only companies faced was their relative lack of anonymity compared with their multi-channel counterparts.  While most people know how to find Target, Wal-mart, and Kmart online, it is much more difficult to find a newly established and unrecognized online company without it having strong search engine optimization.  Additionally, they do not have the same distribution, supply chain, service, and other experience that store-based retailers bring to the channel with them. 

In spite of unquestionable success by big name e-tailers such as Ebay and Amazon, e-tail only companies have generally come and gone with little fanfare, and profit to show for their efforts.  These companies succeeded largely because they developed sound business models, were the first to market in key emerging markets, and were able to develop and leverage good retail strengths with technological know-how.  These same qualities are lacking in all the companies that have failed.

In order for online only models to work, entrepreneurs must realize that they are building retail companies, not just web-based businesses.  They need to plan for appropriate customer service, personalization, distribution, logistics, human relations, and all other important retail components.