Retail Web stores have found their place in an enterprise's overall retailing strategy, but many still lack strong multi-channel capabilities that consumers desire. In parallel, the concerns about Web store costs, vendor viability, and variability of seasonal capabilities are keeping managers up at night. We believe retailers must balance the demand for multi-channel functions with pragmatic Web store investment.
META Trend: Through 2003/04, Global 2000 organizations will optimize e-business efforts for B2B and B2C sell-side capabilities and relationships by tightly coupling business analytics with execution/transaction systems and portals. Consortium Net markets will consolidate by industry, with survivors augmenting efforts to provide vertically oriented process outsourcing and managed services (e.g., planning, logistics, collaboration, payment/settlement, analytics) that will not be fully integrated until 2005/06.
Early Internet stores enjoyed unlimited technology spending during the dot-com days, but now they have been tempered by the realization that a million-dollar spend on technology cannot be accompanied by less than a million in revenues. This harsh reality has led to extreme cuts in many e-retailing initiatives and has simultaneously created many dissatisfied consumers. However, in rare cases, some enterprises believe this was a much needed transformation of their business (e.g., travel, office supplies). Putting these transformation cases aside, we believe retailers must assemble a set of investment criteria that is similar to that of a physical store. For example, a physical store may receive funds for a makeover if its sales are trending upward in a direction set by management and in comparison to other stores, or if the store’s traffic, demographics, or other criteria indicate the need to upgrade. However, the comparison of Web store and physical store costs is not straightforward, since the Web store possesses some unique advantages (e.g., infinite space for products and functions), disadvantages (e.g., lack of tactile product evaluation capabilities), and ambiguities (e.g., a Web store can actually be the primary support of all physical stores’ multi-channel interactions, sales, and service).
Therefore, we believe the management of Web store costs begins with determining the relative position of the Web store within the overall store ratings of the enterprise. For example, if the Web store is number 50 out of 100 stores based on revenue generation, the investment in technology to power that store cannot exceed the costs of physical stores number 49 or 51 since it would be a wiser investment to open another physical store rather than improving the Web store. However, this is not the only point on which to base such an investment decision. Since Web stores are usually an integral part of a multi-channel retailing initiative, a portion of those costs should be allocated back to the physical stores that benefit from them.
To determine this component, the enterprise must ascertain the amount of revenue traffic that is initiated on the Web and contributes to the stores’ revenues. This can be done when online reservation and in-store pickup are available, but can be more subjective with a standalone Web store and when the consumer uses the online environment for product evaluation and education.