July 2000
THE IMPACT OF E-COMMERCE ON MAIN STREET
We want to thank Dr. Richard Judy for his permission to share this information with our members.
INDIANA COMMERCE EXECUTIVES ASSOCIATION NEWS JUNE 2000
 You've read e-commerce success stories about Amazon.com and other online companies and you are told that e-commerce will revolutionize American business. But what impact will e-commerce have on America's Main Street businesses? Dr. Richard Judy, President of Hudson Analytics, the proprietary research and consulting arm of the Hudson Institute in Indianapolis, Indiana, overviewed several important e-commerce trends during ACCE's Leadership Conference in Detroit, Michigan.
"The shift from traditional retailing to e-tailing will be dramatic and it will impact almost every Main Street businesses," said Dr. Judy. "By effectively staying on top of the trends, chamber executives can help identify which members will be effected and help them devise strategies to take advantage of the coming shift."
Ten Major Trends Behind E-Tailing
Dr. Judy outlined ten major trends that set the backdrop for the explosion of e-commerce. They include the following:- Quest for Convenience - As more people lead busier and more harried lives, time is becoming their most precious commodity. Time-saving convenience is what today's consumers are looking for, particularly when it comes to shopping. This quest for convenience is a key driver of on-line buying.
- Cheaper, More powerful Computers - Last year, the PC broke the $1000 barrier. At the same time, computer-processing speeds are continually increasing, which allows users to do more with their computers. Nearly 50 percent of American households have personal computers and as they get cheaper and easier to use, that percentage will continue to grow. Cheap, powerful computers are the backbone of the online buying boom.
- A Nation of Technophiles - Many of America's younger people have grown up with computers. They are comfortable with technology and use it for both work and play. In fact, many of them turn to their computers and the Internet first when shopping for any goods or services.
- Online Access - Over 171 million people worldwide now have access to the Internet - a number that is growing at the astounding rate of 55% annually. More than 100 million World Wide Web users reside in the United States and Canada. As greater telecommunications bandwidth becomes widely available to all, access to the web will become as common as access to television. Indeed, a rapidly growing number of American households are accessing the Intenet via their cable TV hookups.
- E-Window Shopping - Using the Internet to see what products are available and to compare prices is a great convenience to customers. Because of easier access to product information and pricing, customers are becoming more savvy customers and they're demanding more value at lower prices.
- More Sophisticated E-Tail Sites - As consumers become more savvy and are more likely to window shop over the web, retailers must continually improve the attractiveness and sophistication of their web sites to attract visitors. Sites will continually become easier to navigate and ordering features will become easier and more secure.
- Producers Connect Directly with Consumers - Many "middle men" will be bypassed as more producers connect directly to consumers. Dell Computer sets the example. Consumers "design" and specify the product they want via Dell's web site. Dell builds and ships the custom-ordered product within seven business days. More product manufacturers will continue to follow this trend.
- Big Retailers Become E-Tailers - Barnes and Noble and Borders books were slow to respond to the rapid success of online bookseller Amazon.com. Big retailers like Wal-Mart have also been slow to embrace on-line retailing. But most large retailers are now committed to e-tailing and this momentum will mount. "We are now seeing a very energetic movement by the large and influential retailing operations from General Electric to Toyota to create a very large E-tail site on the web," said Dr. Judy.
- Blurring Lines Between E-Tail and Retail - Many traditional retailers are competing with online competitors by integrating their traditional "bricks and mortar" retail operations with on-line e-tail services. "If you order a shirt or a pair of shoes from www.walmart.com and the item doesn't fit, you'll be able to return or replace the item at the nearest Wal-Mart store," said Dr. Judy. "But if you buy a book from www.amazon.com and it is damaged or you receive the wrong order, you have to pack the product back up and drop it off at UPS. Traditional retailers are taking advantage of their bricks and mortar infrastructure to compete with e-tailers. They can offer improved service and convenience to customers through their traditional retail center."
- Combined Trends - Dr. Judy said the last of the top ten trends will be a blending of the previous nine trends to rapidly transform traditional retailing into successful e-tailing operations.
E-Tailing Considerations and Obstacles
When e-tailing first hit the scene, it primarily involved companies that sold small items like books and CD's, but Dr. Judy said that e-tailing is coming to virtually every kind of good or service: (There is a series of websites listed, as examples, for purchasing items as clothing, furniture, real estate, mortgages and groceries.)
"E-tailing is moving fast up the food chain," said Dr. Judy. "Toyota recently announced plans to sell cars the way Dell sells computers. Customers soon will be able to custom-order an automobile over the web and within a week or ten days, the auto will be delivered."
Which Main Street Businesses Are Affected by E-Tailing?
Dr. Judy said that the question businesses need to ask today is: "Does my product or service lend itself to e-tailing and, if so, how do I respond to this new challenge?" Some locally provided services are relatively invulnerable to the e-tail challenge. For example, local beauty salons won't be threatened. But other local businesses are more exposed. Local bookstores, for example, have already taken their blows. Before long, travel agencies, grocery stores, clothing stores, furniture stores and many other businesses up and down Main Street and in the local mall will find themselves in the e-tail crosshairs.
But Dr. Judy also said that e-tailing might be what saves some Main Street businesses. For instance, many local bookstores have been forced out of business as a result of competition from the big chains and from Amazon.com, but some creative stores have turned to e-tailing to market their products outside their local community.
"If you're a local bookstore that is suffering from the low-priced chains, you will have your challenges, but what if you offer a unique mix of used inventory or you specialize in hard to find classics or some other niche?" said Dr. Judy. "If that is the case, then you may find a special niche as an e-tailer. Indeed, some retailers of specialty items-collectibles, antiques, for example-have shut down their bricks & mortar stores and moved their businesses entirely to the Internet. Some have their own sites, (such as www.justbeads.com) and others are using auction sites like www.ebay.com."
The challenges to successful e-tailing should not be underestimated, Dr. Judy said "It's neither easy nor cheap to design and maintain an attractive e-tail web site. So car, the really effective sites remain the exception. Payment is still a problem; many customers harbor concerns about sending their credit card numbers out on the Internet.
"One of the most fundamental e-tail problems involves logistics," said Dr. Judy. "It's one thing to deliver a book that comes by UPS or a regular mail but how do you home-deliver a case of wine or a bag of groceries?" he said.
Years ago, when milk was delivered by a milkman, there was always someone home to bring the milk in before it spoiled. But with today's busy schedules, many homes are empty during the daytimes.
"New auxiliary technologies will be coming down the line to attack the logistics problem. They include the design of refrigerated receptacles for the front doors of our homes in which groceries can be delivered," said Dr. Judy. "But until that time comes, the logistics of on-line grocery delivery will be a challenge."
The Visceral Experience of Shopping
Dr. Judy also said that even with stiff competition from e-tailers, traditional shopping would always exist in some form but for different reasons. More people will go shopping for the entertainment and social experience.
"The future mall will likely look more like what we see at the Mall of American in Minneapolis," said Dr. Judy. "Malls will become theme parks that offer many amenities and entertainments in addition to shopping."
The Mall of American is a large glass-roofed structure that houses all the major retailers. It also offers boat rides and an amusement park that includes a roller coaster.
"It is more than just shopping but family entertainment," explained Dr. Judy. "The Mall of America has also become one of Minneapolis's greatest tourist attractions, with people regularly flying in from all over the world to visit it." As more customers demand such amenities and entertainment, he added that traditional malls and strip shopping centers would continue to suffer. "Strip malls won't be able to emulate the atmosphere that customers are looking for. They are already facing significant challenges, but finding ways to continue to attract customers who will buy many of their goods via e-tailing and choose places to shop based on family entertainment will be their greatest challenge."
Keeping Up with the Trends
Sooner or later, almost every retailer will need to take the plunge into e-tailing , not only to thrive but also simply to survive. Even so, the goals of that first dip should modest: Use the e-tail site to drive business to the traditional bricks and mortar store and, most importantly, learn as much as possible about this new selling medium and do it as quickly as possible.
"Electronic commerce will be the biggest shock to hit America retailing since suburban shopping malls and discount merchandising," Dr. Judy said in closing. "It will grow from $25 billion in 1998 to more than $150 billion by 2002. No community in America will escape its impact."
The most important thing that chamber executives can do to help their business members meet the challenge is to keep them abreast of fast moving trends and their options for swimming with the e-commerce tide.
For more information, contact Dr. Richard Judy, President, Hudson Analytics, the proprietary research and consulting arm of the Hudson Institute, by phone: 317-841-0133 or e-mail: dickjudy@iquest.net.
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