Editor's note: This faceoff is part of
three-day series on the e-tailing Internet wars. To read the other side of the debate, see Steven Schuster's piece, then vote on whose argument is more compelling.
The problem with debates like this, of course, is that they're so darned binary: Will online e-tailers vanquish bricks-and-mortar retailers? Or will the B&M crowd put the online guys out of business?
Neither, of course. Both will be prospering long after
has lost the rest of his hair. (Which, it occurs to me, may not be that long.)
But in this contest, the online folks have some profound advantages and are going to take away market share by the bucketful from storefront operations. Yes, traditional store-based resellers have some advantages too, but they've played most of their cards already. And they carry a terrible burden when they try to jump into online sales and maintain a presence in both worlds. Count this contest as a bloody draw -- but with the Web e-tailers effectively winning, moving from nowhere to very substantial market share in many areas.
and allthoseother.coms have shown, good planning, a well-designed site and nimble management make it relatively easy to establish an effective e-tail presence. Not easy, mind you, just relatively easy, compared with the kind of blood, sweat, tears and years that it took the
and other mega-retailers to get where they are today.
Sure, with few exceptions the e-tail sites aren't yet making money, and many -- Amazon.com remains the best example -- are consciously rejecting near-term profitability for longer-term market share, maybe market dominance. But the market has spoken, and it says it thinks that kind of investing now for future paybacks makes sense. (Compare that attitude to so many conventional retailers' manage-by-the-quarter attitude -- the one we've criticized so harshly for the past decade as short-sighted -- and it begins to make more sense.)
Chalk up these wins for the e-tailing side:
- No bricks-and-mortar costs. No dealing with highway-robber mall operators, who not only want so much per square foot but a cut of sales too. No dealing with real estate operators who control the highest-traffic storefront sites in every city -- and gleefully gouge their tenants every month. No expensive store-design, store build-out, and store-"refresh" costs. Rent some cheap warehouse space and jump online.
No, or almost no, inventory costs. Not just the cost of carrying inventory, mind you, but the hidden costs, such as absorbing losses on aging and unsold inventory, employee pilferage and potential physical-risk losses. Most Web retailers carry no, or very little, inventory, instead using manufacturers or distributors to drop-ship directly to their customers.
Those who do carry some inventory usually do so, like Amazon.com, only on the highest-volume items, to assure good customer service by shipping from inventory. As you might guess, the size of their operations all but guarantees them deeper discounts than those Schedule C prices on suppliers' price sheets. And by physically stocking only fast-moving items, they have little capital tied up in average inventory, and are unlikely to get stuck with dead merchandise.
No local advertising costs. We see great ads, more often every day, on the television networks and in national print media, for e-tailers, but very few of those unbelievably expensive local newspaper, radio and TV ads that storefront operators need to drive traffic their way. Online doesn't need 'em.
No local or state sales taxes. True, this one goes away in a couple of years, when the federal ban on taxing Internet-based transactions expires. We can expect to see a system, and probably not a pretty one, intended to level the field between e-tailing and retailing. (You say it's unfair to local merchants to have to compete with e-tailers that don't have to collect sales taxes? Agreed. But that's the way it is. Write your congressman.)
On the traditional retailers' side, chalk up:
Touch and feel. Many buyers still want to stroke the velvet, turn the pages and snap the shutter on that new camera before buying. The percentage of buyers who fall in this category will decline with growing awareness of and trust in e-tailing. But there will always be some buyers who want to fondle the goods before coughing up the credit card.
Instant gratification. No matter how good a deal whatsis.com can offer me on next-day
FedEx shipping, nothing is as fast or cheap as walking in the door at the
Barnes & Noble (BKS) - Get Report down the street from me, picking up a book, paying and walking out. We'll see better and cheaper delivery mechanisms in e-tailing, but when you need your spouse's birthday present and it's 7 p.m. the night before his birthday, you're going to the mall, period.
Trust. Some traditional brick-and-mortar retailers have built a reputation for open and trustworthy dealings with customers. Think
Nordstrom (NOBE) , or
Saks (SKS) , or Home Depot.
Despite all the assurances from dot-comdom, it will be some time before online merchants enjoy that same reputation and level of trust with the general public. (Hint: That's one reason Amazon's Jeff Bezos insists on spending more on customer service than on advertising. It works -- but it takes time.)
Most of the other advantages often claimed for traditional retailers -- such as personal relationships, personal service and quick feedback on what's selling and what isn't -- turn out to be offset, or topped, by similar wins on the online side.
Maybe the toughest case of all is the bricks-and-mortar retailer that decides to open a parallel online operation. Years of B&M success have freighted even successful retailers with painful baggage. From moving too slowly, buying the wrong merchandise mix and providing indifferent customer service, to the worst of all, protecting storefront sales by hobbling online operations in critical and often fatal ways, traditional retailers find it very, very difficult to work both sides of this street.
It's immaterial that you and I like to buy things online -- we're not, as they say, statistically significant. What counts is that Mr. and Ms. America are coming to discover the advantages of browsing and buying online. And their immense online purchases will come right out of the hides, and the cash registers, of the storefront crowd.
Disagree? Read the other side of the argument in Steven Schuster's
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Wal-Mart and Gap, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at