Essay on Impact of E-Commerce on the Retail Sector
Number of words: 4637
In the contemporary business community, the idea of electronic commerce has gain popularity and is an essential feature in today’s business survivorship and success. E-commerce has grown rapidly in the international market, in both large, medium, and small sized enterprises. The impact of electronic commerce, popularly known as e-commerce, has been discussed and explored extensively by researchers; however, its effects in the retail industry have not been fully understood. Electronic commerce is defined as business transactions that are conducted electronically through the internet. Buyers and sellers use the internet to sell and buy goods and services and transfer data and money to execute such commercial transactions. Doing business through the web has evolved and has been regarded as a new topic for research and development (Shankara, Mahanta, Arora, and Srinivasamurthy, 2015, p.2). Modern online trading utilizes the concept of the World Wide Web in one of their transaction life cycle. Due to the rapid advancement in technology, e-commerce has revolutionized various aspects of retail operation, which include order fulfillment, store design, advertising, and service. Small businesses have benefited from the activities of electronic commerce, and they have been able to boost their sales through online trading. E-commerce is the fastest way of doing business today. This paper will explore the concept of e-commerce and its impacts on the retail industry.
1.1. Problem Statement
E-commerce has been simplifying the way businesses conduct their operations, either to other businesses or to customers. The rise of e-commerce retailers has made it hard for different businesses to attract more customers and has forced such companies to alter their sales strategies. The trend of e-commerce has forced traditional retailers to grow their digital efforts and tune into sales promotions to lure customers. E-commerce has brought many benefits to the retail sector; however, not all businesses have been able to benefit from their positive impacts.
To investigate the role and impact of electronic commerce in the retail sector.
To assess the various driving forces and factors affecting electronic commerce activities in the retail industry.
2. E-commerce and the Retail Sector
The retail sector utilizes a concept referred to as e-tailing to sell their goods and services using the internet. Electronic retailing involves various transactions like business-to-customer (B2C) and Business-to-Business (B2B). The ideal of e-tailing calls for businesses to modify their business strategies to attract the internet market, which can comprise of developing distribution channels like product distribution centers, internet webpages, and warehouses. Vibrant distribution channels are essential in e-commerce as they are perceived as the avenues which move goods to the consumers. In order to ensure successful e-tailing, businesses must develop a strong brand name, engaging websites in which customers can easily navigate, and frequently updated to meet the varying demands of customers. In addition, it is vital to ensure the products offered to stand out from those offered by the competition, and such products should add value to the lives of customers (Shankara et al., 2015, p.4). It is also imperative to competitively price the products to lure customers into purchasing the products, as customers would typically choose products based on costs. A business engaged in e-tailing require secure distribution networks that are prompt and efficient as customers do not want to wait for long deliveries. Transparent and accountability is crucial in e-tailing to build trustworthy relationships with customers as well as brand loyalty.
B2C retailing is the most common method of e-commerce businesses and is the most known to internet users. This cluster of retailers consists of businesses trading finished goods to consumers directly through their websites. For instance, the case of Amazon Germany, eBay, and Saturn. The goods are usually shipped from the sellers’ warehouse and delivered directly to the customer’s location. In order to ensure a successful B2C retailing, developing good relations with customers is required. B2B retailing entails businesses that sell to other businesses. Such retailers comprise of wholesalers, freelancers, consultants, and software developers. Wholesalers vend their goods in bulk to businesses, which in turn sell to the final consumers. E-tailing does not only comprise of e-commerce-only businesses but other customary brick-and-mortar stores who are nowadays capitalizing on e-tailing (Paris, Bahari, and Iahad, 2016, p.19) Companies can benefit from e-tailing as infrastructure costs are generally low as compared to such traditional means of trade. Businesses can move their commodities faster and reach a broader customer base online. Opening a website costs less than opening a store, and fewer personnel is required to run the websites, which cuts down unnecessary costs while boosting profit margins.
2.1. Role of E-commerce on Retail Sector
Retailers across the world have an idea of how e-commerce is essential for their operations; however, to some businesses, it may be a passing drift, implying that traders are not capitalizing on resolutions that meet the online shopping desires of consumers. E-commerce targets for even more advancement in the coming future and inadequate implementation of systems that serve online consumers could be a tragedy for businesses. Due to the growing popularity of online shopping, traders are required to implement the appropriate retail management software solutions which focus on providing exceptional online experiences for consumers, assist in growing businesses’ retention rates and bottom lines. Some of the globally recognized e-tailing stores include Amazon and Alibaba. Amazon is the biggest, and it provides consumer subscriptions and products through its website. In 2018, the company generated revenues totaling $230 billion and $10 billion in terms of net profit. Other electronic retailing businesses that compete with Amazon include JD.com and Overstock.com. Alibaba Group operates in web-based business operations globally, and it’s the largest in the Chinese market. In the year 2018, the company generated revenues totaling $40 billion, and its net profits were under $10 billion (Paris et al., 2015, pp.23-24) These big e-tailing businesses have recognized the roles e-commerce has played in their success, which will be discussed below.
E-commerce simplifies business operations. Among the raised concerns associated with e-commerce is the rising unemployment as people are being replaced by technology. This is the same reason why there were rumors Tesco was going to retrench 9000 of its employees. Tesco operates in the European retail market, and it runs various chain stores. The aim of axing some of its employees was to simplify their operations and accomplish their cost-saving goals. The business was intending to operate differently from the competition Morrison with the motive of attaining competitive advantage. E-commerce websites should be modern-looking, easy to use, secure, and to engage in luring customers (Hagberg, Sundström, and Nicklas, 2016, pp.694-695). The optimization of the site is essential in increasing sales and retention rates. Through e-commerce, customers can browse on their own the products they want and add them into a catalog, check out, and process payments without the need for personnel assistance. The entire system of the retail sector has, therefore, been simplified by e-commerce. In addition, the concept of Electronic Fund Transfer (EFT) has simplified means of payments as customers can transfer funds into the retailer’s account from their locations.
E-commerce streamlines deliveries. E-commerce is becoming more popular in the business world, and products can be delivered to the consumer digitally without the need to physically visit the store. The idea of products being conveyed to your doorstep is a huge deal for consumers. This development has led to the closure of various stores by recognized brands. Most of the retail stores in Europe are aiming at increasing business efficiencies and savings so as to fund price cuts. The move aims at providing customers with similar discounts they were getting before e-commerce gained popularity. Reports published in 2016 indicated that Tesco had reduced its operating expenditures by around 1.5 billion pounds, which was possible as the retail business had invested inefficient distribution networks and procurement savings (Hagberg et al., 2016, pp.694-695). Most of the retailers today desire to establish efficiencies in their delivery systems, as consumers do not want to wait for long deliveries after ordering. In fact, some companies strive to deliver items ordered on the same day to ensure customer satisfaction, irrespective of the distance. Thousands of businesses engaged in e-commerce have targeted to reduce their operational costs and emphasize the overall service quality and delivery to enhance customer satisfaction.
Through e-commerce, operations become convenient and easy. For many individuals across the globe, e-commerce has become the most recognized method of shopping. Individuals enjoy web-based shopping die to its easiness and convenience. Consumers are allowed to browse different products day and night and order at any time from their locations. In addition, the best thing about this kind of shopping is that such consumers will transfer funds electronically, which is quick and convenient. Thus, consumers can save a lot of time, which is involved in the traditional retailing of going around the store searching for products or having to queue at the checkout system. E-commerce offers self check out system after, where consumers can proceed directly to the payment option as the prices are automatically computed. For this reason, 10 percent of the world population have opted to buy their products online due to the user-friendly and convenient business environment created by electronic commerce (Hagberg et al., 2016, pp.696). Companies like Amazon offers quantity discounts and shopping coupons, and customers can enjoy price cuts, thereby saving money. Moreover, transport costs have been discounted to ensure customers do not pay stiff charges for delivery. Businesses across the globe have, therefore, set goals to ensure they optimize the idea of e-commerce and ensure customers get what they want at any time. One essential objective is to ensure no stock outs as consumers are continually browsing for products at any time of the day.
2.2. Impact of E-Commerce
E-tailing offers various opportunities to both producers and consumers. Consumers usually capitalize on decreased search costs, which enable them to benefit from increased product varieties and minimized prices. This reduction of the expenses offers additional opportunities for businesses to expand their market through the internet. The growth of e-commerce has had significant impacts on consumer spending patterns. The increment in product varieties and reduced costs have altered consumer demand and has led to enhanced consumer welfare. This has led to the refutation of the “Pareto” principle of trades concentration as transactions of niche merchandises become meaningfully more imperative in web-based markets (Gregory, 2015, p.2). Various of the impacts of e-commerce on the markets include the following.
Promotion of products: e-commerce has enhanced the promotion as products can be promoted in unique ways, and more information is available to the consumers. This reduces costs as the same information rotates and stays on the internet for a long time while reaching a broader audience. Consumers can interact with this information, which saves the costs of advertising, and businesses can invest in other vital business areas. Also, through e-commerce, customer service is enhanced. Consumers can search for detailed information regarding products they desire to procure, and such online platforms offer varied products that give consumers a variety to choose from. New businesses can post their innovative brands on the internet by utilizing attractive images and setting affordable prices to improve their brand image. This idea is also crucial in establishing their market base and luring customers to purchase their products. Furthermore, new businesses desire to develop long-standing relationships with customers to ensure they claim their share of the market (Gregory, 2015, pp.2-3). Advertisement traditionally was done to let consumers know of an innovative product in the market. Through the practice of e-commerce, advertisement has been utilized in two folds where consumers can search for products, compare different prices, and ask queries to the venders. Through e-commerce, customized products can be offered to consumers as per needs. Customers will normally be attracted by the market if such products provided meet their specifications. The order-making process has been simplified through e-commerce. Traditionally, a lot of time was taken as intermediaries were involved, which was also expensive. With e-commerce, the ordering process has been simplified, which has reduced unnecessary costs and has proved to be time-saving. Businesses can also make more sales. Finally, customer value is a significant goal for most businesses. Traditionally, businesses strived to attract customers, but in modern days, vendors desire to establish long term relations with such customers to achieve long term value through special discounts.
For retailers, e-commerce has various impacts on their business operations. For instance, turnover has increased as compared to offline retailers, which is a good signal for business. When operating e-commerce, the customer base for such business has increased from time to time. That increase signifies growth in sales, which in turn increases profit margins. Offline retailers suffer, on the other hand, as they have to reduce their prices to compete with online retailers. They have thus suffered losses as income earned is used in funding their operational costs. With regards to discounts, online retailers offer substantial discounts as compared to offline retailers. The aim of such discounts is to attract more customers and enhance the retention rate. In order to survive in the market, such businesses continue to offer discount day in day out. A variety of products are offered by online stores in which offline retailers cannot match. Such variety is good for businesses as it gives customers time to browse through and ascertain whether their needs are met. The concept of window shopping has increased after businesses adopted e-commerce (Gregory, 2015, p.3). Consumers usually go window shopping offline retail stores but purchase the product online. Thus, offline retailers have more prospective customers than actual customers. Finally, offline retailers focus more on advertisement as they aspire to match the competition from online retailers.
E-commerce has revolutionized the way businesses advertise today due to the radical changes in the procurement process. With alteration sin procurement tactics, it is essential for advertising techniques to change as well. In modern times, consumers who purchase their products from offline stores look up the merchandises virtually, relate prices, and read criticisms before they make any procuring decisions. Thus, businesses cannot rely on traditional marketing methods anymore. Digital marketing must, therefore, be considered to meet the rising demands of the tech-savvy consumers of contemporary society. Some of the tactics of advertising which can be employed to reach millions of consumers include social media optimization, email marketing, paid ads, and search engine optimization. Most consumers own smartphones nowadays, and businesses can capitalize on this by ensuring they constantly advertise on social media platforms, where consumers spend most of their time (Sabou, Avram-Pop, and Zima, 2017, pp.77-78). Doing so would ensure the company is recognized internationally, which can lead to growth in sales or expansion in the international market.
With e-commerce, the size of the business does not matter anymore. To the end consumer, it does not matter whether you run the store single-handedly or with the help of hundreds of personnel. This implies small businesses can effectively compete with large corporations for market share. The offline stores face the major drawback of having inadequate staff to assist in business activities. Today, the situation has changed due to e-commerce. Small businesses can thus run their operations online, and consumers would never know their size, as that is not their concern. The important thing is to ensure products are available to consumers, and attention is paid to their experience. Also, e-commerce ensures 24/7 operations, which means there is no downtime. With 365 days a year operations, sales can occur at any time, with traditional retailing, shops close at the end of the day, with few managing 24-hour operations (Sabou et al., 2017, p.79). This implies shoppers are restricted to a specified time. Nowadays, with the growing popularity of electronic commerce, consumers can shop at any time, be it early morning or in the middle of the night. Besides, shoppers can shop from anywhere, at the comfort of their homes or while traveling, at any location globally.
A few years ago, businesses were unable to reach out to other consumer markets. Most common in remote areas where it is hard to operate businesses. The development of e-commerce has made it easier for vast outreach. Individuals from remote areas can order products online and have them delivered to their location. Businesses can not only sell their goods and services to their local markets, but also to individuals from each corner of the planet. In addition, marketing products have become more comfortable, and even the mode of payment has become a cakewalk. This implies that the playing field has evened out as compared to before, and smaller businesses can target the markets of giant corporations. With the growing practices of e-commerce, returns on intangibles have been prevalent. Traditional retailing involved capitalizing on both tangible and intangible benefits. For instance, offline retailers require proper management, building, customer relations, IT infrastructure, and equipment in order to remain competitive. Advancement in technology and the internet has made businesses to attain profits with only intangible assets. The concept of e-commerce has eliminated the constraints of space, and time businesses face some time back. Organizations today are not required to operate from a specific time zone or geographical location, as everything has become global (Sabou et al., 2017, p.80). An example is Uber and eBay. eBay does not have physical assets but has been valued at around $2 billion. Also, Uber is the biggest ridesharing platform, and it does not own a single car. Thus, the concept of e-commerce has enabled organizations to become prominent in their industries without the need to hold physical assets.
In present times, vertical integration is not required anymore, as it was the case some time back. In this concept, if individuals required something done correctly, they had to get such things done themselves. As organizations grew, thy began doing things in-house, from retailing processes to research and development. This cost such organizations huge expenses, and it made business processes inefficient and inflexible. The evolution online retailing has led to the reduction of such costs and has enabled companies to focus on fundamental business functions. Electronic commerce enhances communication and quick decision making. Conversations frequently happen through the websites, and the business can provide instantaneous feedback to the consumer (Gregory, 2015, p.4). E-commerce enables individuals to communicate with the retailing company in various ways. If a person is not comfortable through video chats or phone calls, they can always opt-in emailing and messaging. The interactions between consumers and companies enhance communication and thus leads to the development of trustworthy relationships with such consumers.
In times to come, e-commerce operations will grow into a novel impression in the business community. The concept has affected companies both positively and negatively. It makes it easier for companies to reach a broader market at smaller costs than what would be the case in traditional retailing. E-commerce does not require businesses to acquire high-end shops in high streets. The most important thing is to develop a website and advertise them online, regardless of the location. A few decades back, massive capital costs were involved in establishing a business. Nowadays, it has become possible to set up investment from the garage. Some of the negative impacts associated with e-commerce include security and privacy. Retailers normally require a lot of information from consumers visiting their websites. Such retailers develop cookies, which are electronic trackers designed to track the browsing behaviors of visitors for the purpose of targeting adverts to consumers based on their requirements. Various critics state these activities intrudes on the privacy of consumers. With regard to security, there is a potential threat to the personal information of consumers. When consumers are purchasing products online, they input their personal and credit card information. Hackers could access this information through flawed information systems; nevertheless, advanced security systems have been developed by retailers to protect customer information (Sabou et al., 2017, p.80). Despite these drawbacks, e-commerce has more benefits to the organization as compared to the limitations, and more businesses are venturing into the practice each day with the advancement in technology.
3. Drivers and Factors Affecting E-commerce
3.1. Factors Affecting E-commerce
There are various factors that affect e-commerce, and it is essential for companies to analyze the factors carefully. The goal is to make better decisions for the success of the business. These factors include technological, social, economic, and political, commonly referred to as PEST analysis.
Political factors entail the role of government funding, initiatives, and legislation to support the development and usage of online trading and IT in the trade sector. Various aspects of the government can impact the practice of online trading. All businesses are required to adhere to established government laws like labor laws, taxation policies, and environmental laws. It is the duty of the business to investigate how upcoming government legislation will affect its business operations. The role of the government is each country is to enable the requisites for the development of e-commerce by establishing robust online payment options, offering educational programs, enabling a firm ICT infrastructure, and building awareness. Economic factors involve the commercial and general wellbeing of the nation regarding monetary and fiscal policies. Economic efficiency leads to lower advertising costs, minimal communication costs, economic technological infrastructure, more economical, and speedier supplier transactions (Gregory, 2015, p.5). Economic integration is divided into external and internal forms. Internal integration entails the networking of different departments in an organization and the integration of business processes and operations. External integration involves the electronic networking of various organizations, independent contractors, customers, and suppliers into one community, which is done virtually. The integration allows crucial business intelligence to be kept in a digital method and can be recovered and conveyed by electronic means. Various fiscal factors affect the success of e-commerce, and they include interest rate risks, currency risks, and changes in inflation levels. The role of the government is to regulate such risks to ensure business success in the retail sector.
Social factors deal with the incorporation of IT training and education, which will allow potential consumers and personnel to comprehend the usage of technology. The practice of e-commerce has benefited from high disposable incomes, lack of adequate time for traditional shopping, busy lifestyles, higher disposable incomes, and a rise in the standards of living. Thus, websites have been developed, such as eBay and Amazon, to bring goods and services to the consumers. Technological factors include the advancement in technological factors, which is key to the success of electronic commerce (Lim, Osman, Salahuddin, Romle, and Abdullah, 2016, pp.401-402) Growth in technology has resulted in efficient communication. Economic transactions have become more manageable with technological advancements, thus boosting the development of e-commerce.
3.2. Drivers of E-commerce Growth in Retail Sector
The activities of e-commerce are growing fast every year. Research indicates that online trading activities are projected to upsurge by over ten percent in the year 2020. There are various aspects that have been fueling the rise of e-commerce activities, and they will be discussed. First, logistics plays a crucial part in the establishment of visibility in the electronic commerce supply chain and ascertains the general customer satisfaction, service delivery, and efficiency. Unfortunately, the concept of logistics is in-depth and complex in nature. It involves lots of proficiency and a comprehensive network of various minor systems. These trends or difficulties as resulted in the evolution of the supply chain within the sector. An essential driver to e-commerce is the emerging third party logistics, as most retailers are finding it commercially viable to subcontract the logistics component of the supply chain due to its complexity and substantial capital requirements (Lim et al., 2016, p.403). Another driver of the e-commerce business is the explosion of the mobile sector. Each year, the mobile industry has been evolving. The introduction of smartphones has led to the growth of e-commerce as people can surf the internet through smartphones and access online platforms. Mobile shopping has been made possible globally, and such evolution and many brands available has lowered the price of smartphones tenfold, and low-income earners can as well afford. According to statistics, mobile internet penetration has increased by over 66 percent, which means 4.960 billion of the world population can surf the internet using their smartphones. This penetration, together with the availability of disposable income, has driven consumers to online mobile shopping. Business owners believe that quality service emerges from an exceptional assessment of customer desires and conveying consumer experience in one’s solutions. With e-commerce, this can be a challenge as there are no face-to-face interactions with the consumer. However, this issue has been resolved by the utilization of artificial intelligence and big data. Artificial intelligence assists in tracking the spending patterns of consumers, determining their preferences, tastes, and needs. With this information at hand, e-commerce websites can adjust their offerings to suit the preferences and needs of consumers. Lastly, there has been an increase in political enthusiasm and promotion of online retailing. Many governments have realized the benefits associated with cross border activities and have, therefore, started promoting the activity (Lim et al., 2016, p.404). There has been a decrease in clearance procedures, lowering of customs, and other lengthy processes that delayed deliveries. Thus, more online retailers have been able to ship products across the globe with ease.
Electronic commerce has been recognized as the quickest way of conducting business in modern days. This is because it is economical, efficient, convenient, and profitable. There has been an emergence in online stores as businesses recognize the benefits attached to e-commerce in the retail sector. People nowadays can order items and such items would be delivered on the doorstep. E-commerce has aided in increasing revenues for many organizations. In order to attain a competitive advantage in this practice, offering discounts and ensuring continuous promotions is imperative. In addition, the retail sector is required to adapt to the changing needs of consumers to ensure success. In this regard, I would recommend businesses to employ e-commerce in their operations as it comes with many advantages, and they can match the likes of Amazon in the near future.
This paper has widely expounded on the concept of e-commerce and is impacts on the retail sector. We have seen how big businesses today have succeeded in the retail business, such as Alibaba, Amazon, and eBay, by implementing e-commerce in their operations. Continuous development in technology will ensure the activities of e-commerce occur for the unforeseeable future. However, trust issues will always remain a primary concern in this sector, although businesses have been developing policies to minimize the concerns. E-commerce will thus continue gaining popularity, and it has simplified shopping behaviors for many individuals.
Gregory, J., 2015. The Internet of Things: revolutionizing the retail industry. Accenture Strategy, pp.2-7.
Hagberg, J., Sundström, M. and Nicklas, E.Z., 2016. The digitalization of retailing: an exploratory framework. International Journal of Retail & Distribution Management, 44(7), pp.694-696.
Lim, Y.J., Osman, A., Salahuddin, S.N., Romle, A.R. and Abdullah, S., 2016. Factors influencing online shopping behavior: the mediating role of purchase intention. Procedia economics and finance, 35(5), pp.401-410.
Paris, D.L., Bahari, M. and Iahad, N.A., 2016, August. Business-to-customer (B2C) Electronic Commerce: An implementation process view. In 2016 3rd International Conference on Computer and Information Sciences (ICCOINS) (pp. 19-24). IEEE.
Sabou, S., Avram-Pop, B. and Zima, L.A., 2017. The impact of the problems faced by online customers on ecommerce. Studia Universitatis Babes-Bolyai Oeconomica, 62(2), pp.77-80.
Shankara, P., Mahanta, P., Arora, E. and Srinivasamurthy, G., 2015, October. Impact of internet of things in the retail industry. In OTM Confederated International Conferences” On the Move to Meaningful Internet Systems” (pp. 61-65). Springer, Cham.