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The Future Of Retail
Seema WilliamsSenior AnalystOnline Retail
Agenda
Consumers adopt eCommerce The new rule of engagement What’s happening to Dot Coms?
The Net takes off at home
33
44
5460
6467
70
10
23
35
4247
5255
0
10
20
30
40
50
60
70
80
1998 1999 2000 2001 2002 2003 2004
Millions of U.S. households On-line
households
On-lineshoppinghouseholds
Three stages of Web buying
Convenience spending Small-ticket, low-risk items
Examples: books, music, apparel, gifts
Researched purchases Information-intensive big-ticket items
Examples: travel, appliances, computers
Fulfilling essentials Low-information habitual purchases
Examples: groceries, prescription medication
Retail Spending Growth
$184
$37
$79
$69
The New Rule Of Engagement
Dynamic Trade is the ability to satisfy current demand with customized response
Dynamic trade
Services eclipse
products
Dynamic Trade
Service eclipses products
Online services exceed pre-Web standards– Garden.com, Lands’ End– Carpoint
The Carpoint experience
The close rate is . . .
If a dealer responds within . . .
24 hrs. 25%
48 hrs. 11%
>48 hrs. <5%
Dynamic trade
Services eclipse
products Demand drives
productionDynamic
Trade
Dynamic trade
Online services exceed pre-Web standards– Garden.com’s landscaping– Carpoint
Demand drives production– Herman Miller 2-day built-at-order chairs– BMW’s configurator points to future
demand
Dynamic trade
Services eclipse
products Demand drives
production
Pricing matches market
conditions
Dynamic Trade
Dynamic trade
Online services exceed pre-Web standards– Garden.com’s landscaping– Carpoint
Demand drives production– Herman Miller 2-day built-at-order chairs– BMW’s configurator points to future demand
Market pricing– Buy.com, Value America, eBay– Shopping engines MySimon.com DealTime
The Demise of Dot Com Retailers
Retailers focus on growth for 2000
Retain staff
Build B2B business
Achieve profitability
Synchronize channels
Add content
Raise customer satisfaction
Build brand
Improve site design
Grow the business 86%
18%
26%
42%
46%
48%
2%
10%
18%
Percent of 50 retailers responding(multiple responses accepted)
What are your greatest challenges this year?
Percent of 50 retailers responding(multiple responses accepted)
44%
38%
34%
32%
24%
70%Differentiation
Financial health
Fulfillment capabilities
Customer satisfaction
Site design
Funding
What are the most important assets of your business?
Percent of 50 retailers responding(multiple responses accepted)
36%
32%
30%
26%
24%
16%
50%
14%
30%
Brand
Site design
Partnerships
Staff
Fulfillment capabilities
Customer data
Content
Customer service
Channel synchronization
When will you be profitable?
Percent of 50 retailers responding
Don’t know/won’t say
32%
200224%
20032%
20044%
200020%
200118%
Where will funding come from this year?
Percent of 38 retailers receiving funding in 1999 and 2000(Percentages do not total 100 due to rounding)
Don’t know/won’t say
Parent company
Venture capitalist
Business angel
Public markets
20001999
5%
18%
32%
24%
24%
42%
34%
11% 11%
State of online retailers
Focused on growth Challenge: Differentiation Asset: Brand 40% expect profitability within 19
months Future sources of funding seem
scarce
What ails online merchants?
Funding dries up
Online Retailers Watch Their Market Caps Plunge
Stock price relativeto IPO
egghead.com
drugstore.com
Ashford.comeToys
Value America
Note for comparison: Amazon.comis 4,444% above IPO price
-100%
-50%
0
+50%
+100%
+150%
+200%
+250%
+300%
3/002/001/0012/9911/9910/99
What ails online merchants?
Funding dries up Financial pressures -- price pressure Competition intensifies
Consolidation is inevitable
What it takes to survive
Scale– Registered unique users: 1M+– In-house fulfillment– Adult supervision
What it takes to survive
Scale Service
– Selling in multiple channels– The right product offering
What it takes to survive
Scale Service Speed
– 99.9% site up-time– Sophisticated commerce and
merchandising skills– Outsourcing only emerging skills
Consolidation criteria
Market maturity– Percent of category sales online– Amount of online revenues– Annual online revenue growth through 2004
Product commoditization– Differentiation of product set– Operating profit potential
Competition– Number and strength of competition– Dominance of current leaders– Stock performance
Categories at risk
Commoditized, mature markets– Media, computer hardware, flowers
Highly-competitive, adolescent markets– Autos, toys, sporting goods,
replenishment, leisure travel, tools and garden
Nascent, highly differentiable products– Furniture, appliances, apparel household
goods
Who’s got it:
Wal-Mart.com: Multiple channels, fulfillment expertise, lots of customers
Amazon: Fulfillment, customers (20M), and technology
eBay, Priceline: new selling models eZiba: New market that wouldn’t
work off-line
Who doesn’t:
Any brick and mortar holdout Dot-coms that don’t already have
scale– (most besides Amazon)
Summary
Consumers will spend more than $180 billion online in 2004
Dynamic trade rules Dot Com retailers struggle to survive
