The E-volution of E-commerce Part III:
Shaking Down Brick-and-Mortar

The Internet is also proving to be the great equalizer, because it enables new entrants to compete with established firms and offers the possibility of rapid growth. E-commerce in its various forms, has taken the business world by storm and is changing the way corporate America conducts business, shaking down brick-and-mortar Fortune 500 companies which are scrambling to catch up to the virtual companies developing extraordinary means to develop brand loyalty, attain marketshare, sell their wares, and service and maintain customers. For example, in 1998 the success of on-line company eToys’ fourth quarter revenues of $22.9 million sent shock-waves through the business community when it successfully beat the web-based efforts of well established brick-and-mortar toy sellers, Toys “R” Us and Wal Mart, both which hurriedly revamped their own web-sites as a result.

In terms of financial impact, e-commerce is a miniscule part of the nation’s economy overall, accounting for less than one percent (0.70 %) of total retail sales for both the first quarter of 2000 and the final quarter of 1999 (0.63%). The Census Bureau of the Department of Commerce estimated U.S. retail e-commerce sales for first quarter 2000 to be $5.26 billion, an increase of 1.2% from fourth quarter 1999. The fourth quarter 1999 e-commerce sales estimate was $5.198 billion. Total retail sales for first quarter 2000 were estimated at $747.8 billion and fourth quarter 1999 estimate was $821.4 billion.

However, as Commerce Undersecretary Robert Shapiro noted recently at the news conference announcing the Department’s latest figures, e-commerce shows great strength when compared to overall retail sales which fell by 8.9% as expected after the post-holiday sales slowdown. “The continued growth of e-tail (electronic retail) commerce indicates that online retail purchasing is not merely or primarily an end-of-year holiday phenomenon,” elaborated Shapiro.

One glowing example of the retail channel shift in favor of online purchasing is a significant trend seen amongst book buyers. In its 1999 Consumer Research Study on Book Publishing the NPD Group found that the online portion of total book sales had the most significant gain last year, growing 34% from $1.9 to $5.4 billion. This was in contrast to overall book sales which fell flat; sales falling for book clubs and independent sellers and barely increasing by .03% for chain stores.

Part of the growing trend is apparently a result of the savings consumers are seeing from improved web-based supply chains cutting out costly middle-men. According to the National Retail Federation, consumers potentially save 6-8% when buying books, CDs and other goods over the Internet.

Despite all the excitement, there are those who express caution. The Advisory Commission on Electronic Commerce (ACEC), a group of federal and state regulators established pursuant to the U.S. Internet Tax Freedom Act, espouses a more conservative approach. “With Internet commerce only in its fifth full year, it is still early to draw conclusions and make projections on the extent to which consumers of Internet goods and services are shifting their purchases from other retail channels, such as catalogues, or simply increasing their overall purchases” ACEC recently stated in its April 2000 Report to Congress.

In general, due to varying definitions and research methodologies firms use to collect and analyze data, growth estimates have varied greatly. Some studies have focused on business-to-business (B-2-B) transactions to gauge growth and economic impact, while others have focused on business-to-consumer (B-2-C) e-commerce. On March 2, 2000 the U.S. Commerce Department Census Bureau released only its second official estimate of online retail sales ever, and they paled in comparison to what several other groups had been espousing.

Part IV: Worldwide E-commerce Explodes Next



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Lorenzo D. Domínguez. All Rights Reserved.
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