Retailing Online: Today's Promise and Tomorrow's Opportunity

Business America, Jan, 1998 by Aaron Schavey

Some analysts are predicting that the real breakthrough for retailers on the Internet will be in the cost savings the Internet will provide for retailers and their suppliers by reducing the cost of communicating through Electronic Data Interchange (EDI). Today, many large retailers communicate electronically with their suppliers through value-added networks (VANS) to conduct business-to-business transactions, which improves cycle times, reduces errors, and provides significant cost savings. The problem with VANS is that they are proprietary and, therefore, relatively expensive. The Internet provides a relatively low-cost method for retailers to use without diminishing any of the benefits from a VAN. Experts estimate that the use of the Internet for EDI will reduce the cost of transmitting data by 90 percent.

Another more tested technology is television. Retailers are exploiting this medium through infomercials and cable channels devoted exclusively to home shopping. The Quality Value Convenience (QVC) channel and the Home Shopping Network (HSN) have proved that retailing on television is a profitable venture -- an estimated $5 billion in sales during 1995 in the United States alone. In addition, many retailers such as Spiegel, Neiman Marcus, The Nature Company, The Sharper Image, Macy's, and Williams-Sonoma have begun to market their merchandise on television.

A number of factors explain the increase in home shopping over recent years. One is convenience. Home shopping allows consumers to make purchases of goods and services from their own home at any hour of the day. A second factor is security. A recent national poll found that 65 percent of women do not feel very safe when they shop, while another poll revealed that one in seven consumers shopped less in 1995 because of the threat of crime. Finally, information about the merchandise being sold on television is often quite detailed (infomercials) so consumers feel they have made a very well-informed decision when they make their purchase.

The home shopping industry is expanding overseas, as is international marketing over the Internet. For example, the home shopping industry has entered the Chinese market, and the Chinese government has recently announced the creation of ChinaWeb, a web site dedicated to promoting business and commerce with China through the Internet. Home shopping channels have also entered Australia, Canada, Hong Kong, India, and Japan. It is likely that the $8 billion global home shopping market will continue to steadily increase over the next few years. International marketing over the Internet is beginning to evolve as well, although significant infrastructure and regulatory barriers remain. It now appears, however, with the rapid expansion of the Internet domestically and internationally, that commercial "web sites" will be a profitable distribution channel for American retailers.

By Aaron Schavey, International Trade Specialist

Office of Service Industries U.S. Department of Commerce