Logistics in E-Retailing Industry Essay

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Is the forecast of the e-retail market too realistic and Main barrier in developing home delivery channel?

The e-retailing industry has experienced tremendous growth rates over the years. The e-retail market constitutes of business to customer (B2C) where business sell their products and services via online web services. The e-retailing business is viewed to have great benefits as compared to having physical retail outlets. The advantages of e-retailing for businesses are low operation costs and savings on storage and human capital. The prices and buy deals offered to customers online are more attractive as businesses tend to save on this offerings because of the factors mentioned previously. Certain disadvantages from the customer-side could include accessibility to internet, payment issues and most important trust which they invest in such online businesses. The e-retailing is expected to grow despite of its considered disadvantages and 1990s internet market crash (Harris and Dennis 2002). Some e-retail business lines including grocery, sex related items, books and clothing have outperformed store retailing.

However, it is commented by Verdict (2000) that ‘the proliferation of female-oriented sites…have failed to motivate women to shop significantly more’. This is mainly due to lack of interest and customers prefer to purchase from e-sites operated by high street retailers. For business there are issues of developing customer loyalty as the switching costs for customer is negligible and it is not possible to limit customers from buying similar products from somewhere else. Also there are certain products which customers want to see and touch before buying that undermines the scope of products to some extent. The convenience associated with internet buying is overcome in some situations due to delays in delivery (Johnston, 2000). A projection by Price Waterhouse Coopers suggests in 2007 that by 2011 virtually everyone under age of 55 will have used online purchasing and 70% of UK citizens will be using online services. The market is expected to grow to £35 billion that is 3 times its current value (Herrod 2007). The expectations seem debatable as the economic crisis which is yet to take its toll on consumer spending however prices on online services being attractive may lead to their further expansion. It is therefore concluded that forecasts related to e-retailing may seem unrealistic to some but it cannot be completed rejected at the same time.

The factor of convenient buying is important from customers’ perspectives however businesses offering online services are faced with certain barriers which undermine their working. Transportation is crucial as customers are put off by high postage charges and insurances they have to buy which is often included in the price. Further delays in transport may affect the reputation of the business however this varies for different products as for media download there are no issues of transport (Sinha and Rabinovich 2004 ). 3PLs is a combination of warehouse management and delivery goods by delegating to a third party which puts companies on less controlling terms and shrinks their margins (Southard 2009). The customers are also hesitant to use e-retailing services because of lack of after sales care service. The smaller retailers often lack support systems to provide these services which are important for customers. Other issues such as concerns regarding refunds and return of goods as it is difficult to find redress once goods and services are received. A report published by a company Verdict, UK highlighted that ‘retailers need to improve the refund process, making it easier for customers to return unwanted or faulty goods(2008). Therefore, we could conclude that e-retailers still need to do more to induce home based customer purchasing and build their trust in their offerings.

Category Management within the context of ECR

The Role of Category Management

The concept of category management has been introduced as a tool of efficient retailing marketing. It is defined as ‘a retailer/supplier process of managing categories as strategic business units, aiming to enhance results by focusing on delivering consumer value’ (Dennis, Fenech and Merrilees 2004). In this the total range of products sold by retailers or perfectionists are broken in different groups of similar or related products. These groups are known as categories of a product. The implementation of category requires collaborative and co-operative supply partnerships with suppliers (Varley & Gillooley, 2001).

A key reason for the Category Management introduction was the desire of the perfectionists for suppliers to add value to their businesses before suppliers’ own businesses. The categorization of products with similar trends and demands make the retailing business more successful and has resulted in increased revenues for businesses. However, it is to be understood that by doing so the net profit remains unaffected in situations where suppose supplier A promotes its products, the sales of supplier B would descend for the quantity that A would enlarge. The Category Management allows retailer to supply products that customers want and meet their demand at the right time and in the right place. This could also have impact on costs as efficient and focused promotional activities allow suppliers to cut down costs of their ongoing promotions (Varley and Gillooley, 2001). Thus, the product selling becomes more directed and sales information regarding products in same category becomes easy to be recorded and important business decisions are taken at the right time.

A second reason was the execution that only a finite quantity of profit could be squeezed of negotiations of price and that there was more profit to be done to enlarge the total level of sales. The category management minimizes stocks and speed of response to customer requirements.

A third reason was that the contribution with the supplier signified that the skill of that supplier about the market could be utilized, and also that a considerable quantity of load of work to develop the category could be delegated to the supplier. Efficient supply chains could be achieved with computer network links between suppliers and retailers.

Disadvantages of Category Management

The concept of category management as the rest of ECR relies heavily of theory and jargon with its costs overweighing the resulting benefits. Further to this, Wills (1999) also added that the implementation of category management requires heavy investment in reorganizing and faces various problems including flaws in specific product’s strategic planning, hesitance to change, skills shortages, reluctance to accept suppliers as close associates and sharing information with them.

Too much emphasis of category management can also run into problems as retailers focus on achieving logistics and merchandising efficiency often face with a risk of customer experience being poor. This could arise as retailers aim for category managed product ranges which offers safe marketing leading products but the limitation of choice could actually make the customer experience ‘uninspiring and ubiquitous’ (Webb, 1999).

This management technique could have serious impact on small suppliers businesses. Large suppliers often manipulate to take advantage of their position and push small suppliers away. However, some retailers have adopted buying-led organizational structure and not category management e.g. Selfridges (Wills 1999) and also some countries have allowed retailers through legislation to allocate certain portion of shelf to small suppliers e.g. France (McCawley, 2000).

References

J. A Dawson and S Burt (1983) Hypermarkets and Superstores Bibliography. Euromonitor : London.

J A Dawson (1985) Issues in Retailing : trends and implications for the planning of retail provision in the major Scottish cities. Scottish Development Department, Edinburgh.

J A Dawson (1988) Environmental Improvements in Existing Town Centres. Scottish Development Department, Edinburgh.

Smith A (1997) Retailing and Small Shops. The Scottish Office Central Research Unit, Edinburgh.

Fernie J (1998) Logistics and Retail Management. Kogan Page : London (Also translated and published in Spanish and being translated into Japanese for 2006 publication).

Town Centre Uses in Scotland. (1998) The Scottish Office Central Research Unit, Edinburgh.

Findlay A (1999) A Bibliography of Retail Planning. NRPF: London With subsequent updates in 2000, 2001, 2002, a second revised edition in 2002 and a further update for 2003 and 2004 (with A Findlay).

C Baret and S Lehndorff (2000) Flexible Working in Food Retailing. Routledge :London.

Gustafsson K, Jonson G and Smith DLG(2006) Retail Logistics and Fresh Food Packaging. Kogan Page : London.

Dawson J A (1983) Politica commerciale, programmazione, interventi legislativie normativi. p147-232 of La Distribuzione in Gran Bretagna. Cesdit : Milan.

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