online retail industry research paper

Online Retail Industry BMG320: TOPICS IN ENTREPRENEURSHIP

Carolyn Gagnon and Jonathan Goyette - April 5, 2015

ONLINE RETAIL INDUSTRY �1

Table of Contents


Section Page

Executive Summary 3

History of Online Retail 4

Customers 5

Types of Online Shopping 8

Effect on Brick and Mortar 11

Shopify and Business 13

Case Studies 15

Brooklyn Projects 16

Holt Renfrew 19

Executive Summary

Online retail is an industry booming in the recent decade because of the increase in

social media and internet usage. There are many different customers who shop both online

and in store and in order to run a successful online store the retailer must learn which

customers they are targeting. There are new styles of shopping, and they are constantly

changing making it hard for new entrepreneurs to keep up. The service Shopify can help new

businesses set up their online store, and provide them with a webpage that is appealing to

customers. Shopify is a great tool for smaller businesses who do not have the capital to set up

and run their own online shop. Brick and Mortar stores are becoming a thing of the past and

many malls across America are closing. Through our personal experience at retail stores we

can see first hand what is happening in the retail industry, and how the online sector is

changing.Brooklyn Projects is a skateboard and lifestyle brand company based out of Los

Angeles, California. They have a great store and their brand is well known but once they

broke into the Canadian and specifically the Quebec market they lost some of their brand

name. The Quebec locations did not do nearly as well as the other stores partially because of

their lack of an online store but also from their mall location. Holt Renfrew is one of Canada's

most popular high end department store. They have been a leader in the industry and many

people know the brand, but they have fallen behind because of their lack of an online store.

Having an online presence is an important factor in todays market and will make your

company successful in the market.


Online Retail History

In 1979 English entrepreneur Michael Aldrich invented a way to shop online using a

television and a computer type system. Aldrich used videotext technology, which was one of

the earliest ways to send text information from one computer to another generally using

televisions as screens. Redifon’s Office Revolution was the first program in which consumers

to communicate with manufacturers or suppliers about goods and services. In 1991 the World

Wide Web opened for commercial use and new technologies were added every day. It was

not until 1994 that the first secure online retail transaction was made. Several companies

started to create online banking opportunities for their customers. Netscape was the first

search engine to allow buyers to purchase securely online. Restaurants like Pizza Hut quickly

started to make it possible to order online and from then on the industry of online retail

continued to grow into the billion-dollar industry it is today. Major online retailers like eBay

and Amazon quickly emerged in 1995 and allowed for a wider range of products to

customers worldwide. Today 72% of Millennials shop online before they visit a store to see

what the stores have to offer. The world continues to advance technologically which is why

more and more people are beginning to shop online.


Customers

The above photo shows the type of shoppers that are most common in our society,

each of these types of shoppers is looking for a different experience. Knowing what type of

shopper you are trying to target is key when trying to run a successful store.

Experience Seekers:

Experience seekers are the types of shoppers that may not shop necessarily all the time

because they need something but they enjoy the shopping experience. For this type of

shopper they will not be as worried about the price of the product, but more for the

experience they have when buying it. This is the highest percentage of shoppers and shows

that as much as we may think price is king, it may be the shopping experience. This can help

a new online business because if they know that consumers prefer experience they will make

sure that they have a solid website. A retailers website is a direct reflection of their store

experience, so if you have a well laid out online store your customers will be more likely to

have an enjoyable experience.

Traditionalists:

This type of shopper is the kind of consumer that will always shop in store and will

not be likely to purchase products online. This customer is hard to persuade to shop online


because they have become accustomed to the traditional way of shopping in a physical store.

The only way to convince this type of customer to shop online before they will go into a store

is to provide them with something they cannot get in store. This can make it difficult for an

online store to be able to create a competitive advantage over the physical store.

Price Sensitives:

A price sensitive shopper is one that may not plan on buying anything but when they

see a deal they will purchase. This can be a beneficial type of shopper for an online shop

because they are often able to provide better deals than their brick and mortar counterparts.

Many people head to an online shop because of the price difference and often shopping at an

American vs Canadian store can provide the customer with better deals. If opening an online

store as an entrepreneur and you are able to provide your customers with the possibility of a

lower price compared to your brick and mortar competition.

Savys:

A savy shopper is the kind of shopper who knows a good deal when they see one, but

is also easy to persuade to shop at your store. A savy shopper knows when they have found a

good deal and therefore often look to online shops to provide them with what they are

looking for. If an entrepreneur has an online retail shop that is able to provide a savy shopper

with the experience and price they are looking for then you can bring them to shopping at

your website.

Exploiters:

This type of shopper is one who will do anything for a deal. They go shopping with a

specific price in mind, and will not purchase until they can reach that desired price. A lower

price is what they are looking for in their shopping experience, and is the main deciding

factor in their purchase decision.


The age of customers is something that many think would have a bigger affect on

where consumers shop. But the above picture seems to prove that between the ages of <30

and 64 there are a fairly even number of people of different ages using mobile shopping.

Although millennials are bigger users of the internet and online shopping the older

generations are not far behind. This is a trend that online stores need to keep in mind,

because as much as they may be targeting the younger. Online retail has become the new

norm for online stores, and all types of customers are beginning to shop online.


Types of Online Shopping Webrooming

Dr Gary Edwards from Empathic defines Webrooming as:

"Webrooming is the opposite behaviour to 'showrooming.' With showrooming, retailers are faced with

the challenge of customers coming into the store to browse and test products, only to subsequently go

home and actually complete their purchase online (often through a competitor.) Webrooming, on the

other hand, is when consumers research products online before going into the store for a final

evaluation and purchase."

Webrooming is a popular shopping act for consumers who prefer to compare products

online before then buying them in the physical store. Many shoppers find that when

shopping online they are able to see more products in one place and compare them side by

side. The main disadvantage that many consumers find with online shopping is the high

shipping costs, especially as Canadians when shopping in US stores. Shipping can often

increase the product so much that even with a deal online, it is still more beneficial for the

customer to go into a physical store. Going into the physical store then allows the customer to

touch and feel the product they have seen online. For many customers this happens when a

product is more expensive and they want to see it before spending all the money online.

Being able to touch the product can bring more of a sense of security about the product, and

will likely lead this type of customer to their final purchase. Webrooming is becoming more

popular amongst millennials because of the popularity of the internet and social media. It is

much easier to find products online with todays technology, but the price conscious

millennial will be more likely to shop online in order to avoid shipping costs. For some

people the webrooming ends in the online store and they never make it the physical store,

and this is where showrooming comes.


Showrooming

Techopedia defined Showrooming as:

"Showrooming is when a shopper visits a store to check out a product but then purchases the product

online from home. This occurs because, while many people still prefer seeing and touching the

merchandise they buy, many items are available at lower prices through online vendors. As such,

local stores essentially become showrooms for online shoppers.”

Showroomers are the types of shoppers who prefer to browse in store to find a

product, only to return home and make their final purchase online. Often this process results

in the customer purchasing the item from different store than the one they shopped at

physically. One thing that could steer customers away from purchasing in the actual store

would be any sales the online market is providing. There are a lot more places online that you

can find the same products you’ve seen in the store, and often for a lower price. What many

customers like about the physical store is the discussion with the sales associates you’re able

to have about the product. For many people this is for a product that could have various

models or something like shoes. Being able to try on articles of clothing or shoes can make

the shopping process much easier rather than the guessing game you must make online. This


has become even more popular with big shopping days like Cyber Monday. Cyber Monday

has boomed because consumers are no longer inclined to wait in the long lines and enter

crowded malls for the sales on Black Friday. You are able to find the same, if not a better deal

online only two days later. Showrooming is becoming less popular amongst millennials

because they are most likely to shop online before even considering going into a store.

As a new entrepreneur you must take into consideration the trends in shopping styles,

and for many new retail stores it is becoming more popular and necessary to open an online

shop. Otherwise you risk that your brand may become irrelevant especially from the startup

stage.


Effects on Brick and Mortar

The fall of Brick and Mortar has inevitably continued to affect malls all over North

America. Stores without an online presence continue to suffer because of the technological

era we are in. In the 1970s malls were being built and the owners of stores believed that if you

build it they will come, for several years people would do most of their shopping at mall

locations. With the continuous technological advances the fall of Brick and Mortar has no

reason in slowing down. Retailers, restaurants, manufacturers etc. will continue to make

online retail opportunities for their customers leading to less and less of a need for stores.

Throughout the United States nearly 200 malls are suffering 35% vacancy rates. The more

popular stores that people go to malls specifically for like H&M or Simmons are the only

stores that seem to be producing positive numbers. It is becoming more challenging to open a

new store in a mall because of how little people will know about the store without an online

presence. People no longer need to go to the mall for specialized goods they can find

everything online and even if they do go to the mall, people will tend to check online before

doing anything in order to save time or check for best prices.


In the past it was normal for someone and their friends or family to go to the mall for

shopping days and to see new items. Today these items can be found online the moment they

are put on the market. Mall shopping is being seen as more and more of an excursion than a

necessity. It was in 2013 during the holiday season that the most noticeable decline in foot

traffic throughout malls was noted. In the United States during the 2013 holiday season malls

and other major stores said to have under half the income and foot traffic as they did the year

before. Shopping online helped shoppers avoid crowds, compare prices without traveling

and having everything sent to them before the holidays guaranteed. Online retailers continue

to take advantage of the easy accessibility of their online shops by continuing to find new

ways to make online shopping a good and easy experience. According to Forbes magazine

“71% of people expect to view all in store inventory online and just over 50% expect to have

the ability to purchase those goods online.” Stores are continuously trying to better their in

store experience or find new ways to accommodate new customers, however with online

shopping growing at the rate that it is it is inevitable that people will continue to see mall

shopping as an excursion rather than a necessity.


Shopify And Business Shopify is a Canadian e commerce business that specializes in computer software for

online stores. They can also provide your business with a retail POS system, something many

small businesses cannot provide for themselves. Founded in 2004 in Ottawa, Ontario they

have grown their business to now having over 150,000 users across North America.

Build a Business Program by Shopify

The build a business program by shopify creates an opportunity for small businesses

to create and sell their product. Many small businesses lack capital and then cannot grow

their business and become successful. This contest created nearly 1,400 new business across

North America generating 3.5 million dollars in sales. The winner of the competition wins

$100,000 for their business and allows them to continue on growing their business.Along

with the cash winnings the winner of the competition gains access to mentorship from

entrepreneurs like Richard Branson and Daymond John This competition is a great starting

point for any new business, allowing them to use the Spotify program to start their business.

Shopify Program

The shopify program allows for business to select different themes and web designs to

be sure that you are showcasing the best side to your business possible. Shopify is affordable

for all businesses through their different prices, allowing any business to be able to afford

their product. Their starter package begins at $14 per month providing basic services to

business wanting to sell their product. Their credit card rate starts at 2.9% per transaction for

the starter package and basic $29 package, but as you increase your service the credit card

rate decreases. Shopify has 24/7 support for their businesses something that can be very

useful in the early stages of product development. Shopify allows you to put as many


products as you need on their platform. Their most popular package is $79 and provides the

customer with more services such as professional reports and abandoned cart recovery.

Shopify is a great tool for start up businesses who don't have the technology of capital

to run an online store themselves. The service is easy to use, and provides companies with

aesthetically pleasing web designs. For any new business shopify is a great service that can

provide a complete online store and POS system. Starting an online shop can be difficult and

with the help of Shopify it can be much easier.


Case Studies


Brooklyn Projects

Brooklyn Projects is a world-renowned skate shop located in the heart of Los Angeles.

Dominique Deluca founded Brooklyn Projects in December 2002 and opened his first location

on the famous Melrose Street in downtown Los Angeles. Dom was a former professional

BMX rider, Skateboarder and MTV VJ. Dom spent years with different professional skaters,

bikers and famous musicians and when he opened the shop in 2002 a lot of these people were

able to support his shop and made it in to one of the most famous skate shops in the world.

In 2005 Dom and his business partner and pro skater friend Hiro Nagano opened their

second location in Japan where Hiro was from.

For years Brooklyn Projects was able to create a in store experience that was like none

other. Dom knew enough famous skateboarders, music artists and Bmx riders to keep the

buyers interested. Brooklyn Projects went on to open an art gallery in a certain section of the

store for different artists to show their skills which was a major trend in 2005 when artist

Sheppard Ferry changed OBEY street art into a street wear clothing brand. Artists, music

lovers, pro skaters, Bmx riders were all gravitating to the store making it easy for Brooklyn

Projects to continue its growth. In 2006 Dom started a professional and Amateur skate team

and opened a mini ramp in the back of the shop for returning customers and friends to hang


out whenever they wanted. Brooklyn Projects Los Angeles has always been the most

successful location, along with the backyard mini ramp, Star-studded clientele, Art Gallery,

and Skate team Brooklyn Projects LA also had major collaborations with Nike Rook and other

brands. Brooklyn Projects also had an outdoor shop not a mall shop and most importantly

they had an online presence.

In 2013 Dom decided to open two Montreal locations in two different malls. The two

Montreal locations opened at the same time with no marketing, no online presence, no

special appearances, no events, no skate team and limited releases of new products. Dom

spent years creating an in store experience at the LA shop that did not translate to the

Canadian locations and without any web presence the Canadian stores were suffering. We

started by adding social media and marketing what was coming into the store, 90% of our

followers were not from Montreal and constantly messaged us to ask if we had an online

shop to purchase goods. In 2014 Dom opened another Canadian location on Queen Street

outside of any mall in downtown Toronto, within weeks the Toronto location was generating

more income than both Montreal locations combined. Toronto started with an online website

and quickly allowed shoppers to purchase goods online. The Toronto location also created an

in store experience through marketing and different events throughout Toronto. Toronto and

Los Angeles both were able to create in store experiences for their customers and

accommodated any online shoppers with websites allowing shoppers to buy online and it

showed in the income comparison between these two shops and the Montreal shops. In 2015

the Los Angeles location had a weekly average income of $42,000-$49-000. Toronto is a new

shop and is continuously growing in 2015 after only one year of being open Toronto’s weekly

average income is $23,000-$26,500. Both these stores allow shoppers to buy online and that

proves to be the major difference between these locations and the Montreal locations. The

Montreal Locations shared a similar average weekly income of $520-$950 and in February

filled for Bankruptcy. The importance of an online presence was shown in the case of


Brooklyn Projects, with thousands of emails from interested buyers through social media the

Montreal locations were never able to reach maximum potential. The Toronto and LA

locations continue to grow and better their website and online shopping experience which

shows in their growth in annual income sine the integration of their website.


Holt Renfrew Holt Renfrew is one of Canada’s only high end department stores. They have been a

leader in the market since their inauguration in 1837 as a fur shop in Quebec City. In todays

market they have become less recognized in Canada because of the competition they face

from American companies like Nordstrom and Saks Fifth Avenue and even Hudson’s Bay in

Canada. Holt Renfrew provides customers with a unique experience in the Canadian market,

but they face challenges with their competition coming into the Canadian market. One of

Holt Renfrew’s biggest down falls is that they have no online store. Every other American

department store has an online store, and without one Holt Renfrew is unable to compete.

Recently they closed down there stores in Ottawa and Quebec City in order to re evaluate

their Canadian presence. Holt Renfrew has now been moving into different malls across

Canada like Vaughn Mills a mall known for its more discount and outlet type shopping. This

affects the way that people view the Holt Renfrew brand.

Holt Renfrew created a new store called hr2, this store targets more to the lower priced

items geared towards a larger audience. This has changed the way that the brand was viewed

amongst Canadians. In mall locations such as Sherway Gardens in Toronto Holt Renfrew is

soon to be joined by both Nordstrom and Saks Fifth Avenue. With these stores coming into

the same malls as Holt Renfrew and will cause more direct competition for the stores, and

will require Holt Renfrew to find a way to differentiate themselves.


Working at Holt Renfrew it was easy to see the lack of an online store was affecting

business and at times customer service. Having an online store was something that customers

who were not from an area featuring a physical Holt Renfrew store really wanted. An online

presence is essential to any company trying to stay competitive amongst the new American

competition. Online has become the new norm of shopping, and many people look to it as

their first choice in shopping. The key for Holt Renfrew to remain competitive is to open an

online store, and until that happens they will always be one step behind the competition.


online retail industry research paper

Small Business & Entrepreneurship