Business Advantage from E-Commerce in Fashion Industry - Essay Example

Business Advantage from E-Commerce in Fashion Industry Introduction Internet has revolutionized the manner by which business organizations reach out to their customers. Fashion industry being one of the most lucrative business segments in terms of margins has further promulgated the need for internet based marketing. This is evident from the fact that online fashion retailers are growing at 25-30 percent since 2000. A research report also states that this segment helped in generating about 1.6 billion pounds in a single month. UK constitutes the largest e-tailing market with revenues of approximately 37 billion pounds in 2004. Internet marketing or e tailing offers other distinct advantages of (Marciniak & Bruce, 2009, p.259). Fernie & Sparks (2009) proposed a model that stated the use of technology for ensuring procurement practices at the organization. The model largely states the use of technology intensive software packages as well as use of online channel to facilitate competitive advantage(Fernie & Sparks, 2009, p.29). Outbound logistics for e-tailing industry implies the cost for delivery of goods to the customers. The revenue margin gained from cost savings in inbound logistics helps in taking care of the cost of outbound logistics. Increasing Importance E-commerce and E-tailing in Marketing and Supply Chain Competitive Advantages of E-tailing Fashion retailers can be classified into four main categories namely, brick and mortar based retailers, virtual e-retailers, catalogue based retailers and multi-channel retailers. Internet has largely changed the supply chain dynamics of the fashion retailers with firms trying to use the internet for developing better relationships with the customers (Marciniak & Bruce, 2009, p.260). Internet based online marketing firstly helps in providing efficient and fast service to the customers as e-tailing helps in integrating the sales activities with after sales support to generate greater value for the customers. Secondly, cost based advantages include reduced cost of inbound logistics as firms eliminate many intermediaries who serve to reduce the margins while not adding any significant value to the product offering. Thirdly firms also get access to a large database of customers which can be subjected to data mining techniques to generate competitive advantage (Windischhofer, 2003, p.24). Interrelationships between Marketing and Supply Chain Management Marketing and supply chain management practices are largely correlated with each other. Marketing strategies are essentially forming the basis for supply chain activities of an organization. Supply chain strategies are largely the outcomes of the relationship between the suppliers. Use of web based channels largely influences the supply chain initiatives of the organization. The main purpose of marketing involves delivering products and services that are demanded by the customers while generating a profit out of these activities. Supply chain management ensures that the commitments made to the customers are largely agreed in task. They form the backbone of the organization’s marketing activities as they form the support systems behind the marketing activities of the firm and the fulfilment of the commitments to the customers. Use of an online marketing channel also involves integration with the supply chain activities to derive competitive advantage. It also seeks to provide value addition in the product or service offering by making changes in the supply chain management practices of the company. Online channels which are a form of supply chain management basically try to shorten the supply chain that helps in reducing the costs of distribution. It also helps in the marketing activities of the firm as it brings customer closer to the organization. It gives manufacturing organizations a chance of integrating vertically in the supply chain and also provide greater customer values. The online customer channel also provides an opportunity to include better customer relationship management practices that helps induce greater trust and confidence among the customers. This increased trust and confidence leads to generation of customer loyalty which helps a firm to beat the market competition. Therefore it can be easily concluded that marketing and supply chain practices complement each other in a business set up and hence ensures the need for business organizations to develop strategies that can help them to take competitive market advantage and ensure sustainability and profitability in the long run (Min & Mentzer, 2000, p.773). Multi-Channel Retailing Multi channels retailing involves use of more than one channel of marketing. It has been largely observed that e-tailing has been more beneficial for high steer fashion retailers like Next as they have an individual product portfolio of highly niche and premium products that can be sold online. Moreover certain stores who have international operations find it difficult to streamline their online channel worldwide. Multi channel retailing offers advantages to high street fashion retailers as it is largely risky to include highly premium and niche products in the stores. This is because firms stand at a risky situation as overstocking of premium products would ensure pressure on the profit margins. Certain aspects of service delivery like individual attention to customers and the element of physical evidence of service mix may largely be ignored in case of online stores. This may wipe out the competitive advantages’ of store like Laura and Ashley who have distinct competitive advantages’ owning to the physical evidence part of the service mix (Marciniak & Bruce, 2009, p.260). Multi channel retailing offers firms to reap the benefits of reduction of inventory carrying costs (online stores) as well as harnessing their competitive advantage of physical evidence, people and process parts of the service mix. Influence of E-commerce on Retailing Business E-commerce and Logistics Logistics activities of an organization include both inbound as well as outbound logistics. E-commerce has largely influenced the dynamics of both inbound and outbound logistics of business organizations particularly retailers. Inbound logistics activities primarily include activities like receipt, storage and distribution of products from the suppliers to the warehouses. Outbound logistics activities include logistical activities associated with the shipment and handling goods from warehouses to the stores (Shah, Gorty & Phirke, 2011, p.41-43). The development of e-commerce has led to changes in the dynamics of inbound logistics of business organizations. Dave (2008) studied the aspect of linkage between the value chain and the related aspects of inbound and outbound logistics and the manner in which they affect the profitability of business organizations. He stated in the course of his study that both upstream as well as downstream partners largely influence the value chain of an organization in the market. The role of value chain integrators was also stated in the framework which stated a direct linkage with the aspects of inbound as well as outbound logistics on the overall distribution strategy of the firm. The author also stated that a firm’s inbound and outbound logistics strategy largely helps in value creation for the customer that largely helps firms to derive competitive advantage in the business markets. Use of an online channel largely involves a change in both inbound as well as outbound logistical activities for a firm that on one hand improves customer relationships and also ensures customer satisfaction that generates better sustainability for the organization in the fiercely competitive business environment (Dave, 2008, p.282). The aspect of e-commerce has led to the elimination of many intermediaries as customers are now directly able to shop for goods and interact directly with the manufactures. This helps in cost reductions for the firm in the form of elimination of margins from the intermediaries. The cost advantages gained by a firm in the inbound logistical activities are passed on to the customers to add value to the products. In case of multi channel fashion retailers the bargaining powers of the manufactures also increase significantly. E-commerce has largely influenced outbound logistics strategy of fashion retailers as they have imparted a Just in Time framework in the outbound logistics aspect. This has led to cost reductions in the form of reduced inventory carrying costs (Daly, Bruce & Department of Textiles, 2002, p.3). E-commerce in the fashion retail industry has also influenced the aspect of taxation. The evolution of ‘bricks and clicks’ model has led to a situation where firms can largely leverage on their investments and assets in inventory management like warehousing to decrease the aspect of increased taxation on their e-commerce activities. This includes keeping the existing warehouses in locations where there are more tax benefits (locating warehouses in regions where there are tax benefuits can help a firm sav on costs) and harnessing the benefits of e-commerce (Wrigley & Lowe, 2010, p.27). E-commerce also helps in ensuring minimal stocking of goods as no physical stocking of goods is required in this form of channel management. This reduces the inventor carrying costs for the fashion retailers. High street fashion retailers also benefits from the aspect of reducing their risk of stocking high value and premium products in the stores (Gunasekaran, Marri, McGaughey & Nebhwani, 2002, p.194). Automatic and electronic invoicing has also been associated with e-commerce which has led to advantages in handling and managing accounts. Limitations and Drawbacks of E-commerce and E-tailing In spite of the large scale advantages offered by e-commerce and e-tailing there are certain issues that needs to be addressed so as to gain complete advantage of e-tailing. Firstly firms which derive competitive advantage based on their aspect of physical evidence part of service offering stand to lose out on this advantage while using an online channel where ambience party does not exist. Absence of physical evidence in the form of retail stores can actually make things difficult for marketers to promote their stores and to make them popular with the customers. Secondly the success of e-tailing largely depends on the aspect of high touch and low touch based products. Most of the fashion related products are high touch in nature meaning to say that customer largely prefer physical contact with the product before making a purchase decision. Retailers like Zara have faced considerable issues as most of their investments have been done to include the aspect of physical evidence which also serves as one of its core competence areas. Use of online channel largely erodes this competitive advantage where aspects of look and feel are virtually absent (Dennis, Fenech & Merrilees, 2004, p.57-58). Internet marketing and e-commerce scores low on this aspect which limits the scope for e-tailing and e-commerce in the fashion retailing industry. The customised nature of distribution patterns in online stores also poses as an area of challenge for the click and mortar retailers. Thirdly internet marketing including aspects like Search Engine Optimisation lead to higher costs for the company as compared to promotional aspects for traditional brick based retail store formats. Finally payment security options also pose a threat for click and mortar fashion retailers as customer may be privy of sharing vital information about the bank accounts or credit cards on the internet. This may lead to a vital threat for organizations engaged in e-tailing as any payment issues in web based marketing may completely hamper the positioning and brand image of the organization. This assumes greater importance for high street fashion retailers whose image would suffer a huge beating (Massagli, 1996, p.23-25). The increased use of mobiles as an internet surfing device has also derived areas of challenges for the business organizations engaged in online retailing. Firms like Tommy Hilfiger have web pages for the online channel designed in a manner that makes it complicated for internet mobile users to shop online. This is because many features do not have compatibility with mobile devices (Heinemann & Schwarzl, 2010, p.82). Critical Analysis of Findings The analysis of the topic of study leads to a debate with regards to the aspect of fashion retailers using only the retail mode or the bricks and click mode. The following section would undertake a comparative analysis of two fashion retailers namely JC Penny and Culwell & Son to find plausible understanding on the aspect of traditional retailing and the brick and clicks format. Comparative Analysis JC Penny The business model of fashion retailer JC Penny is largely a brick and click model where both traditional form of retailing and online retail store. JC Penny uses its online channel to supplement its large network of over 1100 retail stores. The store also has about 14 centres of telemarketing, 2000 desks for catalogue based marketing and two mega distribution centres serving about 52 million customers. For its retail stores the company uses baner based advertising and other promotional tools. JC Penny has entered into an alliance with America Online in 1995 to provide online and web support including search engine optimisation for its web based stores. Bulletin boards and Electronic data Interchange models are also being used to garner competitive advantage in addition to its ambience of the stores. The use of a multi channel form of retailing has provided it the advantage of both traditional retailing with regards to attracting customers as well as catering to the online customers through its dedicated web stores. The company has also gained tax advantage by an effective mix of brick based retail stores and online click based stores. The online channel has largely helped in acting as a new channel for the organization to reach out to its target customer segments in a better manner. The company still relies on its physical stores for its business profitability. Before the advent of online channels the firm tried to increase the value proposition by ensuring a mix in the product strategies along with traditional means of promotion (Tuunainen & Rossi, 2002, p.1602, 1603). Culwell & Son Culwell & Son is another US based fashion retailer that specialises in men’s wear clothing. The organization deal with premium segment customers and uses its online channel to largely act as a support base for providing Customer interaction and maintaining customer relationships. The retail stores contain the finest collection of apparels with the web channel being used as a medium to interact and maintain customer relationships. The firm believes that the unique aspects of ambience is largely missing in the web based stores and hence cannot be used as a substitute for its customers who are highly specific and niche in nature. As the firm largely relies on its physical stores hence before the advent of the online channels the firm largely relied on traditional methods of promotion to promote its store. The online channel presently tries to maintain customer relations rather than acting as an online channel (Tuunainen & Rossi, 2002, p.1601, 1602). Fabo Fabo is an online fashion retailer that uses only online channels to serve its customers. The business model of the organization is largely a click based one in which only online stores exist for the customers. The firm offers free delivery of goods to the customers who purchase goods worth more than 50 pounds. The company’s operations largely revolve around the online channel where customers can browse through different products and make a purchase. In the absence of brick based stores the firm uses an efficient customer relationship management strategy which includes reward points and loyalty programs to attract customers. In addition to this the firm also has an efficient Search Engine Optimization to attract new customers. Online social networking sites also serve as a means of the firm to get closer to the customers as well as a tool for promoting its goods and services (Fabo, 2011). Conclusion The analysis of the topic of study reveals considerable advantage for the brick and click model in case of fashion retailers. The main opportunities arise from the aspect of reduction in inventory costs as well as access to a large customer base. However certain issues like lack of physical evidence delivery options apart from security and positioning issues pose challenges for fashion retailers. Firms therefore must first evaluate their internal opportunities and strengths and also analyse their business models so before going in for a brick and click approach. Adopting a forward and cautious approach in accordance with the business plans of the organizations would reap large scale sustainable competitive advantage for these retailers in the highly competitive business market. References Daly, L., Bruce, M., & Department of Textiles. (2002). The Use of E-Commerce in the Textile and Apparel Supply Chain. [Pdf]. Journal of Textile and Apparel Supply Chain. Vol 2, Issue 2, Spring 2002. Dave, C. (2008). E-Business and E-Commerce Management. Pearson Education India. Dennis, C.E., Fenech, T., & Merrilees, B. (2004). E-retailing. Routledge. Fabo. (2011). About us. [Online]. Available at: http://fabocom.com/about_aw_store. [Accessed on May 10, 2011]. Fernie, J. & Sparks, L. (2009). LOGISTICS & RETAIL MANAGEMENT. [Pdf]. Available at: http://www.iibms.org/DownLoads/rename-Ebooks/Logistics%20and%20Retail.pdf [Accessed on April 30, 2011]. Gunasekaran, A., Marri, H.B., McGaughey, M., & Nebhwani, M.D. (2002). 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