Issues and Challenges Facing Retailing - Article Example

? Issues and challenges facing retailing AFFILIATION: The concept of online retailing has undergone various reforms to be compatible to the requirements of the customers so that they can reap the benefits of convenient online shopping. Almost all the traditional retail stores have developed their virtual platforms on the Internet so that they remain competent and ahead of their rivals. The challenges faced by the online retailers have to be resolved so that they can earn a good amount of revenue stream. In order to enhance the effectiveness of digital retailing, the key factors that have to be considered by the retailers are availability of the latest products and services, transportation facilities for quick delivery and order fulfilment, easy payment mechanism, efficient logistics and distribution framework and cost-effectiveness. Contents Abstract 2 Introduction to retailing 4 Literature Review 5 Online retailing is the latest trend 6 Key drivers of online retail industry 6 Discussion 9 Limited potential for growth 9 High cost of delivery 10 Selection range trade-offs 11 Intense competition 11 Environmental impact of online retailing 12 Conclusion 12 References 14 Introduction to retailing In the consumer goods industry, retail has been playing a primary role in enhancing the productivity of the key players across the world. This retail sector has been expanding at an accelerating pace because the consumers are looking for convenience in the shopping arena. The significance of this industry is evident in the contribution made in the economies of UK, Mexico, USA, China, Dubai, Sri Lanka, Malaysia and Thailand; all of these countries have seen robust growth in their GDPs (Bell, Choi & Lodish, 2012). Some giant retail stores like Wal-Mart, Tesco, Kmart, Carrefour, Sainsbury’s and others have ensured that they provide the complete range of employment benefits to their personnel so that they can have an adequate standard of living while meeting all of their basic and mandatory requirements. Since 1990s, Internet has revolutionised the way in which organisations carry out their business activities; it has even impacted the retailing industry to a significant level. Internet in other words have changed the usual way of conducting business activities. As Internet is easily accessible by everyone with the help of the most up-to-date technological gadgets such as smartphones, tablets and etc., it has created the latest trend of online retailing. Internet has used the element of convenience for the customers and formed the aspect of online retailing for consumers. The pioneers of online retailing such as Amazon, BestBuy, eBay, Zulily and many more have ensured that the customers are provided the most sensational online shopping experience. These online organisations have proven their level of success and hence now we can observe many online retailing firms emerging in the market. There is constant improvements observe in the online businesses and also we can observe that the mode of payments are advanced and fully secure. In order to create a wholesome experience, the online stores are ensuring that they give utmost importance to each and every aspect of the e-retailing so that the customers are willing to increase their online purchases. According to a reputed research firm, Forrester, E-commerce is estimated to approach a figure of about $200 billion in terms of revenue alone in US which accounts for about 9% of the entire retail sector sales. There has been 5% increase in the retail sales as compared to its standing about five years ago (Rigby, 2011). Literature Review In the retailing industry, the retail stores are mainly classified in either of the two categories i.e. organised or unorganised. Within the organised sector, the retailers ensure that they provide the customers with the complete range of options from products to services so that they can take advantage of economies of scale and conveniently shop around the store. On the other hand, in unorganised retailing, the retail stores offer limited variety to the customers within each category of product or service. Now-a-days, the latest trend is of online retailing which is also known as e-retailing and digital retailing (Harris & Dennis, 2011). In this category, customers can easily view the offers by the store in a matter of clicks. In order to enhance the productivity of retail stores, it is imperative for the retail stores to implement the latest IT system within the business operations so that the resources are appropriately managed and there is a strong alignment between the business goals and online strategy. In addition to the retail industry, all other brands have started offering their unique services online so that they can utilise this medium for reaching their customers and make valuable addition in their revenue stream (Karadeniz, 2010). Despite the growth of online retailing, there are a wide range of challenges that have to be addressed by the players of the industry so that they can counter them and take the right decisions towards their goal attainment. One point of concern for every company is that it has to develop a well-integrated and coordinated online business strategy. The most common mistake made by the leading online businesses is that they don’t integrate the traditional and online strategies of business which impacts their goal for attaining the course of action. Hence, e-commerce strategy for online retailing should support the overall corporate strategy so that there is synergy among all of the organisation’s business operations (Doherty & Fiona, 2006). Online retailing is the latest trend With the advent of globalisation and robust growth in the field of technology, online retailing is growing by leaps and bounds. This form of retail sector has gained huge amount of appreciation from the consumers at a global level as it has provided them the opportunity of saving their shopping time. Time is precious for all and one of the areas which requires a lot of time is shopping. As the lives of everyone have become fast paced, these online stores are presenting the customers with easy source of fulfilling their shopping needs as per their convenience. It has been stated in the most recent reports of the retail sector that the digital retailing is the emergent segment in US and the overall growth was about 15% in the last year. The two major categories that are dominating this area are footwear and apparel; both men and women prefer to do shopping for these things virtually so that they have access to an excessive range of options. Some of the emerging countries such as China have projected that its online retail sales will increase to $160 billion by the end of 2015 (Rigby, 2011). Key drivers of online retail industry Generally, the extensive surge in the demand of online retailing is evident from the benefits that are availed by the retail corporations such as Wal-Mart, Tesco, Kmart, Amazon and many others who have continuously reported rising streams of revenue. The main features that have elevated the intensification in online retail industry are as follows: 1. Quick access to the important information about the market trends and customers. 2. Enabling effective two-way communication between the outlet and customers. 3. Accelerating the speed of market research data which ensures that the information is updated frequently. 4. Utilising cost-effective avenues for promotion of the new and innovative products and services. 5. Remaining well-informed about the competitor’s moves and providing customers with opportunity of availing loyalty benefits. 6. Ensuring the development of effective online inventory management system so that the retail channel is flexible and efficient. The expansion of digital retailing is driven by two prudent forces; the foremost is that the traditional retailers are blending online retail strategy with the corporate strategy so that everything is properly synchronised; and secondly, it provides an opportunity to the corporations to show their innovative corporate culture. Moreover, the consumers have even started buying consumable items such as grocery from online stores as they can instantly get in touch with the retail store that will provide them with genuine and authentic products and services. Customer can choose from a wide variety without having to move around from one place to another as usually done in stores. Even the retail stores are now enlarging their offerings from books, CDs, apparel to special forms of merchandise items like gourmet food, fashion apparel, technological goods and many more. Still, there is a huge difference between the traditional and Internet retailing mechanism as both of them operate entirely different from each other. The nature of both types of retailing is highly different from each other and each requires its own level of expertise to handle it successfully. The primary difference between the two forms of retailing is the trading area available for the company. For instance, for Internet retailers, there are unlimited trading areas as they can utilise ample number of avenues for reaching the target market. They have the potential to cater a wide audience from anywhere. On the other hand, the traditional retailers can exploit the opportunities that are available within the specified area of trading. Likewise, the traditional forms of retailers can conveniently identify, locate and target the customers (most of them are within the accessibility of the store); whereas, digital retailer has to face difficulty in locating the consumers for its online store. In fact, unlimited trading area is both a blessing and issue for the digital retailers because there are no strict or compulsory set of rules that they have to abide by for getting the attention of the customers and attracting them. Because of this problem, majority of the online retail stores are gaining entrance in traditional retail area by employing strategies such as kiosks, entering into partnerships with leading retailers and creating pop-up stores. In online retailing, there are two main classifications used by the players to create a distinctive position in the industry. One group is offering home items in a unique way so that the consumers can avail the opportunity of receiving extraordinary appealing shopping experience and also plan to use the service in future as well. The most commonly available home supplies comprise of consumable items along with pet supplies, electrical appliances and baby products. The second category constitutes of retailers who are selling specialty and customised items such as fashion apparel, footwear, handbags, eyeglasses and accessories for men and women. The main purpose of these companies is to alter the way in which people buy the fashionable commodities along with various attributes of non-digital level. Of course, the consumers cannot touch and feel the product but only see it and carefully compare among all the available options so that the final decision is effectively made. The online retail store needs to ensure that they do not compromise on quality of the products and services when consumers shop online as this will de-motivate the consumers. When consumer make online purchases, the product should be as required for future repeat purchases online by the consumers. In order to remain competitive in the retail industry, all existing and new businesses have to ensure that they develop appropriate level of integration between the overall business aims and the online business strategy. When there will be proper alignment between these two crucial aspects of a corporation, only then it will be possible for the online retailer to achieve the desired aims and make successive progression within the online retailing industry. Discussion Since the market demands are changing at a fast pace and consumers are always in search of new and innovative offerings, it is vital for the organisations to ensure that they have something different for their customers. Online retailing is one of the new concepts for the consumers and that is why it has started gaining success and acceptability in the consumer market. Only those companies have managed to maintain their competitiveness in the industry who continuously strive to upgrade their offerings in a cost-effective way and enhance the complete shopping experience for the customers. Despite the extensive range of expansion in the online retail industry, the main challenges that are encountered by the retailers as depicted by Hamilton, Michael and Wamba (2010) are as follows: 1. Limited potential for online growth 2. Extensively high delivery cost 3. Trade-offs in selection range 4. Enlargement of competition 5. Environmental concerns Limited potential for growth According to Harris and Dennis (2011), the online retailers have very limited options of expanding their business horizons as there are relatively few options available for reaching the customers. As online mediums provide accessibility to everyone around the world, the traditional retailers can open their outlets in various places worldwide and provide one-to-one shopping experience to the customers. In order to ensure access to appealing offerings, the retailers will have to employ the best resources for designing them in accordance to all the target markets. The physical retail stores can utilise various mediums for attracting customers but online retailers lag behind in this aspect as they cannot provide their customers with the touch sensation to the offering unlike traditional retailers. There still exists a consumer segment that prefers to purchase goods after looking at it physically rather than virtually. High cost of delivery As opposed to physical retail stores which is located at one place and all products are collected and distributed from one location, the online retailers have to fulfil the customers’ orders who are residing in different areas. Although there is one point of distribution from where the products are delivered to the customers but the cost of delivery varies among the diverse range of destinations. In addition to the transportation cost, the online retailers have to ensure that they have sufficient amount of stock so that they can meet the immediate requirements of the customers. Otherwise, the shortage of products or services can create a bad reputation for the company (Selvakumar & Muthumoni, 2011). This challenge is being addressed by developing the distribution centres in each locality so that the customers can either collect their items from these points or get them delivered at their destinations. Some of the retailers have developed decentralised distribution networks which are entering into contracts with leading distribution companies in all the locations so that they can manage their delivery cost and ensure that the customers’ orders are delivered on time. The online retailing firms need to ensure that there is no delay in the delivery procedures as consumers want the entire shopping experience to be convenient, from purchase till the delivery and even post purchase. Selection range trade-offs When most of the retailers rely solely on their online business, they start to lag behind in innovation as running a digital enterprise is challenging for them. It has been found that the customers are able to have a wide range of selection on brick and mortar retail store as compared to the virtual one because stock management is easier for traditional physical retailers. As a result of online retail business, the companies have to trade-off the selection range as they cannot take the risk of presenting the customer with the complete offerings available for them. Now-a-days, the retailers have developed catalogues in which the customers are offered the option of placing the order and getting it within one or two weeks. In this way, the customers are provided access to the entire range of the offerings and they are satisfied and contended with their final purchasing decision. Intense competition As the online retail business offers huge number of benefits to the companies, majority of the traditional retailers are entering this field. Although most of them have been able to gain extraordinary high amount of revenue but the profit margin has started to decline due to significant rise in the number of rival firms within the industry. It has become difficult for the online retailer to create and maintain distinctive position in the online retailing sector. In order to stand out from such a diverse number of competitors, the online retailers are developing their customised marketing strategy for the online business. The goals of this strategy are different from the physical store one but they are properly aligned towards the company’s final objectives so that they can collectively enhance the retail performance in the industry. The online marketing strategies can be conducted on the various social media platforms as well so that many types of consumers may get to know about the online retail store and its offerings. Environmental impact of online retailing One of the main areas of concern for the online retailers is that their transportation medium is likely to generate pollution which can be hazardous for the environment. However, the e-retailing companies are now promoting the notion that their products and services are eco-friendly and will not damage the environment from any aspect. One other challenge that is encountered is that the people have become immobile as they can easily do shopping online and are reluctant to visit the stores for their monthly shopping. Likewise, the retail stores are blamed for offering the processed food items that have proven to be the main factor for causing a wide range of health issues and diseases globally. Processed food has its advantages but its disadvantage may prove to be highly consequential for the consumers, compromising on health issues is not a good move for any health conscious consumer. It is believed that these stores are offering convenient solutions to the customers for preparing their meals and due to which the health of people is deteriorating. In order to respond to this challenge, the online retailers are creating awareness about the organic food items that should be consumed for people’s well-being. The online retailers may develop a good customer base for organic food items as the issue of health is a rising concern for many consumers worldwide. Most of these digital stores have ensured that they have adequate stock of these natural options for their customers so that they can help them in living a well-balanced and a healthy lifestyle (Bell, Choi & Lodish, 2011). Conclusion Since the online retailing has attractive prospects in the future, the retailers have to ensure that they are aware of the issues and challenges that are prevailing in the industry. It is crucial for the prospective retailers to evaluate all the options that are available in the retail sector so that there is clarity about the dynamics of the industry. Once there is adequate understanding about the key drivers of online retailing, challenges encountered by the players of this sector and the future trends that will be observed, it will be easier to develop a strategy in compliance with the requirements of the target market. In order to remain competitive in this sector, every retailer has to make effective use of the IT options that are available in the industry. At the same time, it has to ensure that the factors that can impede its performance are well taken into account so that the risks of failure are controlled to a great extent and the resulting business is a success in the industry. There are many effective IT solutions and they should be handled in the appropriate way by the online retail organisations so that they can attain the desired level of success and profits. References Bell, D.R., Choi, J. and Lodish, L., 2012. What matters most in Internet Retailing. [Online] Available at: [Accessed 9 April 2013] Doherty, N.F. and Fiona, E.C., 2006. New perspectives in Internet Retailing: A review and strategic critique of the field. International Journal of Retail and Distribution Management, 34(4/5), pp. 411-428. Hamilton, D., Michael, K. and Wamba, S.F., 2010. Overcoming visibility issues in a small-to-medium retailer using automatic identification and data capture technology: An evolutionary approach. International Journal of E-business research, 6(2), pp. 21-40. Harris, L. and Dennis, C., 2011. Engaging customers on Facebook: Challenges for e-retailers. Journal of Consumer Behaviour, 10(6), pp. 338-346. Karadeniz, M., 2010. The relationship marketing approach and strategies in retailing management to constitute customer and brand loyalty. Journal of Naval Science and Engineering, 6(1), pp. 15-26. Rigby, D., 2011. The future of shopping. [Online] Available at: [Accessed 9 April 2013] Selvakumar, M. and Muthumoni, A., 2011. Problems and prospects of retail business: A study with reference to Sivakasi Taluk. International Journal of Multidisciplinary Research, 1(6), pp. 394-427. Read More