Module 3: Multi-Channel Retailing
Non-Store Retail Channels
What you'll learn to do: Describe a wide variety of non-store retail channelsIt’s easy to confuse “retail” with the brick & mortar store experience. Or, if thinking of non-store retailing, extend “retail” only to the on-line domain. But, it’s important to expand this consideration to include multiple alternative outlets to get an understanding of the wide breadth of retailing, outside store formats, including: e-commerce, catalogues, and even vending.
- Match a retailer description with its non-store channel type
- Compare and contrast the benefits of store, catalog, and internet channels
Retailers and Non-store Channel TypesNon-store retailing is the selling of goods and services outside the confines of a retail store, off the premises of fixed retail locations. This distribution channel can be divided into direct selling and distance selling.
Modern direct selling includes sales made through one-on-one demonstrations, hosted product sales events in-home, and other personal contact. Direct selling consists of two main business models: single-level marketing and multi-level marketing.
In single-level marketing, a direct seller buys products from a parent organization and sells them directly to customers. In multi-level marketing, also known as network marketing and person-to-person marketing, the direct seller may earn money from both direct sales to customers and by sponsoring new direct sellers, potentially earning commissions from their efforts. Amway, Avon and Tupperware engage in this form of multi-level marketing.
Distance selling includes:
- Mail Order
- Catalogue Sales
- Telephone Solicitations
- Automated Vending
- Electronic Commerce (e-commerce)
Non-store retailing, sometimes labeled ‘home shopping’, is a relatively small portion of the total retail activity in the United States. However, it’s growing significantly, led by the expansion of e-commerce.
According to the Census Bureau of the U.S Department of Commerce, e-commerce sales accounted for 8.9% of total retail sales in 2017. Estimated at $453.5 billion, they show a 16.0% increase over 2016 levels. Perhaps even more telling is that total retail sales grew at only 4.4%. This means e-commerce is growing 3.6 times faster than other retailing in the United States.
Since 2010 and continuing through 2017, e-commerce sales have grown at around an 11.7% compound annual growth rate (CAGR). It is in this growth rate that we see the changes in consumer behavior we’ve discussed throughout these sections reflected. Namely, connected consumers are using technology to engage with brands and retailers. And, in doing so, they’re blurring channels, without changing expectations for accessibility, consistency or service.
Comparison of Store, Catalog, and Internet ChannelsThe most pronounced difference between store and non-store retail channels is the cost structure. Retail stores have comparatively higher costs than their non-store counter-parts because their costs include rent, utilities, inventory, and staffing. By comparison, non-store retail outlets have eliminated rent and utilities and greatly reduced carried inventory and staffing.
It’s for this reason that non-store retailing is used by established brick & mortar retailers to expand channels with a “brick & click” model and by entrepreneurial firms developing a pure play distribution channel, which is exclusively through e-commerce. It shouldn’t be assumed that non-store channels are without costs of their own. There are many specific to catalogs and e-commerce, which we'll discuss below. However, they pale in comparison to the costs of brick & mortar retail.
Catalogs, when effective, are high-involvement marketing materials. Consumers leaf through the pages reviewing wide product assortments. As such, they have long been used as a marketing device to drive phone and in-store sales. But as online retail has continued to grow, catalog sales have eroded. No longer are catalogs the most effective or convenient methods for developing at-home sales; their place as a marketing tool has been under scrutiny.
Yet, some industry experts note that catalogs are changing--a reflection of their evolving role in the retail landscape and with the assumption that lower delivered mail volume means they’ll get more attention. Interestingly, in a survey on its website, Land's End found that 75% of customers making a purchase had reviewed the catalog first.. This might imply that catalogs have a complementary role with e-commerce. Perhaps, in being reimagined, they will become resources to merchandise products through visual narratives and encourage consumer engagement.
Of course, catalogs carry their own unique costs, which shouldn’t be overlooked. Chief among these are creation, photography, copy, layout, and design. Further, there are printing and mailing costs to be considered. These are not insignificant, to be sure. Yet, retailers like Costco, Nordstrom, William-Sonoma, and others combine to send over 10 billion catalogs annually in the U.S.
E-commerce refers to buying or selling products and services online or over the internet on retailers' Web sites or mobile apps, or through marketplaces such as on Amazon or AliBaba. Given our own experience with e-commerce, it might be tempting to oversimplify the channel. But, it’s important to understand the interactions and activities at-play, as these reflect some of the implicit costs.
For example, digital marketing, including both Search Engine Optimization (SEO) and Search Engine Marketing (SEM) is used to connect sellers with potential buyers (Some social media platforms can also be used for the same ends). SEO requires web development, optimization, and maintenance to ensure the online visibility of a firm’s website in natural or organic search. SEM is a form of paid advertising that increases the visibility of a firm’s website in search engine results, such as through Google or Bing. Firms bid on keywords to ensure that when searches using those keywords are made, their website appears among the search results.
Individual shopping interactions may be supported by live chat or chatbots on websites. Regardless, transactions require online transaction processing, including electronic funds transfer and inventory management. Further, the collected data on the transaction and shopper may be warehoused in a database for future customer relationship management (CRM) initiatives. These support tools require investment and maintenance, which are costs that should not be overlooked.