E-Commerce and Retailers | AQA Q23, Paper 1 2022

Will the increased use of e-commerce lead to all retailers operating online? That's the question addressed in this worked answer to a past AQA A-Level Business Paper 1 25-mark question.

Possible response

Whilst operating purely online might be a good option for a few retailers, for most retailers a multichannel rather than pure e-commerce approach is likely to remain the most popular way to do business, even as e-commerce continues to grow.

There are several factors that are pushing retailers to use e-commerce more. Two key driving forces are costs, and customer needs. Technology solutions are now widely available to enable even the smallest retailer to sell using e-commerce at a much lower fixed cost than running a physical store. For example, a retailer selling niche gift products via e-commerce platforms such as Amazon and Etsy may find its break-even sales revenue is much lower as it not paying fixed costs such as store rent and business rates, which therefore reduces the risk of making a loss, even though the gross margin achieved by the retailer on these platforms is likely to be lower because of selling fees. Meeting customer needs is another factor pushing retailers towards e-commerce. Customers expect to be able to buy 24/7 on the move or at home, which creates opportunities for retailers who can reach target customers easier and around the world, rather than relying on attracting passing shoppers. Of course, this is not to say that operating e–commerce is easy for retailers and the continued development of e-commerce features means that retailers need to invest to take advantage of these lower costs and customer needs, which not every retailer is able to do.

For most retailers, though, a multichannel approach to distribution will continue to be used even as e-commerce grows. Two key reasons are customer needs and efficiency. Customers expect to be able to choose how they buy and, by offering this choice, retailers are more likely to maximise their sales and profits in total. For example, almost every high street retailer now offers shoppers the option to “click and collect” whereby orders are placed online buy picked up instore. Shoppers at clothing retailers, such as Next and North Face can try garments on in the store and either buy then or later online, with their customer details stored which ever channel they decide to use. By offering this choice, retailers may feel they are offering a better customer service. Similarly, operating using multichannel distribution can be more efficient for a retailer. By using a combination of online and offline channels, retailers can spread out their inventory and reduce the cost of storing and shipping products. Additionally, having physical stores allows retailers to offer options like in-store pickup or returns, which can save on shipping costs and increase customer satisfaction. This is not to say that using multichannel distribution is easy for retailers, and the success of the approach will depend on the extent to which customers really want a seamless shopping experience across all channels or whether they’d prefer to just buy online for some products.

To conclude, it is unlikely that all retailers will operate only online, but that is not to say that more retailers won’t try to increase their e-commerce sales, or that new retailers won’t start out as purely online businesses. However, for most retailers, e-commerce will continue to be one part of a multichannel approach to distribution, albeit an increasingly important one. I justify this because multichannel retailing meets most customer needs these days, and it still provides an effective way for retailers to maximise their sales. Indeed, even “pure online” retailers such as Amazon have decided that operating purely online is not the only way. Amazon has opened brick-and-mortar stores in recent years, including Amazon Books and Amazon Go convenience stores. Similarly, fashion retailer Boohoo has acquired several fashion brands, including Oasis and Coast, which have their own physical stores which has allowed Boohoo to expand its reach into the physical retail market without having to operate its own stores. Of course, there will always be some retailers such as ASOS and Ocado that will continue to operate only online, and they may benefit from wider use of e-commerce. However, don’t expect the high street or shopping mall to be abandoned by retailers any time soon.