Three adverse effects of e-commerce on retail stores

As e-commerce sites such as “Amazon” and “Rakuten” expand, the business of many retail stores may be adversely affected. Now, even if you don’t go to the actual store, you can buy the products you want on the net while at home. How has e-commerce impacted many retailers now in such a convenience-focused time?

We are forced to lower product prices

With the expansion and growth of e-commerce sites, such as Amazon, retailers are forced to lower commodity prices. This is because Amazon can comfortably compete with retailers on product pricing as their cost of production (per product) reduces as their scale of production increases, this is known as “scale merit”. Furthermore, “the ability to sell products without wholesalers” adds additional benefit to e-commerce sites’ competitive pricing.

So, if retailers are selling an identical product, they will have to lower the price of the product to compete with the e-commerce sites. This means that as e-commerce spreads to consumers, the retailer’s basic sales strategy, the “information gap”, will slowly close.

It will be necessary to reduce labor costs

As competitive forces drive down retail sales and/or profit for retailers, there will be a need to reduce expenses, particularly in the form of labor costs. This will likely result in lay-offs and a reduction in wages.

Shipping charges must be reduced

E-commerce businesses, such as Amazon and Rakuten, have the competitive advantage of “scale merit”.

Originally, “scale merit” is said to be a merit of scale, and refers to the fact that the same kind of things gather and a greater effect than a single product can be obtained. In terms of economy, in particular, the larger the scale of management, the more often it is said that productivity and economic efficiency increase.

Quote; What is the merit of scale?

Typically, the flow of a product can be depicted as “manufacturer” → “wholesale” → “distribution” → “retail store” → “consumer”, but as e-commerce grows, “retail store” will need to lower their shipping fee, as e-commerce businesses such as Amazon and Rakuten have the advantage of “scale merits” to reduce their shipping expenses and fees.

As a result, in the future, retailers will need to reconsider the pricing on their shipping fees. Retailers selling furniture and home appliances will tend to be more at risk, due to their relatively more expensive shipping and handling fees.

However, although I have written almost exclusively about the adverse effects of e-commerce growth here, there are also several ways in which retailers can still maintain a competitive advantage. Retailers have the advantage of having a physical location where potential customers can look and try goods before they purchase them. Also, they retain their “human touch”, where customers can feel more than just a number in the system and can interact and engage with employees during the purchasing process; the notion that “customers are king” is often lost when purchasing from an e-commerce business.

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