Capitalizing on Physical and Virtual Synergies : The Rise of Click and Mortar Models

The advent of Internet-based electronic commerce over the past decade has given businesses an unprecedented marketing opportunity. As the Internet-using population has grown, so too has the potential market size for any business that develops an e-commerce enabled Website.1 This market has continued to develop, with steady growth in the number of people shop online. For example, the US Commerce Department estimated that the number of people who have purchased a product or engaged in banking online more than doubled between 2000 and 2001, growing from 13.3% of the US population in August, 2000 to more than 29% in September, 2001 (NTIA 2002). Additionally, more than a third of Americans, and fully two-thirds of the U.S. Internet users, now use the Internet to obtain product information. Not surprisingly, despite an ongoing economic slowdown, this increased e-commerce activity has translated in growing online sales revenue. Fourth quarter, 2002 e-commerce sales increased by over 28% over fourth quarter, 2001, reaching more than $14 billion (US Census Bureau 2003). 2 Total retail sales, however, increased by only 1.6% between the 2002 fourth quarter and the same period in 2001, clearly demonstrating that online commerce is growing much faster than offline commerce. Indeed, over the whole of 2002, online sales in the U.S. surged by 26.9%, compared to just 3.1% for all retail. The continuing growth of Internet use in general, and especially use for product search and online shopping, has not gone unnoticed by firms throughout the developed world. Approximately ninety percent of firms in the U.S. and U.K. now use the Internet (NUA Surveys 2002), while a recent OECD study found that about eighty percent of firms across member countries were connected to the Internet (OECD 2002). As shown in part 1 of this volume, however, even with the steady overall growth of e-commerce, Internet-only businesses experienced widespread failures in 2000 and 2001. Because of the dot.com bust, there is a growing recognition that the Internet is unlikely to displace traditional channels, at least in the world of business to consumer (B2C) commerce. Rather, traditional enterprises have moved to integrate e-commerce into their channel mix, using the Internet to supplement brick and mortar retail channels (Pristin 1999; Tedeschi 1999a; Otto and Chung 2000; Rosen and Howard 2000; Steinfield, DeWit, Adelaar, Bruin, Fielt, Smit, Hoofslout and Bouwman 2001; Regan 2002; Steinfield, Adelaar and Lai 2002a). Indeed, the arrival of large retailers with the resources to exploit the Internet may have contributed to the collapse of many struggling dot.coms (Tedeschi 2000). Electronic commerce researchers, using terms like “clicks and mortar,” “bricks and clicks,” “surf and turf,” “cyber-enhanced retailing,” and “hybrid e-commerce,” now consider the combination of physical and web channels to be a distinct electronic commerce business model (Timmer 1998; Otto and Chung 2000; Afuah and Tucci 2001; Steinfield et al. 2002a; Steinfield, Bouwman and Adelaar 2002b). Recent trends also suggest that the click and brick, multi-channel approach to retailing is experiencing more success with e-commerce than its Internet pureplay predecessors. Laudon and Traver (2001) point to the growing presence of established traditional retailers on lists of top ecommerce sites as evidence for the potency of the multi-channel model.