E Commerce

International Journal of Productivity and Performance Management
Clash of the e-commerce titans: A new paradigm for consumer purchase process
improvement
Sameer Kumar, Jessica Eidem, Diana Noriega Perdomo,
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REFLECTIVE PRACTICE Consumer

purchase
Clash of the e-commerce titans improvement
A new paradigm for consumer purchase
process improvement 805
Sameer Kumar, Jessica Eidem and Diana Noriega Perdomo Received 22 January 2012
Opus College of Business, University of St Thomas, Minneapolis, Accepted 22 April 2012
Minnesota, USA
Abstract
Purpose – The motivation for this paper arises from the evolution of the e-commerce which has
provided new means for retailers to serve customers. Pure e-tailers and clicks-and-mortars are two
business models of this new paradigm. It aims to study the particularities of pure e-tailer
(Amazon.com) and clicks-and-mortars (Walmart) with special focus on their dot com supply chains.
Design/methodology/approach – Strengths, weaknesses, oppositions, threats (SWOT), the Five
Forces Model and Financial Performance Metrics analyses were used to draw comparisons and
contrasts between Walmart.com and Amazon.com supply chains.
Findings – The paper finds that both companies serve their customers effectively through their
efficient supply chains; however, due to the infancy of e-commerce, both business models still face
important challenges.
Originality/value – Amazon.com and Walmart.com have different supply chain models, as well as,
strengths and weaknesses. They both face the same opportunities and threats as the e-commerce
industry grows rapidly. Analysis shows how lessons from one business entity can be applied to the
other in order to bring even more efficiencies to both e-tailers’ and clicks and mortars’ supply chains.
Keywords Electronic commerce, Clicks-and-mortars retailers, Pure e-tailers,
Customer accommodation, Cash conversion cycle, Customer service management,
Supply chain management, Internet shopping
Paper type Case study
Introduction
The internet explosion has sparked many new ways of doing business and has enabled
companies to do business around the globe with the click of a mouse. E-commerce is
growing very rapidly due to the proliferation of refined online trading tools and
techniques (Gunasekaran et al., 2002). Many companies now engage in selling via both
bricks-and-mortars locations and the internet. It has been estimated that 100 million
Americans participate in the virtual retail market place (IBISWorld, 2010).
Below are the subject areas that this paper will explore:
. What are the general characteristics of pure internet-based companies supply
chains? What are their benefits and limiters to growth? Are they efficient and
effective for consumers?
. What are the general characteristics of the multi-channel (clicks-and-mortars)
companies supply chains? What are their benefits and limitations to growth?
International Journal of Productivity
Are they efficient and effective for consumers? and Performance Management
Vol. 61 No. 7, 2012
. Are pure e-tailers more effective in managing their supply chains than clicks- pp. 805-830
r Emerald Group Publishing Limited
and-mortars retailers? Are there better structures for pure internet-based 1741-0401
companies and clicks-and-mortars? DOI 10.1108/17410401211263872
IJPPM . How do e-tailers and clicks-and-mortars retailers deliver value to their
61,7 customers?
. What successes have e-tailers and clicks-and-mortars retailers have and what
future challenges can managers expect to face?
. What does the e-commerce industry currently look like and how is it changing?
806 For simplicity, research and analysis was conducted only on Walmart.com (a leading
clicks-and-mortars retailer; a well-integrated organization of traditional physical
stores and e-tailing operation) and Amazon.com (a top e-tailer). Walmart.com and
Amazon.com were chosen because of the diversity of their product offerings and
segments of their business could be good representational models for other businesses
with more specific focus.
Literature review
General overview
E-commerce, the ability to perform major commerce transactions electronically, has
become an important element in today’s business world. The “rapid proliferation of
in-home broadband connectivity along with improved search engine technology has
led to unprecedented growth in internet product research and acquisitions” (Pentina
and Hasty, 2009). As a consequence, the internet has grown as an important marketing
and distribution channel for the sale of goods. According to Johnson and Whang
(2002), e-commerce has had a profound impact on the supply chains of many products.
The online channel and its supply chain differ from its offline version in customer
types, operations of order fulfillment, cost structure, profit contributions, priority in
rationing, logistical requirements, expectations of service quality, degree of market
segmentation, access to demand/supply information, and returns policies among others
elements. As result, it is relevant to study the different aspects of the supply chains of
companies engaged in selling via the internet.
Internet retailing is a fairly new format that some retailers have adopted as a
consequence of the e-commerce evolution. E-tailing consists of an internet-based store
format of retailing, which uses “more radical models of retail operations, compared to
the traditional bricks-and-mortar store, catalog and home shopping formats already in
use” (Grewal et al., 2004; Kumar et al., 2010). According to Grewal et al. (2004), the
landscape of internet retailing follows a spectrum from “pure play” retailers operating
just on the internet to clicks-and-mortars which is a combination of either traditional
stores, catalogs or direct sales, and internet. According to the same authors, internet
retailing offers customers the benefits of greater access to price comparison information, a
different and unique shopping experience for customers, and the convenience of a “store”
open 24 hours a day seven days a week. However, internet retailing has some drawbacks
for consumers, such as lack of the ability to try a product, lack of interpersonal trust, lack
of instant gratification, high shipping and handling costs, lower customer service, loss of
privacy and security, challenging logistics, and lack of an in-store shopping experience.
Grewal et al. (2004) state that in order to adapt the potential benefits and drawbacks
mentioned above, e-tailers have adopted the following different business models:
virtual malls, aggregators, auction brokers, reverse auctions, search agents, virtual
merchants, catalog merchants, and bricks-and-clicks. This study examines the particulars
of two of these business models: virtual merchants or also called pure e-tailing and
bricks-and-clicks.
Pure e-tailing. The growth of pure internet companies has far outpaced any other Consumer
industry’s growth. This growth and the ease of establishing a dot.com entity has purchase
invited ample competition. In order to be successful in this extremely competitive
environment, an e-tailer must develop its own set of unique propositions to succeed in improvement
the internet business (Mahadevan, 2000). Many e-tailers, such as Amazon.com (which
is discussed in more detail below), have created value through its supply chain design.
Because e-commerce is such a relatively young industry compared to other 807
traditional forms of commerce, there has been little research done on sound business
models for internet-based companies. Mahadevan (2000) attempts to provide a systematic
view of internet business models by proposing that a business model is a unique blend of
three streams that are critical to the business. These include the value stream for the
business partners, the buyers, and the logistical stream (see Table I).
Four possible value streams, which are not mutually exclusive, in an internet-based
business, as proposed by Mahadevan include:

(1) Virtual communities: distinct focus that brings together people with common
interests. It is difficult to replicate the value proposition of virtual communities
because much of the value is created by its members. High switching costs are
involved for members.
(2) Dramatic reduction in transaction costs: reduced search costs. Reduced costs
create value through increased margins or lower product prices.
(3) Gainful exploitation of information asymmetry: the ubiquitous nature or
internet business opens up new value streams that can exploit information
asymmetry. An example is Priceline.com creating value for buyers who do not
have perfect information about supply and suppliers who do not have perfect
information about demand.
Market structures
Business model building blocks Portals Market makers Product/service providers
Value streams
V1 X X X
V2 X X
V3 X
V4 X X
Revenue streams
R1 X
R2 X X
R3 X X
R4 X
R5 X
R6 X X X
Logistical streams
L1 X
L2 X Table I.
L3 X Potential applications of
business model streams
Note: X’s represent checks indicating the alternatives available (i.e building blocks) for organizations for the three market
in each market structure structures
IJPPM (4) Value-added market making process: being able to bring together a large number
61,7 of buyers and sellers together. Because these buyers and sellers may not know
each other, firms like ebay.com have provided privacy guarantees and reliability
measures (i.e. seller ratings) to help ease the uncertainty of the unknown.
Mahadevan also mentioned six revenue streams that are difficult for e-tailers’
bricks-and-mortars counterparts to replicate:
808
(1) Increased margins over bricks-and-mortars operations: through reduction in
transaction costs, lower customer search costs and disintermediation of the
supply chain.
(2) Revenue from online seller communities: by providing free membership to buyers
and reducing their search costs, e-tailers can increase the switching costs for these
buyers to switch to another provider. The e-tailer then gains revenue for sellers on
a sell through basis based on the e-tailer’s loyal community of buyers.
(3) Advertising: also based on how large a community an e-tailer establishes. Can
charge advertisers for access to this large buying base.
(4) Variable pricing strategies: based on the demographic make-up of a buyer. An
e-tailer can bundle products together based on the buyer’s willingness to pay.
Amazon.com gives its buyers suggestions on books they may like and often
give them an option to purchase multiple selections for a lower combined price.
(5) Revenue streams linked to exploiting information asymmetry: similar to the
value creation stream. The intermediary can charge for providing its services
that take advantage of the information asymmetry.
(6) Free offerings: by providing free offerings, internet companies can bring
together a large community and gain industry learnings from understanding
and analyzing the community. Giving a free trial offer can also stimulate future
revenues. For example, Hotmail initially provided free e-mail service. It then
offered an upgraded e-mail account (ability to send and receive larger
attachments) for a fee.
According to Mahadevan, there are three distinct logistical streams that exist in the
internet industry:
(1) Disintermediation: shortening of the supply chain by eliminating the need for
intermediaries.
(2) Infomediation: because the internet contains an unlimited amount of information,
internet firms can provide the essential role of internet intermediaries to address
the requirements of the user (i.e. Google). In the future, these intermediaries may
act as the information gatekeepers that market customer’s information on the
customer’s behalf while retaining the customer’s privacy.
(3) Metamediation: not only aggregating supplier and product information, but
providing value-added services in response to the fragmented nature of the internet.
As the environment of the internet matures, more research will be conducted to better
understand the business models used by e-tailers and other internet firms.
Clicks-and-mortars. As stated earlier, clicks-and-mortars “are traditional physical
store retailers who may include e-tailing into a well-integrated organization or operate
internet retailing divisions separately” (Grewal et al., 2004). According to Gulati and Consumer
Garino (2000) companies are recognizing that success in the new economy will go to purchase
those who can execute bricks-and-clicks strategies that bridge the physical and virtual
worlds. “The integration of e-commerce and physical channels provides opportunities improvement
for synergies allowing companies to offer different services via different channels, thus
creating greater customer value. In addition, an online channel may produce spillover
effects resulting in increased purchases in the offline channels. In terms of relationship 809
marketing, a multi-channel retail strategy is likely to enhance the company’s
relationship development efforts because it offers multiple points of contact for
customers, thus increasing the frequency of customer interactions with the retailer”
(Bernard, 2006). It is important to mention that the degree of integration between the
traditional channel and the e-channel varies from company to company. Gulati and
Garino (2000) suggest that the clicks-and-mortars spectrum goes from entire
separation to complete integration (see Figure 1).

The technological characteristics and global reach of the online channel create
potential additional markets for well-established companies. “As a result, many of the
largest retailers (such as Wal-Mart, Target, K-Mart and Sears), manufacturers (such as
Procter & Gamble and Ford) and catalog marketers (such as Lands’ End and L.L. Bean)
have integrated online retailing into their existing operations” (Grewal et al., 2004).
“In the case of traditional retailers, the Internet channel is often viewed as a logical
extension of the storefront’s physical presence, a complement to existing customer
relationships, business processes, and distribution systems” (Bernstein et al., 2008).
According to Agatz et al. (2008), the addition of the internet channel to the traditional
portfolio of retailers can bring opportunities and challenges concerning both
marketing and operations management. From a marketing perspective, the internet
channel provides more information to the customers reducing their search costs, and
a wider range of products. On the other hand, the internet channel could cannibalize
sales of existing channels, and conflicts may arise “between different divisions that
manage a company’s different channels, but even more so between different supply
chain members” (Agatz et al., 2008). The same authors state, that from an operational
perspective integration of traditional channels and the online channel may yield to
synergies that reduce e-fulfillment costs. However, potential economies of scale from
integration need to be weighed against specific requirements of each individual
channel. The authors mention that customers in the internet channel may have
different needs and requirements that should be served differently. Consequently,
companies need to “make trade-offs when deciding which processes to integrate or
Strategic Joint In-house

Separation Spin-off Integration
partnership venture division
• Greater focus • Established brand

• More flexibility • Shared information
• Access to venture The integration-separation decision is not a binary choice. different • Purchasing leverage
funding companies will need to follow very different paths in deciding how • Distribution effciencies
closely or losely to integrate their lnternet initiatives with their Figure 1.
traditional operations The clicks-and-mortars
spectrum
Source: Gulati and Garino (2000)
IJPPM separate across channels.” These trade-offs arise, for instance, “in the location and
61,7 layout of facilities and in inventory aggregation” (Agatz et al., 2008).
Steinfield (2002) also suggests that the integration of the online channel with
existing physical channels is a challenging decision for managers. This is the
reason why many traditional firms create online channels that operate independently
from their existing physical channels. Steinfield (2002) develops a conceptual
810 framework to analyze the potential synergies from integrating online and traditional
channels. This author suggests that the potential sources of synergy from integration
are common infrastructures, common operations, marketing, and customers. However,
one important risk of integration is channel conflict. Steinfield (2002) states that
managers should align goals across physical and virtual channels, coordinate and
develop control mechanisms to promote interoperability across channels, and develop
their firms capabilities to support the integration. By successfully avoiding the risk of
channel conflict, firms could benefit from integration in four broad areas: lower costs,
increased differentiation through value-added services, improved trust, and geographic
and product market extension.
Currently, more and more retailers see the online channel as a required means to
reach customers; however, how much integration is optimal is still a question that
needs to be answered and that depends on the business model of each firm.
Finally, it is important to mention that internet retailing models such as pure
e-tailers and bricks-and-clicks “support supply chains where consumer order locations
are decoupled from inventory locations” (Bailey and Rabinovich, 2005). Some authors
have named these particular supply chains as e-supply chains. In this setting, order
fulfillment can be identified as the most expensive and critical operation for internet
retailers and companies engaged in e-commerce (Lee and Whang, 2001). Lee and
Whang (2001) developed five e-fulfillment strategies based on the winning formula of
good use of information and the leverage of existing resources to coordinate order-
fulfillment activities. “The five e-fulfillment strategies involve innovative approaches
to logistics postponement, dematerialization, resource exchange, leveraged shipments
and the clicks-and-mortars model.”
As described above, e-tailing exhibits important marketing and operational
challenges. Further, the two business models of internet retailing chosen as elements of
this study: “pure e-tailing” and “bricks-and-clicks,” constitute challenging scenarios for
developing effective supply chains. Consequently, the following sections are dedicated
to study two business models of well-known e-tailers: Amazon.com and Walmart.com.
The following section is segmented by study subject. First, Walmart.com’s business
model and supply chain are discussed in detail. Amazon.com is then explored. This
division is necessary to understand the basics behind a clicks-and-mortar retailer and a
pure e-tailer. The similarities and differences will be analyzed in detail in the
“Analytical framework” section.
Walmart.com
Wal-Mart’s e-based efforts started in 1996. However, Walmart.com Inc. was founded in
the year 2000 as a joint venture of Wal-Mart Stores Inc. and Accel Partners, a leading
venture capital firm in Silicon Valley. Walmart.com Inc. is a corporate affiliate of the
super retailer Wal-Mart Stores Inc., headquartered in Brisbane, CA. This affiliate was
created with the objective to “greatly accelerate the development of Wal-Mart’s internet
retail site, and to further complement efforts to attract offline customers to the internet
via the trusted Wal-Mart brand” (Cockfield, 2002). In the year 2001, Wal-Mart stores
acquired the 20 percent owned by Accel Partners by stating the desire to focus on Consumer
integrating its online and offline sales channels to provide multi-channel options for purchase
customers.
After its creation, Walmart.com has been redesigned three times amid criticism the improvement
site was confusing compared to competitors. This online retailer has discontinued a
digital movie-downloads service and gave up online movie rentals (Bustillo and Fowler,
2009). However, today Walmart.com offers more than 1.5 million products, plus 811
easy-to-use music downloads, digital one-hour photo services, and is adding innovative
strategies to position itself as an online leader. Walmart.com is a case that illustrates
the challenges and benefits of combining and integrating clicks and bricks.
According to its web site, Walmart.com’s current goal is to provide easy access to
more Wal-Mart products, and by combining the best of two great worlds – technology
and world-class retailing – to give customers a wide assortment of their favorite
products, every day low prices (EDLP), guaranteed satisfaction, friendly service,
convenient hours (24 hours, seven days a week), and a great online shopping
experience (Wal-Mart web site). The Walmart.com site is also used as “a tool to attract
consumers to the brick-and-mortar locations. According to the company, 90% of
Walmart.com customers shop in Wal-Mart stores at least once a month”. Last year,
Walmart.com was chosen as the third best e-commerce site for the holidays after
Amazon.com and Target.com by BusinessWeek magazine, after having difficult early
years (Sherman, 2009). Currently, Wal-Mart operates e-commerce sites in the USA, UK,
Canada, Mexico, and Brazil.
Walmart.com and its operations

Walmart.com started its operations as an independent supply chain from its parent
bricks-and-mortars company, Wal-Mart stores. This decision was made in the year
2000 under the rationale that the online channel of Wal-Mart would need a separate
track for fulfillment and information systems to avoid risking its successful parent
company. In that same year, Walmart.com was using two outsiders for fulfillment:
Fingerhut and Airborne Logistics Services. Walmart.com was hoping to eventually
take control with its own dedicated distribution centers. As a result, in 2001
Walmart.com set up its own fulfillment facility in Georgia (Knowledge@Wharton,
2000). In terms of its information systems, Walmart.com built in the year 2000 a
reliable technology platform based on assets acquired from a company called
HomeWareHouse.com.
Once Walmart.com was completely owned by Wal-Mart stores, it has gradually
integrated its operations with its parent company. Wal-Mart stores has used existing
physical channels and infrastructure as leverage for Walmart.com following a truly
clicks and mortars strategy. Wal-Mart stores has been able to consolidate shipments on
existing physical-flow channels and to ship to an outlet with final leg covered by buyer
(Lee and Whang, 2001). Today, The DotCom Distribution Centers, which support the
Walmart.com online operation and the Site-to-Store program, is the fastest growing
segment of Wal-Mart’s distribution network (Wal-Mart web site).
Benefits from integration: Walmart.com and Wal-Mart stores

Bricks-and-clicks integration is the source of synergies between Walmart.com and
Wal-Mart stores. The former offers a physical advantage to Walmart.com in
comparison to pure online retailers. Wal-Mart stores leverage its massive offline
presence with e-commerce operations. In addition, the connection of Walmart.com with
IJPPM Wal-Mart stores also offers retail expertise to forecast demand and manage inventory,
61,7 logistics expertise to create efficient fulfillment, leverage with suppliers, and lower
marketing costs (Knowledge@Wharton, 2000).
Wal-Mart also uses its online channel to offer a greater range of products compared
to its stores. In addition, the web site also serves as a tool to evaluate the introduction of
new offerings of its offline partner. Recently, Wal-Mart stores has been trying to sell
812 more high-end merchandise, and its web site has been used as a virtual testing ground
for acceptance by more affluent shoppers (Hoover’s, 2010).
In addition, Walmart.com has been able to take advantage of the existing services
infrastructure of its offline parent company to improve trust in its online channel
and increase visits to its outlets. Two of these services are the returns policy and the
site-to-store service of Walmart.com.
Returns policy. One clear example of the benefits from clicks and bricks integration
is the returns policy that Walmart.com has developed. According to its web site, all
merchandise sold and shipped by Walmart.com may be returned either to a store or by
mail within 90 days of receiving it (see Figure 2).
This returns policy evidences an adequate management of reverse logistics and
synergies from integrating clicks and bricks. Thanks to its relationship with Wal-Mart
stores, Walmart.com is able to offer to its customers the possibility to return their
products to one of the vast number of stores around the country. With this policy
Walmart.com builds trust in its service.
Site-to-store. Walmart.com has developed a site-to-store strategy, which consists
of in store pickup of internet purchases. According to its web site, site-to-store is a free
service that allows customers to ship their online order to any Wal-Mart store (see
Figure 3). This strategy provides the customers with convenient in-store access to
tens of thousands of items – many of which are not available in Wal-Mart stores.
Orders typically take one to two days to process and usually arrive at the store
seven to ten business days later. This site-to-store strategy allows Wal-Mart stores to
take advantage of its already well-established and successful supply chain operations,
and it could potentially bring more customers to its stores to make additional
purchases.
In 2008, Walmart.com introduced a new service; site-to-store express, which
consists of a paid membership program that allows customers to get their site-to-store
orders faster. Orders can arrive at the store in less than five business days.
For items sold by
Walmart.com A marketplace retailer

Return your item Contact the retailer
to a store or by mail for their returns policy
Figure 2.
Wal-Mart returns policy
Source: Walmart.com
Site-to-store
Shop at Get Pick up

Figure 3. Walmart.com free shipping at a Wal-Mart store
Walmart site-to-store
policy
Source: Walmart.com
Drawbacks from integration: Walmart.com and Wal-Mart stores, clicks-and-mortar Consumer
Walmart.com has had a process of evolution of more than a decade. With a difficult purchase
beginning, Walmart.com was created to operate independently from the existing
physical outlets of Wal-Mart stores. Today, Wal-Mart Stores Inc. strategy states that improvement
one of its growth priorities is to develop stronger integration with the online business.
However, as mentioned before, integration brings challenges. Wal-Mart has apparently
avoided channel conflict by successfully using the online channel to promote its 813
traditional offline channel. However, the integration has caused a disadvantage in
comparison to pure e-tailers. The US Supreme Court has ruled that online retailers with
a physical presence, like Walmart.com, are required to collect sales taxes for the state
from where a consumer makes an online purchase (Internet Retailer, 2003). This
constitutes a disadvantage from integration and this subject is expanded in the
Analytical framework section.
New strategies
In 2009, Walmart.com began offering merchandise from other retailers in a new virtual
mall called Wal-Mart marketplace. According to Wal-Mart web site, the new program
gives customers more choices at Walmart.com adding nearly one million new items to
its online product assortment. Wal-Mart marketplace enables retailers such as CSN
Stores LLC, eBags.com, and Dreams Inc. to offer additional products through its web
site. “With Walmart Marketplace, Walmart.com will process all transactions, but
individual merchants will be responsible for fulfilling and shipping each order, and
handling customer service, exchanges and returns” (Internet Retailer, 2009). With this
new strategy Walmart.com is taking steps to become more similar to the number one
e-tailer: Amazon.com.
In 2010, “Wal-Mart Stores Inc. has set up a new global e-commerce unit called
Global.com to drive online growth in new markets, as well as, in those where it sells
today” (Internet Retailer, 2010). This new unit is also charged with developing stronger
integration between the online and the offline channels. This new unit is a sign of the
importance of the online channel for Wal-Mart and their serious commitment towards
deeper integration.
Amazon.com
Amazon.com was established in 1994 and is headquartered in Seattle, Washington. It
currently operates as an online retailer in North America and internationally. It specializes
in books and music, and it also sells products from a wide variety of categories including
electronics, toys, apparel, auto, industrial, grocery, sports, and outdoors. In addition to its
consumer goods, Amazon.com also provides access to technology infrastructure that
developers can use to enable virtually any type of business (Yahoo).
Amazon.com’s “vision is to be Earth’s most customer-centric company; to build a
place where people can come to find and discover anything they might want to buy
online” (Amazon.com Inc.). Amazon.com’s brand equity stems from the fast, reliable
and trustworthy service its customers receive. The company has divided its primary
customers into three distinct groups: consumer customers, seller customers, and
developer customers (Amazon.com Inc, 2008).
Consumer customers
This customer group uses the traditional Amazon.com retail web sites. Amazon.com
focusses on serving this segment through selection, price, and convenience. Products
include items sold specifically by Amazon.com or through its third-party providers
IJPPM (see Seller customers). Revenues are earned through the sale of Amazon.com items or
61,7 through a fee system for third-party sellers (Amazon.com Inc, 2008).
Seller customers
Amazon.com gives this customer segment the opportunity to sell its products via
Amazon.com’s web site and through their own branded web sites. Amazon.com also
provides distribution services on behalf of these clients. Revenues from seller
814 customers come in the form of fixed fees, revenue share fees, per-unit activity fees or
some combination of these (Amazon.com Inc, 2008).
Developer customers
This customer group is served by Amazon.com through Amazon web services.
Amazon web services provides its developer customers access to technology
infrastructure and application software that they can use to fulfill their particular
business strategies. Revenues are generated based on the technology needs of the
developer customers (Amazon.com Inc, 2008).
Amazon.com invests in different levels of customer accommodation for each of its
customer segments and their needs. A brief overview is provided below and in Table II.
Consumer customers
Amazon.com uses the customer success philosophy when servicing its consumer
customers. For example, consumer customers are regular internet shoppers. Shipping
costs are a significant expense for their internet purchases. Therefore, their
expectations, based on past experience with other online retailers, are for shipping
costs to be reasonable and to have options in terms of how quickly they can receive
their purchases (i.e. ground, express, etc.). Amazon.com exceeds these expectations by
providing free shipping on select items and by providing its customers with the option
to become an Amazon prime member. Customers simply pay $79 per year and they in
return receive unlimited express two-day shipping for free or the option to upgrade to
one-day delivery for just $3.99 (Amazon.com Inc, 2008).
When shopping online, customers expect to find a broad range of products that are
in stock and available for sale. Amazon.com fulfills these expectations, but it also
provides its customers a shopping history (in case customers forget the exact name of
an item they came across previously) and provides a relevant list of suggestions based
on that shopping history (in e-mail or sidebar formats). This not only is beneficial for
customers (they have a free virtual online shopper) but it spurs incremental sales for
Amazon.com.
Level of
Segment accommodation Examples
Consumer Success Amazon prime and free shipping

Search history and product suggestions
Seller Success Fee structure flexibility (options based on customer
requirements)
Access to branded web sites (ability to build brand awareness)
Table II. Developer Satisfaction Application access
Amazon.com customer Cost savings vs internal infrastructure
segment accommodation
philosophies Source: Amazon.com
Amazon.com goes beyond meeting consumer customer expectations and tailors its Consumer
services to address the true requirements and needs of this segment. A total of 73 percent purchase
of the units sold in 2008 were via the consumer customer segment (Szkutak, 2009).
improvement
Seller customers
Similar to its accommodation strategy with its consumer customers, Amazon.com also
implements a customer success philosophy with its seller customers. Amazon.com has 815
established a flexible fee system that allows seller customers to choose how they want
to structure their relationship with Amazon.com (see section below on Amazon.com’s
different supply chain models). This flexibility enables Amazon.com to meet the true
requirements of its customers because the customers choose their level of involvement
with the company.
Also, Amazon.com could have simply allowed its seller customers to have access to
its branded web site. This would have met the seller customers’ expectations of reaching a
large market of potential customers via Amazon.com’s web site. Again, Amazon.com
understood that sellers not only required access via Amazon.com’s web site, but seller
customers also had a need to establish their own brand equity and awareness. Amazon.com
enabled its seller customers to develop their own branded WebStores on Amazon.com. Seller
customers enjoy the expected benefits of reaching customers via Amazon.com’s strong
reputation, but they also have the opportunity to strengthen their own brands’ reputation.
Developer customers
Amazon.com is employing a customer satisfaction accommodation strategy for its
developer customers. Amazon.com has met this segment’s expectations by simply
providing access to various application tools that the customer can used to supplement
their business strategies. Developer customers’ expectations are also that using
Amazon.com’s infrastructure, will be more beneficial (in terms of costs) than if those
customers housed an internal infrastructure. There is no evidence that Amazon.com
goes beyond a customer satisfaction philosophy with this segment.
Amazon.com, in order to meet this customer accommodation philosophies and
based on its product offerings, has multiple supply chain models in operation. While each
model has three main players involved, how those players interact varies significantly.
Seller-Amazon-consumer (no Webstore/no distribution) model
In this model, a seller customer makes its products available to consumer customers
via Amazon.com’s branded web site. The seller customer does not utilize its own
WebStore or distribution through Amazon.com’s distribution network. A graphical
representation of this model can be found in Figure 4.
Seller customer
(no branded site, no distribution)
Seller Amazon.com Consumer
Figure 4.
Seller-Amazon-consumer
: Information : Money : Product (no Webstore/no
distribution) model
Source: Amazon.com
IJPPM The supply chain begins with a seller customer uploading product inventory
61,7 information to Amazon.com’s web site. This product information is then made
available to Amazon.com’s consumer customers. When a consumer customer
purchases an item, it makes a payment to Amazon.com which then retains a fee
before transferring the remaining funds to the seller customer (unless the seller
customer decided to opt for a monthly subscription fee). The seller customer is then
816 responsible for shipping the product to the consumer customer.
This model is less risky for Amazon.com in that it does not have to manage or hold
the seller customer’s product inventory. Amazon.com also does not have to incur the
materials handling expense of preparing an order for shipment. The biggest challenge
for Amazon.com is ensuring that its brand name is not tarnished if the seller customer
does not upload correct information to its web site or if the seller customer does not
deliver the product in a timely manner to the consumer customer. Accurate
information and managing relationships are key to this supply chain model.
Seller-Amazon-consumer (Webstore/no distribution) model

This model is similar to the previous model; however, the seller customer creates its
own branded web site via Amazon.com (see Figure 5). The seller customer creates an
account with Amazon.com and designs its own branded WebStore. The seller customer
uploads its product inventory information to its WebStore and begins selling to the
Amazon.com’s consumer customer or to the seller’s own customers. Amazon.com
charges a fixed monthly fee and a referral fee (if the WebStore offers items found on
Amazon.com). While the WebStore is powered by Amazon.com’s IT infrastructure, it
allows the seller customer to build its own brand awareness.
This model is also similar to the previous model in terms of Amazon.com’s risk
position. Amazon.com’s brand name could be affected by the seller customer’s
WebStore (the WebStore features a “Powered by Amazon.com” logo). Again, accurate
and appropriate information and managing relationships are essential for the success
of this supply chain model.
Seller-Amazon distribution only model

Amazon.com has a network of fulfillment centers and warehouses that operate in the
USA and internationally through co-sourced and outsourced arrangements.
Amazon.com leverages this distribution network as yet another way to serve its
seller customers. Figure 6 illustrates Amazon.com’s distribution only supply chain
model. Seller customers send their product to an Amazon.com fulfillment center where
Amazon.com will store the items until a customer order is received. In a distribution
only model, a seller customer interacts with the final customer and submits fulfillment
Seller customer
(branded site, no distribution)
Seller Amazon.com Consumer /

customer
Figure 5. : Information
Seller-Amazon-consumer : Money
(Webstore/no distribution) : Product
model
Source: Amazon.com
requests to Amazon.com. Amazon.com then picks and packs the seller customer’s Consumer
products and ships the order to the final customer. The fees Amazon.com charges purchase
vary by the type, dimensions, and weight of the product and the selected shipping
method. improvement
This model is beneficial to the seller customer in that it does not have to bear the
overhead expenses of managing its own warehouse and the materials handling costs.
Amazon.com does have the added storage and handling expenses. However, its brand 817
name is not communicated to the final customer unless the seller customer couples this
distribution as in the next model below. It is important for Amazon.com to make sure
that the seller customer is putting in enough marketing efforts to pull its items through
Amazon.com’s fulfillment centers. Amazon.com revenue growth is reliant on turning
as many items as possible.
Seller – Amazon-consumer/customer (seller-owned site/Amazon.com sales and

distribution model
This model adds an additional element to the above distribution only model. It operates
exactly as described above, but the seller customer has the ability to not only sell via its
own web site, but also via Amazon.com. This model, as illustrated in Figure 7, extends
the Seller Customer’s reach to not only the customer that frequent its site, but also the
consumer customers that visit Amazon.com. Whether or not the final customer orders
via the seller customer’s own web site or via Amazon.com, final fulfillment is provided
by Amazon.com. Additional fees would be paid to Amazon.com for the Amazon.com
web site access.
Amazon.com again risks that the seller customer is not doing enough to ensure that
the items are pulled through its fulfillment centers. While Amazon.com does charge a
fee for storage of inventory, it makes much more with high volume, fast turning items.
Seller customer
(owned site, distribution only)

customer
: Information
: Money Figure 6.
: Product Seller-Amazon
distribution only model
Source: Amazon.com
Seller customer
(owned site and amazon.com, distribution)

customer
Figure 7.
: Information Seller-Amazon-consumer/
: Money customer (seller-owned
: Product site/Amazon.com sales
and distribution model
Source: Amazon.com
IJPPM Also, its brand name is again involved in this model and it needs to ensure that it will
61,7 not be negatively affected by the seller customer’s business activities.
Developer – Amazon web services model

This final model deals specifically with Amazon.com’s developer customers (see
Figure 8). The developer customer seeks technological services from Amazon.com. For
818 a fee (depending on the application sought by the developer customer), Amazon.com
allows the developer customer to utilized its services. Ideally these services, which
would cost the developer customer less than developing them in-house, would enable to
developer customer to better reach its customers.
Amazon.com risks that its applications and technology may be open to hackers or
copycats. However, besides the high fixed costs of technology to service the developer
customers, Amazon.com should experience profitable margins on these virtual
services.
Analytical framework
This section uses the general information on Walmart.com and Amazon.com in order
to compare and contrast clicks-and-mortar retailers and e-tailers.
Successes and challenges

Strengths, weaknesses, oppositions, threats (SWOT) analysis was used to compare the
successes and challenges for both Walmart.com and Amazon.com (see Table III for a
summary).
Walmart.com analysis. Strengths. The most significant strength of Walmart.com
is its vast physical advantage when compared with any “pure play” online retailer.
Wal-Mart Stores Inc. is the largest retailer in the world operating retail stores in various
formats across the world, the parent company of Walmart.comoperates around 3,615
stores worldwide. In the USA, the company operates through a number of retail
formats including discount stores, supercenters, neighborhood markets, and Sam’s
Clubs (Datamonitor, 2009). The numerous physical assets of Wal-Mart stores are
located near customers, which allows Walmart.com to integrate its services to the real
world stores. As a result, Wal-Mart uses its existing physical channels and successful
supply chain to offer distinctive and superior services through Walmart.com. For
instance, Walmart.com uses the brick-and-mortar stores of its business partner to
perform the final delivery to the customers, through the “site-to-store” free shipping
Seller customer
(owned site and amazon.com, distribution)
Developer Amazon.com Customer
: Information
Figure 8. : Money
Developer-Amazon web : Product
services model
Source: Amazon.com
Walmart.com Amazon.com
Consumer
purchase
Strengths Physical advantage: better return policy
(reverse logistics), site-to-store service
EDLP reduces bull-whip effect
Customer success strategies
improvement
(free shipping service), trust Operating cycle
Hybrid stocking strategy
Leverage to negotiate better terms with
suppliers to achieve EDLP
819
Weaknesses Sales tax needs to be paid in most Revenues are highly affected by
states, which translates to higher prices seasonality
Rapid expansion strains current resources
High fixed costs
Opportunities Online segment is growing and E-commerce continues to grow
merchandise from other retailers is Successful product expansion (Kindle
being offered through Walmart.com being sold in target)

Global e-commerce site
Threats Channel conflict New competitors and intensified
Disintermediation from manufacturers competition
and suppliers Internet based: service interruptions and
slow speeds (i.e. hackers, customer access) Table III.
can damage brand and revenues quickly SWOT analysis for
Walmart.com and
Sources: Walmart.com and Amazon.com Amazon.com
service. Because of the convenient and numerous locations of the stores, this service
results in an attractive offering to customers, and a way for Wal-Mart to eventually
bring more customers to its stores and increase their purchases. In addition,
Walmart.com offers a reliable and convenient return process that allows customers to
return items to any store. This return policy is evidence of a positive process of reverse
logistics, which is fundamental for online retailers since customers are not able to
check a product before making a purchase decision. Furthermore, this return policy
and the brick-and-mortar stores of Wal-Mart represent an important element of trust
for consumers.
According to Datamonitor (2009) Wal-Mart scored 77 points out of 100, in an annual
consumer survey measuring e-commerce satisfaction by the US consumers. The
survey showed the company is slightly ahead of some of its major competitors such as
Kohls.com (76 points), target.com (75 points), and best buy.com (74 points). This
indicates Wal-Mart’s strong position in the online retail format. This could be a
consequence of Wal-Mart recognition in the market place, its services offered over the
internet (site-to-store and return policy), and successful e-fulfillment.
Wal-Mart stores can implement a hybrid stocking strategy through its online
channel, which represents a strength. Wal-Mart uses its brick-and-mortar version
mainly for high volume and fast moving products for local storage. On the other hand,
Walmart.com can be used for low volume and slow moving products. This hybrid
stocking strategy allows better utilization of resources for Wal-Mart.
Finally, Wal-Mart Stores Inc. has a relevant advantage in negotiating better terms
with its suppliers. As a consequence, this company has been able to achieve an EDLP
strategy. As price comparison tools are available in the online channel, price becomes
an even more important competitive factor for customers on the internet.
Walmart.com, thanks to its offline partners and its capabilities, has a competitive
advantage in offering EDLP over the internet.
IJPPM Weaknesses. The US Supreme Court has ruled that online retailers with a physical
61,7 presence, like Walmart.com, are required to collect sales taxes for the state from where
a consumer makes an online purchase (Internet Retailer, 2003). In consequence,
Walmart.com adds sales taxes to orders shipped to almost every state. This represents
a weakness when compared to pure play online retailers that do not have this
requirement. Amazon.com, for instance, charges sales taxes just on items sold by
820 Amazon.com and shipped to destinations in the states of Kansas, Kentucky, New York,
North Dakota, or Washington where the online retailer has physical presence.
Amazon.com analysis. Strengths. Amazon.com employs an EDLP pricing strategy.
This is beneficial for Amazon.com in that it reduces demand variability and the
bullwhip effect. An EDLP pricing strategy allows Amazon.com to better manage
its inventories which is a large cost in its supply chain model. Amazon.com’s
supply chain is so efficient; its operating cycle is 26 days. This cash generating
cycle allows Amazon.com to put additional working capital to use before it has to
pay its suppliers. Amazon.com has also done a great job in serving multiple unique
customer segments through its customer accommodation strategies described
previously. Having multiple, unique revenue streams is a great way to reduce risk
and expand.
Weaknesses. One-third of Amazon.com’s revenues are realized in the fourth quarter.
This high-level of seasonality imposes significant inventory risks on Amazon.com
meaning that a slower than anticipated holiday season could dramatically increase
Amazon.com’s inventory carrying costs and damage its bottom-line. Amazon.com is
also a very young company (only a little over a decade old). It is still very much in a
growth cycle and has been growing rapidly in North America and internationally. This
rapid expansion not only strains Amazon.com’s resources, but it also introduces
complexity and uncertainty into its supply chain which may affect its future success.
Amazon.com needs to make sure it is able to effectively manage communication and
information exchanges throughout its growing organization. Amazon.com is also
heavy on fixed costs (i.e. technology infrastructure, fulfillment centers, etc.). This fixed
cost structure does not allow Amazon.com to respond quickly to depressed revenue
levels, being that it cannot shed expenses quickly.
Walmart.com/Amazon.com SWOT comparison. Strengths. Both Walmart.com and
Amazon.com are pursuing an EDLP strategy. Both companies are operating large
distribution networks, minimizing inventory carrying costs and demand variability are
necessary for their success. This EDLP strategy helps to minimize the bullwhip effect
that happens when retailers use a high-low pricing strategy.
Walmart.com has a unique strength in being able to leverage its physical
counterpart (Wal-Mart stores) in order to be more flexible in serving its customers.
Amazon.com on the other hand has implemented successful customer accommodation
strategies with its unique customer segments and has also been able to implement
flexible supply chain models.
Weaknesses. Both Walmart.com and Amazon.com rely heavily on fourth quarter
holiday sales in order to meet revenue projections. This inherent seasonality makes
both firms susceptible to price wars which was evident by the 2009 book wars in which
both Walmart.com and Amazon.com slashed prices to attract holiday shoppers. This
seasonal risk and competitive tactics can quickly erode margins. Also, Walmart.com
and Amazon.com have high fixed costs structures. However, Walmart.com is able to
spread this risk over Wal-Mart’s larger revenue base and allow for better utilization of
economies of scale.
Opportunities. Walmart.com and Amazon.com will undoubtedly benefit from the Consumer
ever-growing e-commerce industry. Opportunity for Amazon.com’s revenue growth purchase
may also stem from additional product expansions into other segments, similar to the
decision to distribute its Kindle e-reader for sale in Target stores. Walmart.com will improvement
continue to benefit from Wal-Mart stores’ international expansion which benefits both
entities’ brand recognition and trust. Both Walmart.com and Amazon have a significant
opportunity when dealing in the online market segment of the ability to be able to market 821
directly to the customers while they are shopping (Sismeiro and Bucklin, 2004). Through
data mining, companies can analyze the behaviors of their customers as they shop online.
Both companies will be able to predict similar products that the customer would be likely
to purchase and then advertise these items directly to the customer as they are shopping
online (Sismeiro and Bucklin, 2004). This is not a new concept, it is somewhat analogous
to super market checkout lines, which essentially are prompting you to make an impulse
purchase of something that you would not have normally purchased or sought out, had it
not been presented to you. If these companies can utilize the data about customers online
shopping habits then they will be able to market specifically to that customer, products
which either have a high profit margin or that the customer would be likely to purchase
based on the items they have already purchased or the search that they have been doing.
Wal-Mart has an even greater opportunity with this technology because of the extremely
large scale of their operation. With the amount of data that Wal-Mart could collect though
its virtual presence they could develop a better understanding of their customers purchase
habits and trends which could be adapted to help market research and product placement
in bricks-and-mortar stores as well.
Threats. The growing e-commerce industry is inherently attractive and will result
in new competitors entering the marketplace and intensified competition from existing
online retailers (see Industry analysis section). Also, because both Walmart.com and
Amazon.com are internet based, any service interruptions or slow speeds can quickly
damage sales and brand equity.
Industry analysis
Below is an analysis of the US e-commerce and online auctions industry by using the
five-forces framework. Figure 9 summarizes the threat levels for each industry force.
Internal rivalry (moderate). The fact that the top four players in the industry
account for o40 percent of the market decreases the intensity of internal rivalry.
In fact, the three major players (Amazon.com, eBay, and Dell) account for only 23 percent
of market share in 2009 (IBISWorld, 2010). The fact that the industry is growing
(see Figures 10 and 11) introduces higher levels of rivalry as there is anticipation that
there will be more profits available. Also, the fact that there are low barriers to entry
makes access to these increase profits very easy. However, successful low-cost providers,
such as Walmart.com, are increasing their presence online, thus profits are pushed
downward. As there are no physical or country boundaries for online retailers, they are in
global competition. This further intensifies the rivalry among industry participants.
Threat of new entrants (high). For $10.69 a year, any company can purchase a
domain name from Godaddy.com and start an online web site in which to sell its
products or services (Godaddy.com). This illustrates the low barriers to entry that exist
in this industry. While economies of scale are important for maintaining low prices,
any company has access to contract for shipping and online transaction services.
The ability to easily outsource many major steps to the supply chain further increases
the ability for new entrants to enter the industry.
IJPPM Threat of new
61,7 entrants:
high
822
Supplier power: Internal rivalry: Buyer power:
moderate moderate high
Figure 9.
Five-forces framework for Threat of
the US E-commerce and substitutes:
online auctions industry high
Revenue
100,000.00
90,000.00
80,000.00
70,000.00
60,000.00
$ millon
50,000.00
40,000.00
30,000.00
20,000.00
10.000.00
Figure 10. 0.00
E-commerce and online
10
97
98
99
00
01
02
03
04
05
06
07
08
09
20
19
19
19
20
20
20
20
20
20
20
20
20
20
auction revenues
in the USA
Source: IBISWorld
Supplier power (moderate). For online retailers who deliver services to customers,
suppliers are minor. However, for online retailers that rely heavily on the products of
suppliers, because they do not manufacturer their own products (Amazon.com, eBay)
supplier power is magnified. If an online retailer attracts an enormous number of
customers to its web site, the supplier power is reduced because the supplier needs
access to the customers in order to be profitable. Overall, the power of suppliers to
online retailers is moderate in nature.
Threat of substitutes (high). Customers can always turn to the traditional
brick-and-mortar retailers to purchase their products. This substitute is more convenient
as a customer can purchase the item in store. Customers of online retailers must wait for
the products to be shipped to their door or to a nearby store. Immediate gratification is
a very powerful driver for customers to seek out purchases at traditional retailers. Also,
clicks-and-mortar have to operate knowing that a sale at its web site may not be
Revenue growth rate Consumer
50
purchase
40 improvement
30
823
%
20
10
0
Figure 11.
01
04
05
E-commerce and
09
10
99
03
06
00
07
08
02
98
20
20
20
–10
20
20
19
20
20
20
20
20
20
19
online auction revenue

growth in the USA
Source: IBISWorld
incremental for the organization as a whole, but is a substitute sale that would have
occurred at its sister brick-and-mortar location. Because traditional brick-and-mortar
retailers are still dominating the retail sales market, the threat of substitutes is high.
Buyer power (high). While customers may be brand loyal to certain online retailers
(such as Amazon.com and Walmart.com) they have the ability to quickly scour the
internet for similar items that may be offered at lower prices. The switching costs are
non-existent and customers can easily make one-time transactions with various online
retailers. Amazon.com’s introduction of Amazon Prime may entice some customers to
shop only at its web site to benefit from the low shipping costs that come with the
Amazon Prime membership. However, customers can easily seek other alternatives.
This is why buyer power in this industry is high.
Specific metric review

In the below analysis, Wal-Mart performance metrics are used, when comparing with
Amazon.com, as Walmart.com specific financial information is not released.
Cash conversion cycle. Amazon.com is the clear winner in terms of how efficiently it
converts its resources into cash. In 2009, Amazon.com had a cash conversion cycle of
51 days compared to Wal-Mart’s seven days. Over the last three years, both firms
continue to become more efficient and this is reflected in their decreasing cash
conversion cycles (see Table IV). Amazon.com has been able to continue reducing the
time needed to collect from their customers. However, with an accounts receivable
conversion period of 15 days, Amazon.com is no match for Wal-Mart’s four-day
accounts receivable conversion period. This is largely due to the nature of the
businesses. Amazon.com is unable to collect cash and must use credit for online
purchases which increases collection time. However, it appears that Amazon.com has
been able to exert pressure on the accounts receivable collection process. Amazon.com
is also able to negotiate longer accounts payable terms than Wal-Mart (almost three
times as long). Both companies are about equal in terms of inventory conversion period
However, Amazon.com is losing ground (inventory conversion period is increasing)
whereas Wal-Mart has been gaining. Higher turns are important for these two firms in
that inventory carrying costs are detrimental to profits. This could be an indicator of
how well pure e-tailers fare (or do not fare) in economic downturns. Wal-Mart has been
IJPPM Amazon.com Walmarta
61,7 (in millions $) 2009 2008 2007 2009 2008 2007
A/R 988 827 705 4,144 3,905 3,642

Inventory 2,171 1,399 1,200 33,160 34,511 35,159
A/P 5,605 3,594 2,795 30,451 28,849 30,344
824 Sales 24,509 19,166 14,835 408,214 405,607 378,476
COGS 18,978 14,896 11,482 297,500 299,419 280,033
A/R conversion period 15 16 17 4 4 4
Inventory conversion period 42 34 38 41 42 46
A/P conversion period 108 88 89 37 35 40
Cash conversion cycle (51) (38) (33) 7 10 10
Table IV. Note: aWalmart’s year end is January 31 vs Amazon year end of December 31
Cash conversion cycles Sources: Amazon.com and Walmart Financial Statements
able to capitalize on its EDLP strategy with quicker inventory turns during the recent
recession. Perhaps money conscious consumers turn to local retailers where they do
not have to pay extra shipping fees when times get tough. This could be an issue that
all e-tailers may need to consider in their strategic planning initiatives.
Return-on-assets. In 2009, Amazon.com and Wal-Mart were equivalent in how
efficiently their management teams were using assets to generate earnings (see Table V).
Wal-Mart’s net income growth has outpaced its total assets growth for each of the
last three years. While Wal-Mart’s net income growth is not as large as Amazon.com,
Wal-Mart has been able to use its assets more effectively to generate net income
(Wal-Mart generated a higher growth in net income that it needed to invest in total assets).
Amazon.com has been growing rapidly over the last three years and continues to
experience double-digit net income growth. However, 2009 was the first year in which
Amazon.com’s total asset growth outpaced its net income growth. As a growing company
it is assumed that this investment in assets is projected to generate a return; perhaps net
income growth will lag behind this investment period.
Research findings
This section will answer the questions formulated in the introduction of this paper
based on our research findings. Below, the questions are restated along with the
corresponding answers:
. What are the general characteristics of pure internet-based companies supply
chains? What are their benefits and limiters to growth? Are they efficient and
effective for consumers?
Amazon.com Walmarta
(in millions $) 2009 2008 2007 2009 2008 2007
Net income 902 645 476 14,335 13,400 12,731

Total assets 13,813 8,314 6,485 170,706 163,429 163,514
Return on assets 7% 8% 7% 8% 8% 8%
Table V. Note: aWalmart’s year end is January 31 vs Amazon year end of December 31
Return-on-assets Sources: Amazon.com and Walmart Financial Statements
Pure internet retailers’ supply chains could arguably be considered more flexible than Consumer
their clicks-and-mortars counterparts. The internet allows an e-tailer to economically purchase
reach a broad spectrum of customers, an e-tailer can accommodate multiple segments
of customers from its inception. Clicks-and-mortars have to limit their customer improvement
segments based on limited physical retail space. E-tailers will undoubtedly benefit
from the growth stage the e-commerce industry is experiencing. With this come growth
limitations based on increased competition and growing cost-to-serve international 825
segments. Overall, e-tailers are efficient and effective for consumers in that they benefit
from disintermediation, the ability to maximize options for customers and the capacity
to accommodate customer segments differently based on advances in technology:
. What are the general characteristics of the multi-channel (clicks-and-mortars)
companies supply chains? What are their benefits and limitations to growth?
Are they efficient and effective for consumers?

The business model of clicks-and-mortars retailers has a wide spectrum that ranges
from complete separation of the online segment from its offline equivalent, to complete
integration where the online segment is an in-house division of the traditional retailer.
The main benefit of the clicks-and-mortar business model is its physical presence
together with the possibility of having an online channel to complement existing
customer relationships, business processes, and distribution systems. Today, the online
channel is viewed as a logical extension of traditional retailers. However, there
are tradeoffs between separation and integration of online and offline channels for
clicks-and-mortars. The online channel has to serve customers and manage operations
in a different manner when compared to the offline channel. Consequently, the level
of integration could be a source of synergies and also a limitation to growth for
clicks-and-mortars. The success of clicks-and-mortars depends on choosing the
appropriate mix of integration and a deep knowledge of the nature and particulars of
the online channel. It is important to mention that clicks-and-mortars also face a
considerable risk of channel conflict. Overall, clicks-and-mortars are efficient and
effective for multi-channel consumers and online-consumers, they benefit the wide
range of options offered through the internet while still having the trust component
offered by the brand and the physical presence of a clicks-and-mortar retailer:
. Are pure e-tailers more effective in managing their supply chains than clicks-
and-mortars retailers? Are there better structures for pure internet-based
companies and clicks-and-mortars?
It is difficult to definitely determine which entity (e-tailer vs clicks-and-mortar) is more
effective in managing their supply chains. This is based on the fact that both are operating
under unique business models. E-tailers would benefit from understanding and learning
from clicks-and-mortars supplier management systems. Clicks-and-mortars are linked to
the traditional retailing industry which is in a mature state. Traditional retailers have the
benefit of transferring years of best practices, specifically on supplier relationships, on to
their internet divisions. E-tailers are dealing with a fragmented supplier base that will
need better management to gain efficiency and to drive down total supply chain costs. On
the other hand, clicks-and-mortars would benefit from embracing the flexible nature of
e-tailers and how they are able to effectively serve a broad range of customers.
Clicks-and-mortars begin with the branding of its traditional retail outlet. To be efficient
and effective with its resources, that traditional retailer needed to serve a specific segment
IJPPM based on its capabilities and resources. This limited viewpoint may be detrimental to the
61,7 flexibility needed for the clicks-and-mortars to be efficient in the e-commerce industry:
. How do e-tailers and clicks-and-mortar retailers deliver value to their customers?
Pure e-tailers, such as Amazon.com, deliver value to their customers by offering
flexibility. Pure online retailers have the ability to serve customers with different needs
826 and characteristics, and to offer them different levels of customer accommodation in
alignment with their particulars. In addition, the breadth of items offered by e-tailers is
potentially more extensive than that offered by traditional retailers. On the other hand,
clicks-and-mortars retailers deliver value to its customers by offering an extension of
its physical presence together with the convenience and wider product offering of the
internet. In addition, clicks-and-mortars deliver value to their customers by integrating
services. For instance, customers have the possibility of returning and picking up items
bought online to bricks-and-mortars stores. In consequence, clicks-and-mortars offer a

multi-channel option to their customers:
. What successes have e-tailers and clicks-and-mortars retailers have and what
are their major future challenges?
Pure e-tailers and clicks-and-mortars have succeeded as business models. Amazon.com
and Walmart.com offer valuable successful cases of these two models. Both cases have
proved their profitability and the theoretical benefits of the two business models.
However, E-commerce has not yet reached its maturity. In consequence, developing
these two models in accordance to the evolution of E-commerce and taking them to a
more global scale would represent a major challenge for both pure e-tailers and clicks-
and-mortars from a marketing and operational standpoint. In a 2011 shareholders
meeting in Fayetteville Arkansas, the CEO of Wal-Mart laid out five priorities for the
company going forward (see www.msnbc.msn.com/id/43267689/ns/business-retail/t/
wal-mart-ceo-pushes-plan-keep-retailer-growing/):
(1) growth by adding customers, opening new stores, and acquiring other
retailers;
(2) keeping costs low and passing the savings to customers;
(3) building a global internet business;
(4) developing talent, including a greater focus on women and minorities; and
(5) expanding the company sustainability effort.
It is not surprising that building a global internet business is among the companies’
top priorities given the advantages of a clicks-and-mortar operation that has been
discussed previously. Bill Simon, president and CEO of Wal-Mart’s USA also spoke at
this meeting and pointed out that Wal-Mart is also battling increasing threats from
competitors, particularly online rivals like Amazon.com and dollar stores, which have
expanded their assortments and become more competitive on price. Wal-Mart did,
however, point out that a lot of their overall growth as a company comes from the
grocery and produce segments of their business, which is a segment that for the most
part is likely to stay within the confines of the bricks-and-mortar stores and it is
unlikely that Amazon.comwould try to enter into that market:
. What does the e-commerce industry currently look like and how is it
changing?
The e-commerce industry is relatively young. Due to the ease of use, competition Consumer
continues to increase as more companies are beginning to expand their product purchase
offerings to even more consumers globally. With this rapid growth come growing
pains. Currently without regulation, some countries are starting to demand regulatory improvement
pressure on internet-based or clicks-and-mortars companies. This will most likely be
a point of contention that could change the industry in the future. More growth
is expected as more consumers gain access, or more efficient access, to the internet. 827
In recent years, there has been a strong trend in consumer electronics to enable more
and more devices with internet capability. As this internet proliferation continues to
spread to devices like television sets, gaming consoles, tablet PCs, and other mobile
devices such as smart phones. With the internet becoming literally at the consumers
fingertips, companies who want to be successful will have to find ways to leverage this
growing opportunity with applications.
Research limitations
It is recognized that there are limitations in assuming that all e-tailers operate similarly
to Amazon.com and that all clicks-and-mortars institutions operate similarly to
Walmart.com. However, this research made these assumptions for the sake of brevity
and scope. In addition, since Walmart.com Inc. is a subsidiary of Wal-Mart Stores Inc,
the latter is not required to disclose information about its subsidiary. In consequence,
most of the information about Walmart.com was obtained from academic and press
articles. Also, industry research was limited to the USA.
Managerial implications
With the relevance of E-commerce in today’s business world, the challenge for retailers
is no longer about competing with those in their same category, but with retailers
operating in various arenas. Retailers have business models that range from traditional
bricks-and-mortars to pure e-tailers, including hybrid models. Today, Wal-Mart and
Amazon.com which seemed distant competitors in the past are becoming more closely
competitive as the CEO of Wal-Mart pointed out.
The Amazon.com case shows us the importance of building a strong brand as a way
to substitute the lack of trial and trust of a pure online player. In addition, the
operations of Amazon.com are designed to serve each segment of customers in the best
way according to their needs. This case illustrates the positive results of developing a
strong customer accommodation strategy.
The Walmart.com case illustrates how traditional bricks-and-mortars retailers do
not have supply chains that are accustomed to filling and shipping in the fashion that
e-tailing requires. Walmart.com has been around for more than a decade; however, true
integration with its offline business partner into a deep clicks-and-mortars strategy
has been a difficult task. Until today, the company maintains the goal of achieving
deeper integration of both channels. The future results of this effort of deeper
integration would serve as a basis to establish how much integration is appropriate
given the differences in serving offline and online customers from an operational
standpoint.
One question to be considered as a result of studying the Walmart.com case is that
given Wal-Mart’s expansion of its market boundaries through an online channel, could
this company become a dominant player in the global market. Potentially, regulators
could eventually establish some boundaries to avoid an eventual monopolistic power of
IJPPM Wal-Mart as an online and offline retailer? This is a question that should be kept in
61,7 mind of policy makers and business leaders.
Finally, e-tailing has become a scenario of intense rivalry. The price war experienced
during December 2009, mainly between Amazon.com and Walmart.com, in product
areas like books, movies, toys, and electronics is a vivid example of this rivalry. The
most efficient and effective business models would be the ones that could successfully
828 face intense rivalry and be profitable in this business environment.
Conclusions
This paper explored the differences between the operations of a pure e-tailer and clicks-
and-mortar companies. While both have different supply chain models, strengths, and
weaknesses, they both face the same opportunities and threats as the E-commerce
industry continues to grow rapidly. Analyzing both e-tailers and clicks-and-mortars
allows one to understand how lessons from one entity can be applied to the other in order
to bring even more efficiencies to both e-tailers’ and clicks-and-mortars’ supply chains.
Recommendations
For brevity’s sake, this paper was limited in scope to explore Walmart.com and
Amazon.com as case studies. Future research might explore many more e-tailers
and clicks-and-mortar companies. Specific areas of study that would bring richness to
this subject matter may include:
. How well does each fair during different economic cycles. Do clicks-and-mortars
fair better during economic downturns than e-tailers? What is the effect of
economic cycles on e-tailers and clicks-and-mortars? Are they affected similarly
or are there significant differences and why?
. More in-depth research on contemporary supply chain performance measures is
needed to explore the effectiveness and efficiency of e-tailers and clicks-and-
mortars.
. Specifically regarding clicks-and-mortars, how much integration with the
traditional retailing division is appropriate and effective? At what point does
integration become a detriment?
. What role will mobile internet devices play in the future e-commerce
marketplace and how will innovative retailers leverage that opportunity into a
successful business model?
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Corresponding author
Sameer Kumar can be contacted at: sameerkumar724@gmail.com
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REFLECTIVE PRACTICE Consumer

business, as proposed by Mahadevan include:

separation to complete integration (see Figure 1).

Strategic Joint In-house

• Greater focus • Established brand

Walmart.com and its operations

Benefits from integration: Walmart.com and Wal-Mart stores

For items sold by

Walmart.com A marketplace retailer

Shop at Get Pick up

Consumer Success Amazon prime and free shipping

Seller Amazon.com Consumer

Seller-Amazon-consumer (Webstore/no distribution) model

Seller-Amazon distribution only model

Seller Amazon.com Consumer /

Seller – Amazon-consumer/customer (seller-owned site/Amazon.com sales and

Seller Amazon.com Consumer /

Seller Amazon.com Consumer /

Developer – Amazon web services model

Successes and challenges

Developer Amazon.com Customer

being offered through Walmart.com being sold in target)

online auction revenue

Specific metric review

A/R 988 827 705 4,144 3,905 3,642

Cash conversion cycles Sources: Amazon.com and Walmart Financial Statements

Net income 902 645 476 14,335 13,400 12,731

Are they efficient and effective for consumers?

bought online to bricks-and-mortars stores. In consequence, clicks-and-mortars offer a

its impact on operations management”, International Journal of Production Economics,

Systems and E-Business Management, Vol. 4 No. 2, pp. 187-216.

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