Selling online versus selling in a stationary shop - what are the differences between traditional and e-commerce?

Modern commerce is an inseparable mix of sales in the traditional and online channels. Online shopping is as much a part of everyday life for most Poles as going to the local shop or going to the shopping mall. However, despite the unification of consumer perceptions of sales channels, mainly thanks to the development of omnichannel, there are a number of aspects that differentiate traditional and online commerce on many levels.

Difference in target groups

In the case of a traditional shop, the potential target group consists of the residents of a particular locality, sometimes a particular neighbourhood. Of course, there are some deviations from this rule, for example in terms of location (busy tourist destinations) or the nature of the place (suburban shopping centres). As a rule, there is a purchasing potential of between 1.5 and 2.5 per cent. several to several hundred thousand potential buyers .

In the case of e-commerce sales, the potential is incomparably higher. According to the Gemius report "E-commerce 2022", as many as 77% of thirty million internet users have made a purchase online [1] . Translated into figures, this means a potential of 23 million customers, and that only includes buyers from Poland. Of course, these two groups have a huge amount in common, while we are still dealing with a huge number of people who, for various reasons, strongly prefer one or the other sales channel.

Various factors determining the choice of a particular channel

For years, practically all surveys indicated price as a motivator to buy online, but for several years now price has ceased to be the main motivator. According to last year's Gemius study, the main motivators for online shopping included the following 24-hour access to the e-shop, no need to travel to a stationary outlet and attractive prices.

Source: 'E-commerce in Poland' report, Gemius 2022, https://gemius.com/api/downloadReport2022.php

To get an idea of the factors that encourage consumers towards the traditional stationary shopping model, it is worth looking at Morning Consult's report 'The State of Retail and E-Commerce'. It shows the results of a fairly cross-sectional survey of consumer shopping preferences. Of particular note are aspects that are very difficult to replicate in an online shop; the joy of shopping, access to a physical product and the opportunity to find out more about it, possibility of physical product comparison or direct customer service [2] .

Źródło: The State of Retail and E-Commerce, https://go.morningconsult.com/rs/850-TAA-511/images/220222_Q122-State-of-Retail-Final.pdf

Customer service in traditional and e-commerce

Online retailers are not able to deliver certain values that are only characteristic of the in-store shopping experience. This is why it becomes important to provide potential buyers with the catalogue of additional services they expect at a sufficiently high level, in addition to a good retail offer.

In the stationary shop Despite the usually smaller selection of products, a professional retailer is often able to generate high sales through expert advice or friendly service, all in real time. Meanwhile, in the online channel, other factors are decisive, whether related directly to the offer itself or to the e-purchase and delivery process itself.

In surveys, consumers are quite emphatic about their preferences in terms of delivery, returns or choice of payment methods, so meeting these expectations is already a prerequisite for successful online sales: delivery by parcel machine® InPost, return by parcel machine® or convenient payments (including deferred payments) is a necessary standard in order to compete successfully for customers.

Source: 'E-commerce in Poland' report, Gemius 2022, https://gemius.com/api/downloadReport2022.php

An additional challenge in e-commerce is the consumer rights associated with a distance transaction. In a stationary shop, the customer has the opportunity to inspect the item in detail, to familiarise himself with its physical characteristics, to traverse, or to detect potential defects and imperfections. In an online transaction, the buyer assumes, and the seller insures, a certain type of risk related to the discrepancy of the product received with the customer's expectations (different colour, size, incomprehensible, misleading description).

Hence the right to withdraw from a contract without giving a reason, but also the still popular, albeit very costly for the seller, free returns. Regardless of the scale and reasons - handling returns due to withdrawal is a legal obligation for e-retailers. In contrast, a stationary shop may, but is not obliged to, accept returns from customers who have simply made up their minds. Consequently, it is not obliged to calculate the handling of returns in its business plan.

Selling on the marketplace - Allegro, Amazon and others

In addition, it is important to note the very exacting standards imposed on sellers offering their products on the marketplace. These platforms not only expect very efficient order processing, but also demand a high level of customer service. The vendor must adhere to a regime of response times to customer queries and be prompt in presenting its position in disputes with customers. Failure to meet quality metrics - whether in terms of timeliness of shipments, the quality of the offer or the speed and quality of communication with customers - results in a reduction in the quality of the account and a drop in the position of our listings.

The accumulation of responsibilities associated with maintaining quality indicators at the highest possible level is therefore quite a burden for online retailers. This is why selling on a marketplace is often linked to the outsourcing of logistics services. The retailer can focus on maintaining quality communication with consumers and polishing its offers, leaving the maintenance of the operational indicators required by the marketplace to a professional fulfilment provider.

Other bid management requirements

In many industries, the standard imposed by the years of dominance of traditional sales still lingers today. Many manufacturers continue to supply the market within a single SKU (stock keeping unit - unique product code) mixes colours and designs. On a single EAN code, the same product is often sold, but, for example, in different colour variants. The consumer chooses the variant that suits him or her best, and at the cash register everything is fiscalized under one code, common to the product group.

Products marketed in this form are virtually unsaleable online . The online customer wants to get exactly what they ordered - usually a specific model in a particular shape and colour. Any attempt to mark up mix offers with the disclaimer 'we send designs randomly' builds neither trust in the shop nor consumer satisfaction. If a product has one stock code for several variants, no system will 'guess' the correct quantities of a particular variant. The offer may then be misleading, showing an item in a colour that may no longer be in stock.

The way to do this is to 'de-index' problematic products, i.e. to separate colours and designs, give them individual codes and take stock in the system of the correct quantities on the new codes, but this requires both some system support (generating codes and labels) and the labour involved in splitting and labelling products with the new codes. For most logistics operators, this is often a core service of fulfilment for e-commerce and is already performed at the warehouse receipt stage, but for many e-tailers relying on their own logistics, this can be quite a challenge and disrupt the smoothness of warehouse operations.

The accumulation of responsibilities associated with maintaining quality indicators at the highest possible level is therefore quite a burden for online retailers. This is why sales on the marketplace are often linked to the outsourcing of logistics services.

Internet and traditional sales - differences in costs

Running a stationary shop has undeniable advantages, but it also generates a number of complications for the business owner. The main disadvantage is often the very high fixed costs. Maintaining an establishment in a good location or a boutique in a popular shopping mall is a cost of tens or, in the case of larger shops, even hundreds of thousands of zlotys per month.

On top of this there is the staff, usually in two shifts for long opening hours, the cost of equipment and periodic re-arrangements, the cost of lighting, decoration, etc. All this has to be borne by the retailer in isolation from revenue, on top of the high pressure of competition within the location and competition from online retailers.

E-commerce these days also involves high costs, but these have a slightly different distribution and are usually more favourable for the seller. The costs of e-commerce mainly consist of :

• cost of building and maintaining sales tools (e-commerce website)
• cost of commissions and promotions on the marketplace
• costs of getting traffic to the shop's website and promoting the brand online
• logistics costs (warehouse maintenance, packaging, shipping, returns handling)

As you can easily see, many of these costs are directly dependent on sales. The more you manage to sell through the marketplace platform, the greater the commission cost will be. Similarly, the greater the expense of a well-targeted online promotional campaign, the more sales it should generate, but also the greater the logistical cost in terms of postage and packaging.

The basic idea of placing logistics in the hands of a professional external company is to turn fixed costs into variable costs and to do so in such a way as to link them as much as possible to sales.

However, for many e-tailers, a number of fixed costs, independent of sales, are still a concern . The most common of these includes maintaining an in-house warehouse and staff to handle shipments and returns. Looking directly at unit prices, an in-house warehouse and in-house staff seem ostensibly the cheapest solution. However, this is the case when both resources are actually used to their maximum potential.

In practice, however, this looks very different:

• For a large part of the year, the warehouse is not filled to capacity, and rents and fees have to be paid at a constant and increasing rate
• At peak times, the warehouse is often too cramped and you are faced with the need to reduce stock (reduce sales) or incur the additional cost of renting extra space.
• Maintaining trained warehouse staff is a considerable annual expense, which also has to be borne during periods of lower order volumes and, in the event of a peak sales period, is supported by additional temporary staff.

Vendors facing this type of problem, especially for businesses characterised by periodic fluctuations in sales, should consider outsourcing logistics operations to a fulfilment centre. This will be a good solution especially when existing sales generate large, fixed logistics costs. The basic idea of placing logistics in the hands of a professional external company is to convert fixed costs into variable costs and to do so in such a way that they are linked to sales as much as possible.

Fulfillment is therefore a logistics outsourcing model in which the e-tailer only pays for:

• space occupied in the warehouse at any given time,
• warehousemen's work only when it is actually performed.

All this is at the same time reliably reported and accounted for, which is a sensible solution for combining costs with revenue . By creating a comprehensive One Stop Shop with an extensive set of additional services, the warehouse operator is able to flexibly handle the online shop's orders and returns, and the entire handling of e-commerce logistics then becomes easier and more cost-optimised.

In addition, the best logistics operators offer high scalability of operations, guaranteeing the potential for sales growth. Another benefit is the favourable agreements with carriers, ensuring a very late 'cut-off time' (the hour by which placed orders leave the warehouse the same day). This is an invaluable advantage, as up to 87% of online shoppers would like to receive their purchase within 12 hours [3] .

Thanks to the synergy effect, InPost customers can count not only on a late cut-off time, but also on an efficient, measured and quality logistics service in the warehouse and a high level of parcel delivery thanks to Paczkomat® InPost and Courier InPost services at very attractive prices, often unavailable as part of the standard offer. This is pure profit and an advantage for the customer selling in the e-commerce model.