Industry Market Trends
E-Commerce Becomes An Accidental Green Business Model
March 29, 2011
Maybe you've already noticed, but with the "restructuring" of bookseller giant Borders, the brick-and-mortar retail business is pretty brutal right now. At the beginning of this year, Borders had 511 physical stores across the U.S. and its territories (it had already shut down 182 of its subsidiary bookstores, Waldenbooks, in late 2009). The company, which hadn't made a profit since 2006, filed for Chapter 11 bankruptcy protection in February of this year, is in the process of shutting down about 225 stores and cutting thousands of jobs (the actual number remains fuzzy and varies wildly according to reports). Amazon.com, in the meantime, is on a hiring spree. Amazon, the largest online retailer in the United States (it has triple the revenue of the number two online retailer, Staples.com), doesn't have a single physical store, let alone a cafe full of baristas making exotic coffee drinks, a customer parking lot, children's reading area, magazine browsing rack, open space for midnight book release parties, CD listening station, rack for gift items and toys or comfy chair in which to sit and browse through titles. What Amazon.com does have is thousands of open jobs for software developers, recruiters, product managers, salespeople, graphic designers and supply-chain analysts, for starters. While Borders was facing its Wall Street doom and many other retailers are struggling to keep their heads above water, Amazon - even in the midst of an economic funk - came close to doubling its annual profits in the past three years to $1.15 billion, courtesy not only of organically growth in its traditional product lines, but with its purchase of online shoe and apparel store Zappos.com. In 2010 alone, Amazon's sales topped $34 billion, up from 2008's $19 billion in 2008. Its stock is up by about one-third from last year. So what gives? Don't we like shopping offline anymore? While many of us certainly do, the e-commerce model has expanded beyond most people's wildest dreams of 10 or 15 years ago. The model has proved the cynics wrong at every turn. The doubters thought e-commerce would stop perhaps with books or CDs. But it would never work for clothing and shoes, they said, or household goods, consumer electronics or furniture. And cars? Groceries? Forget it. As usual, "they" were wrong. Analyst group Forrester Research reported that online retailers sold $172.9 billion worth of merchandise in 2010, up from $155.2 billion in 2009. Forrester has floated a number of $191.7 billion as a prediction for online sales in 2011 and nearly $250 billion by 2014, which will translate to about eight percent of all total U.S. retail sales. Smart brick-and-mortar retailers are getting themselves a strong online presence, pronto. Pharmacy giant Walgreens just last week purchased the popular Web business Drugstore.com (along with its satellite sites including Beauty.com, VisionDirect.com and Skinstore.com), giving the company a massive jump-start into an e-commerce model. So where's the "clean" or "green" in all of this? Certainly, the trend toward a larger percentage of sales being via e-commerce doesn't have "green" as a driver. It's more about convenience and cost (online goods are often more deeply discounted than brick-and-mortar retail goods, since the seller's overhead is lower, and goods bought online often don't require buyers to pay sales tax). So as online sales become more prevalent, will "green" be one of the unintended side benefits? It's a hard argument to deny, for a number of factors. Fewer miles traveled. Imagine 100 people in the same town buying a few books. Once upon a time, all of them would have climbed into cars, burning fuel (as well as wasting it, while idling and hunting for parking spaces). Shopping is one of the primary reasons people use their cars, after commuting to work. Now imagine the same purchases made via e-commerce: one delivery truck spends the day dropping the purchases off at 100 homes. The net use of fuel and emissions is far lower. Less unsold product. While a brick-and-mortar retailer in Kansas City might regret having bought 100 pairs of fuzzy moose slippers from their middleman, 99 pairs of which remain unsold at the end of the holiday season and must either be written off and junked or shipped back to the manufacturer, an online retailer can keep the moose slippers in a warehouse and pitch them to a nationwide pool of shoppers. There may not be 100 people in Kansas City who want to buy fuzzy moose slippers, but when you've got all of North America to market and sell to, chances are higher you can offload unusual and specialty items. No physical store. By skipping a retail store, millions of dollars - and a lot of carbon emissions and landfill dumping - are saved by eliminating the need for buildings, heating, lighting, IT equipment, air conditioning and customer parking lots. Less intensive inventory requirements. By adding a retail store layer to the selling process, goods are far more likely to be wasted. Products go from the manufacturer to a distributor to the retailer's warehouses to the retail stores, and unsold goods languish at stores and are ultimately disposed of. By having the seller warehouse the goods shipped right from the manufacturer, as is the case with e-commerce, sellers can practice more streamlined inventory management, including pre-selling high-ticket items online (i.e, not ordering from the manufacturer until the customer clicks the "buy" button on a Web site), which greatly eliminates waste and inventory space. A reduction in packaging. Sure, while books and clothing shipped from an e-tailer are still going to be packaged - probably even more intensively than anything purchased from a physical store - consider the amount of paper and plastic saved by the increasing popularity of digital music, software, movies and television shows purchased online: no CDs or DVDs, no physical software, no boxes, no shrink wrap, no security tags, no warehousing costs (except data storage) and no shipping. Fewer printed materials. Even if we're only talking about sales and marketing promotions, the savings are there: e-commerce skips the store banners, the printed brochures, the direct mail pieces, the marketing packages to the retailers and the flyers. But the real printing savings is coming from the increased use of e-readers like Amazon's Kindle and Barnes & Noble's Nook (and a host of imitators), and tablet computers like Apple's iPad or Motorola's new Android-based Xoom that can also act as e-readers. As more people buy e-books, the sales and production of paper books are dwindling. While many people will never give up the romance (and smell!) of a printed book for an e-book on a digital reader device, there's no question that there are millions who are happy to do so. Obviously, Amazon isn't succeeding where Borders failed merely because Amazon's model is greener. It's succeeding because it costs a lot less. While in some consumer purchases, "green" costs more - think organic clothing, food and household goods - in business, green often translates to cost savings, albeit sometimes unintentionally. Many companies that have set out to reduce their power consumption by changing their lighting, using smart metering, streamlining their production, starting work-at-home programs for employees to telecommute, building new facilities to energy-efficient standards or opting to generate some of their own power through wind turbines or solar panels have done so strictly to save money. Drastically lowering the company's carbon footprint has been a positive, unintended consequence. The rising prevalence of e-commerce may have have the same unintended consequences. While it's a shame to see bookstores lost - browsing the Internet for books on a quiet, rainy day doesn't have quite the same appeal of spending some quality time among real bookshelves - many would argue that the death of a giant chain retail bookstore will make a little space again for independently owned corner bookshops, most of which were put out of business by the likes of Borders and Waldenbooks and their large competitors such as Barnes & Noble. Of course, we can't forget that thousands of regional jobs are being lost with the closure of most brick-and-mortar Borders stores. But at the same time Borders is shedding jobs, Amazon is adding them. We've known for a while that the U.S. is rapidly becoming a service economy. It might be safe to say that in a decade or so, we'll be an e-service economy.One of the U.S.'s other big box stores, Best Buy, saw 2010 profits slide to $650 million from 2009's $779 million. The company reported losses in all sales areas (televisions, appliances, CDs and DVDs, car stereo, desktop computers, etc.) except mobile device: Best Buy is the largest retailer in the country of wireless phones and tablet computers, which have been and continue to be one of the only retail bright spots in the current economy. Wal-Mart reported a tepid profit last year, but it has been largely attributed to sales in new, international stores. Domestic stores that had been open for at least a year consistently lost money.