Impacts of E-commerce on the Retail Sector

Impacts of E-commerce on the Retail Sector

E-commerce is having two main types of impacts on the retail sector:

  • Deflationary impacts. Related to the array of cost reduction that the digitalization of retail is able to acheive. An element of the pricing power of conventional retail sector is related to information asymetry where the consumer has limited information about the cost of a product. Comparative price is complex and involve looking at several locations or contacting several suppliers. Search costs are also substantially alleviated since much less effort is undertaken to find suitable products. This conventionally involved having to go to a retail location and allocated time to browse and select goods and then bring them back to the place of consumption. With e-commerce, transactional costs are reduced as additional actors can participate in retail and access market opportunities through parcel deliveries. Maintaining an inventory is easier as catalogs and prices are updated digitally.
  • Discreminatory impacts. Related to the ability to have a variety of price structures allowing to discreminate according to market conditions and demographics. One aspect is dynamic princing where prices can vary rapidly addoring to supply and demand. For instance, if there is a demand surge, prices can be changed in real time. Digitalization also allows various forms of disintermediation both on the consumer and retailer sides. Manufacturers are able to sell to consumers or major retailers directly, with less reliance on third parties such as wholesellers.