Bricks or Clicks? The Efficiency of Alternative Retail Channels

Abstract

We examine the 10k reports for 122 of the largest US “retail” firms, and analyze the impacts on their operating costs and factor usage of what venues they use to sell their goods: traditional stores that they operate, internet sales, and wholesaling to other stores. We find that the firm profit rates (EBITA) are largely unaffected by the share of sales done through these three venues. However, the use of labor and space (real estate) significantly decreases as the Internet venue share increases. On the other hand a residual category of “costs”, which we attribute to shipping, increases sufficiently with the internet venue share to offset the advantage from greater labor and space productivity. In the end, firms using the internet venue appear able to deliver goods to consumer doorsteps for roughly the same cost that firms using traditional stores deliver goods to their shelves. However, consumers must incur an additional 24% of their average purchase price collecting goods from shelves. With this more comprehensive accounting the internet venue is seen to be more efficient.