Is shopping at the mall a part of Christmas past? MIT professor says likely but “not so fast”

Cambridge, Mass. — December 12, 2002 — As proved by shopping mall traffic jams this holiday season, claims that e-commerce would imminently revolutionize how people shop have proven premature. But an MIT Sloan expert on consumer behavior and marketing strategy warns that the powerful combination of digital technology and globalization will eventually drive out manufacturers, retailers and others who fail to adapt their traditional business models to new digital realities.

“Not that long ago, e-commerce was all the rage, and a lot of people lost their pants,” said Sloan Senior Lecturer Christian S. M. Dussart, co-director of Sloan's Digital Business Strategy program (DBS track). “We were dreaming. We thought everything would happen in just years. But now we are being realistic. What we today call digital business is not just a short-term story, but a long-term phenomenon.”

On-line retail sales are now only two percent of total sales, but Dussart expects that figure to rise to five percent by 2005 and to 20 percent by 2015. “Even if we are now only at the beginning of the cycle, on-line sales will soon overpass catalog sales,” he said.

An ABC News poll conducted the first week of December confirmed Dussart's view that e-business has not exploded as forecast - but that it is nonetheless growing. Nearly 25 percent of those polled said they plan to use the Internet to buy holiday gifts this year. While unchanged from last year -- and up just six points from findings in a similar poll three years ago - online shoppers plan to spend an average of $646 on-line this year, nearly double the inflation-adjusted $331 they planned to spend online during the 1999 holiday season.

Driving the digital trend are changes in fundamental consumer behavior, such as declining brand loyalty. “As more and more people use search engines, they enlarge enormously the number of distributors and products from which to choose,” said Dussart. “Consumers are becoming less loyal to a product, less loyal to a brand name. They have a choice. The more they can bargain, the more price becomes the key distinguishing factor. This is great for consumers, but it's a nightmare for companies.”

To survive, companies must integrate a digital business strategy into their operations. But they must exercise caution in how they do so, said Dussart. “They shouldn't jump to the Internet just because of the hype. They can't just move from one extreme to another. They must be sure to protect their existing business model as they go on line.” Compaq Computer, he said, failed to do so two years ago when it moved from its traditional distribution system using retailers to an on-line system. “They ended up losing a lot of market share because their distribution system was upset.”

Retailers face a far more serious problem than manufacturers, according to Dussart. “The Internet gives manufacturers the opportunity to connect directly to consumers. They can simply shortcut the retailer. That's why retailers simply have to change their approach.”

Dussart cited Amazon.com's “click-and-mortar” approach as a successful integration of digital and traditional marketing. Consumers can purchase their Amazon.com product on-line, and either wait for it to be shipped or click on a link that gives them nearby locations where they can physically pick up their purchase. “On-line business won't replace offline business if companies manage an evolution and slowly adapt their business models to the new realities,” Dussart said.

While Dussart envisions a future with far fewer big box shopping malls, he doesn't think consumers will face all on-line or all off-line choices. “They can already go to the book store and have a cup of coffee while they pick up the book they just ordered on line,” he said. “That's the kind of evolution we already see.”

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MIT Sloan founder Alfred P. Sloan, Jr. was dedicated to the innovation ethic. “Too often,” he said, “we fail to...pay tribute to the creative spirit.”

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