Sink or swim : the influence of online retail for brick-and-mortar retailers

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Sink or Swim

The influence of online retail for brick-and-mortar retailers

Eva Ensink & Merav Goldfarb 5638879 - 5656311

22-10-2014 Final version

Msc. In Business Studies – Marketing Track Universiteit van Amsterdam

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Abstract

The aim of this thesis is to elaborate if online retail is disruptive for brick-and-mortar

retailers because the online sales relative to the total retail sales have increased significantly in recent years. In addition, it will be analyzed whether existing retail models (retail

waterfall, retail monitor formula and marketing mix) are still applicable in the online environment.

This research was done by a literature study, followed by twenty-one interviews with managers and CEOs from several retail companies, retail property companies and policy advisors responsible for the development of shopping areas. The topics of the interviews were economic outlook, demographic developments, the role of e-commerce in the non-food sector and the future of physical shops in the Netherlands.

The most important conclusions are that stores will not disappear but their function changes from transaction channel into attraction channel. This is because of the fact that today’s consumers want to be surprised and entertained during shopping, they want to have fun. As a consequence, stores are getting more and more showrooms. In these new retail formats there should be offered digital in-store interaction via touch screens and other electronic devices. To survive, retailers should adapt a cross channel business model in order to offer the best of two worlds: the convenience and prices of online shopping and the social aspects and the sensory of physical shopping. But as a consequence of e-commerce and economic and demographic developments retailers, especially in (smaller) villages are forced to close their doors. Physical shopping has removed to big cities.

Due to the changing consumer behavior, it is of great importance that retailers should take the consumer as starting point when developing their business model. These

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models should be flexible and must continuously test the needs and wants of consumers. This allows retailers to adjust products prematurely and can lead to costs savings. The existing retail models are still applicable in the online retail environment, but a different interpretation is required

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Introduction

Just a selection of headlines from Dutch newspapers and retail trade magazines of the past year. The headlines show that the retail industry is constantly changing and therefore difficult to predict. Retail can be defined as the economic activity where goods are offered for sale to end-users, i.e. consumers (Van der Kind, 2004 in Evers, Van Hoorn & Van Oort, 2005, p.18). The retail industry is also very sensitive to economic fluctuations (Evers et al., 2005). The famous Dutch pronunciation ‘de één zijn dood is de ander zijn brood’ certainly applies here. Where one retailer is trying to survive, the other one is expanding his market and strives to acquire new customers. Due to technological, demographic and economic

‘Offline aankopen vaker beïnvloed door smartphone’

Retailnews 08-01-2014 ‘Hema laat klanten bestellen vanuit etalage’

IntoRetail 05-12-2013

‘Huurprijzen verder gedaald in 2013’

Algemeen Dagblad 01-01-2014

‘Primark groeit zonder clicks’

De Telegraaf 27-02-2013 ‘Fysieke retail wint strijd van online’

Retailnews 18-12-2013

‘Binnenstad te afhankelijk van winkels’

Twentsche Courant 13-04-2013

‘Amazon opent eerste fysieke winkels’

‘

Consumentenvertrouwen historisch laag’

De Volkskrant 21-02-2013

‘Aantal faillissementen evenaart recordhoogte’

‘Gedeelde winkelruimte in opkomst’ Retailnews 08-01-2014

‘Action voorbij de 400 winkels’

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developments, the retail landscape is faced with unprecedented changes (Quix and Van der Kind, 2012; Deloitte, 2011). These developments reshape the retail landscape quickly causing some retailers are not able to respond on time (Deloitte, 2011). Non-adaptive existing retailers disappear and new retailers enter the market. This is not surprising, because the retail industry is a dynamic sector (Steinmaier, Koster, Bruins, Deguelle & Averink 2013).

The emergence of Internet in 1990 (Bargh & McKenna, 2004) is an important

technological development that has changed dramatically the retail landscape over the past 20 years (Van Aarle et al., 2014). Especially by the introduction of online buying in 1994, also known as e-commerce (CBS, 2013b). This development enables people to search and buy online and has also changed the shopping behavior of consumers (Weltevreden & Boschma, 2008b). E-shopping provides benefits for consumers as well as retailers. It creates another shopping process. Consumers can buy 24/7, benefit from the convenience and flexibility (Srinivasan, Anderson & Ponnavolu, 2002) of online stores because they are not tied to physical locations and fixed opening hours of stores (Enders & Jelassi, 2000). Consumers no longer need to go out for shopping, but it can easily be done from, for example the couch. As a result, consumers can shop ‘Any Where, Any Time and with Any Device’ (AWATAD) (Quix & Van der Kind, 2012). In addition, consumers have easy access to information about products and prices and are therefore better informed. This improves their bargaining power (Chen & Dubinsky, 2003). All these benefits have a major impact on brick-and-mortar retailers that can be defined as physical stores where merchants interact with customers (Enders & Jelassi, 2000, p. 543). But do these benefits have the potential to ruin stores?

Besides the influence of online retail, the retail industry was also faced with other external factors (Quix and Van der Kind, 2012). Important demographic developments in the

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Netherlands are: a changing population structure due to an aging society, a changing

household composition in terms of more single households and migration from little villages to the major cities in the Randstad. These developments lead to different needs and

different buying behavior of consumers (Steinmaier et al., 2013; Quix & Van der Kind, 2012). The changes in buying behavior also affect shopping areas. There are more and more vacant retail properties and the number of bankruptcies are increasing (Van Aarle et al., 2014). Also economic developments have a major impact on the retail landscape. Due to the economic crisis that emerged in 2007-2008 (GFK, 2013), several banks collapsed and many companies went bankrupt or had to dismiss a large part of their staff. The newspapers were full of it and a lot of companies still have difficulties. The crisis has a major impact on the number of unemployed people. The ongoing economic uncertainty causes less confidence among consumers. Therefore, consumers tend to spend less and save more money (Steinmaier et al., 2013; HBD.nl).

The above mentioned developments are displayed in the ‘PET-model’ developed by Quix in 2013, which represents People, Economy and Technology (see figure 1). According to Quix (2013) these three factors affect the retail landscape significantly.

Figure 1: PET model

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Problem statement

In the Netherlands, the online sales relative to total retail sales have increased from 3.8 percent in 2005 to 10.5 percent in 2012 (Thuiswinkel.org, 2014a). Due to this significantly increasing share of online sales it is important to examine the impact of e-commerce for brick-and-mortar retailers and how these physical retailers can survive in this rapidly

changing environment nowadays. Subsequently, it will be studied how retailers can integrate the Internet into their business operations and how they should adapt their business model to this new situation. Finally, it will be examined whether the retail models represented in figure 2 are applicable in the online retail environment or need to be adjusted. The research question in this thesis will be:

Is online retail disruptive for brick-and-mortar retailers and does it influences their retail

models as presented in figure 2?

In order to answer the research question, the following conceptual framework will be used as guideline.

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Figure 2: Conceptual framework

Relevance

Primarily, it is scientifically relevant to examine the impact of online retail for physical retailers because so far little research has been done on it (Weltevreden, 2007). Despite its short existence, much research has been done on the adoption of online shopping (Chang, Cheung and Lai, 2005), but in these studies, the consequences for brick-and-mortar retailers are usually ignored. We aim to fill this gap and attempt to contribute to the existing

literature by examining the consequences of online retail for physical retailers.

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retail industry is an important indicator for the economy of a country, so research on this is meaningful and important. Not only retailers benefit from gaining more insight into the consequences of e-commerce for the retail landscape, but it is also relevant for (local) governments and real estate owners.

Scope

Because the Dutch retail structure is very different from other Western European countries and the USA (Farag, Krizek & Dijst, 2006; Weltevreden & van Rietbergen, 2005), this thesis will only focus on Dutch retail. The Dutch retail structure distinguishes itself by two

characteristics: functional hierarchy and spatial density (Evers et al., 2005; Evers, 2002). Functional hierarchy refers to the bigger the city, the greater the supply. This means that there is a strong link between the number of citizens and the number of stores in a city (Evers et al., 2005). Spatial density is characterized by the degree of density; the distance between home and store (Farag et al., 2006; Evers et al., 2005). The Netherlands distinguish itself through a small distance between home and store compared with other Western European countries and the USA. Another difference that makes the Dutch retail structure unique is that city centers and stores are relatively small compared to these countries (Farag et al., 2006; Quix & Van der Kind, 2012).

According to Quix and Van der Kind (2012) retail is an umbrella name for food and non-food retail.This research concentrates only on non-food retail because online sales of non-food products are higher compared with food products (Steinmaier et al., 2013). There are three forms of e-commerce: business to business (B2B), business to consumer (B2C) and consumer to consumer (C2C) (Weltevreden, 2007; Steinfield, Bouwman & Adelaar, 2002a). In addition to the focus on Dutch retail and non-food products, this thesis focuses only on

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B2C e-commerce: commercial interactions between business and consumer (Weltevreden, 2007).

Research method in brief

In order to answer the research question and make a good contribution to the existing literature about the influence of online retail for brick-and-mortar retailers, qualitative research will be done using structured interviews. This research method is chosen because it can provide new insights into developments in the retail industry (Saunders & Lewis, 2012). Expert interviews will be conducted among people with different retail backgrounds,

including managers and CEOs of several retail companies and retail property companies and policy advisors responsible for the development of shopping areas. By interviewing people with different retail backgrounds, a complete view of the current retail situation can be provided. The four topics that are discussed in the interviews are: economic outlook, demographic developments, the role of e-commerce in the non-food sector and the future of physical shops in the Netherlands. The interviews were conducted face-to-face, by phone and by email.

Thesis outline

In chapter 1 a literature overview is given in which the development of the Dutch retail landscape is discussed. Also, the influence of online retail and the demographic and economic developments that affect the retail landscape are studied. Furthermore, a cross-channel business model and possible suggestions for new business models are discussed. Finally, the influence of online retail on the three retail models (see figure 2) will be analyzed. Chapter 2 describes the methodology and data. Chapter 3 contains the research results. Conclusions are discussed in chapter 4.

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1. Literature

Stores and shopping areas fulfill an important role in our daily lives. People visit them for (daily) purchases, but also for social and recreational purposes. Furthermore, they act as a major attraction for towns and cities. In recent years, the retail landscape has changed dramatically by a combination of external factors that will be discussed in this chapter. First, several political factors over the past 100 years are analyzed.

1.1 The development of the Dutch retail landscape

1.1.1 The emergence of the Dutch retail landscape

The retail industry plays an important role in the Dutch economy. Almost one-third of total consumer spending is spent in retail (HBD, 2013b). In addition, the industry provides many job opportunities (Evers et al., 2005). Retail can be defined as the economic activity where goods are offered for sale to end-users, i.e. consumers (Van der Kind, 2004 in Evers et al., 2005, p.18). Rigby (2011) argues that every fifty years the retail landscape is confronted with disruptive changes. According to Evers et al. (2005) the Dutch retail sector has experienced three major revolutions over the past hundred years.

The first revolution includes the emergence of department stores and the introduction of fixed prices. The first Dutch department store ‘Vroom & Dreesman’ was opened in 1912 in the Kalverstraat in Amsterdam. Two years later, de Bijenkorf opened its first store on the Dam in Amsterdam (Evers et al., 2005). These stores offer a wide range of products on different departments under one roof (HBD, 2009a). Simultaneously, the rise of fixed prices took place. This phenomenon has influenced the relationship between buyer

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and seller dramatically. The seller no longer had to negotiate about the price with the buyer, he was only responsible for providing service and advice in stores (Evers et al., 2005).

The second revolution that influenced the retail landscape dramatically is the introduction of self-service, which transformed the process of selling and the way of shopping (Shaw & Alexander, 2008). Consumers no longer need to ask the merchant for products, they themselves collect the products from the shelves. With this new development efficiency advantages could be achieved because less store staff was needed. Consequently, this innovation was at the expense of stores that provide personal service (Evers et al., 2005; HBD, 2009a). Self-service itself grew rapidly from the fifties in a period of economic

prosperity and resulted in the emergence of supermarkets. In the course of the years, the range of these stores has widened. The first malls arose approximately at the same time (HBD, 2009a). Another important development was the adaptation of the ‘winkeltijdenwet’ in 1996, which implies an extension of the opening hours of stores.

The third revolution is the emergence of online retail in 1994 (Weltevreden & Boschma, 2008b). This has resulted in cross-channel retail, in which consumers can use different channels simultaneously for buying products (Quix, 2013; GfK, 2013). The third revolution also has major implications for the retail landscape, just as the previous ones (Rigby, 2011; Shaw & Alexander, 2008).

1.1.2 The uniqueness of the Dutch retail landscape

Before the Second World War, store locations were determined by free market operations in the Netherlands (Evers, 2002). After the war the years of reconstruction followed, because many cities were destroyed. In response, the government introduced a new planning policy on retail locations. The retail landscape was divided into different locations, each with its

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own function (Evers et al., 2005). Luxury goods, like clothes, books and cosmetics are mainly sold in the city center and daily goods, like groceries in the neighborhood (Evers, 2002; Weltevreden, 2007). According to the theory of Christaller (1933), functional hierarchy implies that the larger the city, the greater the supply level, so there is a strong relationship between the number of inhabitants and the number of stores in a city (Evers et al., 2005).

Due to higher incomes and increased mobility of consumers in the seventies, the Dutch government experienced more pressure to provide more shopping opportunities to consumers, which resulted in new shopping areas (Weltevreden & Van Rietbergen, 2007). The government responded with an expansion of the former retail policy. New locations were added to the retail landscape, known as peripheral out of town shopping areas, in Dutch called ‘Perifere Detailhandel Vestiging’ (PDV). According to Evers (2002), at these locations retailers can only establish if they are complementary and not competitive to city center retailers. Because of these large-scale locations, especially voluminous sustainable goods, such as cars, furniture and Do It Yourself (DIY) products are offered here (Evers, 2002; Weltevreden, 2007). The Dutch retail planning policy is designed by the government to protect the retail in city centers and prevent uncontrolled growth of the retail locations in out of town areas. Therefore, a limited number of PDV locations were appointed (Evers, 2002). Over the years, the need for large-scale locations on the outskirts of the city grew, partly because of its free parking and easy accessibility. Consequently, the retail policy was expanded with large-scale concentrated retail establishments, in Dutch called ‘Grootschalige Detailhandel Vestiging’ (GDV) in 1993 (Evers, 2002). At these locations, the entry rules were more flexible in contrast to PDV locations and more retailers got access to establish

themselves (Weltevreden & Van Rietbergen, 2005). Generally, the Dutch retail landscape is especially shaped by the restrictive retail planning policy of the government of the past 50

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years, so the government determines where retailers should establish themselves (SER, 2001; Evers 2002). As a consequence, the government has assigned an important role to city centers. According to Weltevreden (2007) the city center is mostly visited by consumers for non-daily purchases and is therefore often considered as a leisure activity, causing that retailers at these locations are very dependent of recreational shoppers. Therefore, Dutch city centers are characterized by a wide variety of retail stores, including apparel, shoes, cosmetics, accessories, and a small part of daily shopping facilities. Department stores are also represented in the city center (Steinmaier et al., 2013). The retail planning policy has both advantages and disadvantages for retailers. It protects them from external competition (Evers, 2002), but also makes them vulnerable if the position of the city center weakens by the introduction of new technologies and a more flexible retail policy. This can both result in a growing vacancy rate (Janssen-Jansen, 2010; Steinmaier et al., 2013).

Besides functional hierarchy, the retail structure is also featured by spatial density (Evers et al., 2005). Spatial density relates to the degree of density, the distance between home and store (Farag et al., 2006; Evers et al., 2005).The Netherlands is characterized by slow transportation modes in relation to distance traveled. This implies a small distance between home and store. Despite this fact, Dutch consumers make shopping trips mainly by car (Weltevreden & Van Rietbergen, 2005). Table 1 shows that the Dutch population travels approximately 2.63 kilometers for making shopping trips every day. More than 70 percent of these trips is done by car. This confirms that the majority of the population visit stores by car. Spatial density is also defined as the number of stores per square meter and the

population density. Spatial density occurs when both are high. The Netherlands is characterized by a store on every street corner (Evers et al., 2005).

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Table 1: Transport modes for shopping Transport Mode* Total Car (driver) Car (Passenger) Train Bus/tram/ metro

Moped Bicycle Foot Other

Shopping 2.63 1.24 0.64 0.12 0.07 0.02 0.37 0.13 0.04

*In kilometers

Source: CBS (2014)

Functional hierarchy and spatial density contribute to a unique retail structure in the

Netherlands that differs significantly from the rest of Europe and the USA (Farag et al., 2006; Weltevreden & van Rietbergen, 2005). The Dutch retail structure consists predominantly of small and medium-sized city centers as well as relatively small shops compared to the USA (Farag et al, 2006; Quix & Van der Kind, 2012). Furthermore, consumers in other Western European countries and the USA have to deal with greater store dispersion, i.e. less stores per square meter. As a result, they have to travel longer distances to visit a store. The USA and other Western European countries have a greater number of large shopping centers in peripheral areas compared to the Netherlands (Hernandez, Gomes-Insausti & Biasiotto, 2001, Steinmaier et al., 2013). Also, in these countries shops are mostly visited by car (Farag et al., 2006; Steinmaier et al., 2013).

1.1.3 Attractiveness of Dutch city centers

Originally, the Dutch city centers predominantly have a shop function for consumers. This ensures that people mostly visit cities for shopping. Consumers select a particular shopping location based on the attractiveness of the shopping area and the travel distance to reach this area (Locatus, 2014). Therefore it is important to keep the city center attractive and be located at a prominent location. Locatus (2014) argues that the attractiveness of a shopping

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area depends on its size and retail diversity. When consumers experience the city as less attractive, they tend to visit another city.

The attractiveness of city centers has been studied by several researchers. Teller and Reutterer (2008) examine how consumers evaluate the attractiveness of city centers, determined by the different marketing mix factors applied by retailers in that area. They classify the various factors into four groups: site-related factors, tenant-related factors, environment-related factors and buying situation-related factors. Site-related factors include easy store accessibility and good parking facilities. Both factors provide more shopping convenience. Tenant-related factors consist of a wide variety of retail stores, dining locations (e.g. restaurants) and entertainment facilities. This retail tenant mix contributes significantly to the attractiveness of the city center.They emphasize also the importance of

environmental factors (sensual stimuli and atmosphere) that could enrich the shopping process. Finally, buying situation-related factors are related to the distance between the starting point of the shopping trip and the store location. These factors are represented by perceived distance, spatial distance and temporal distance. Perceived distance is the distance that consumers experience to visit the store in contrast to the actual distance represented by the spatial distance. The temporal distance can change the actual distance by congestion during the shopping trip, for example traffic jams (Teller & Reutterer, 2008). The attractiveness of city centers can be divided into three dimensions: overall, sustainable and situational attractiveness. Overall attractiveness refers to the overall satisfaction relative to the city center. Sustainable attractiveness refers to the extent to which people visit the city center again. Situational attractiveness relates to the tendency to remain and spend time in the city center. The latter is often ignored in investigations into city centers (Teller & Reutterer, 2008). Their research shows that the tenant-mix and the atmosphere have the

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most impact on the overall attractiveness of city centers relative to other marketing mix factors (Teller & Reutterer, 2008).

According to Buursink (1996), the attractiveness of city centers is influenced by the following factors: historical surrounding, variation of leisure activities besides shopping, like restaurants and theaters, the number and variation of stores and the customer base size (in Weltevreden & Van Rietbergen, 2007). The listed property company Vastned announced on January 14, 2014 to start focusing on high street shop locations in European premium cities. Vastned defines premium cities as: “attractive shopping cities with a positive demographic growth, strong buyer power, a historical city center, tourist attraction and the presence of national and international institutions and universities.” In these cities consumers prefer to shop and strong national and international retailers like to settle there. In the Netherlands Vastned mainly focuses on the premium cities Amsterdam, Breda, Den Bosch, The Hague, Utrecht and Maastricht (Vastned, 14-01-2014). The strategy of Vastned is not entirely unexpected. It has been known that there are capital outflows from the peripheral areas (villages and medium-sized towns) to the premium cities and that most retail growth takes place in the Randstad (De Telegraaf, 15-01-2014).

Parker (1992) assumes five other dimensions that determine the attractiveness of city centers: 1) physical attractiveness of shops (internal as well as external), 2) assortment size offered in stores, 3) service level that the retailer provides, 4) the accessibility of the shop location and 5) the attitude of the consumer towards the attractiveness of the shop location (Parker, 1992 in Weltevreden & Van Rietbergen, 2007). He also suggests that the attractiveness of city centers is mainly determined by the perceived attractiveness of consumers in contrast to the actual attractiveness. This refers to the way in which

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consumers judge the city center.The better they evaluate the city center, the greater the likelihood that they visit the center (Parker, 1992 in Weltevreden & Van Rietbergen, 2007).

Also Nelson (1958) argues that the availability of goods, such as diversity in stores, assortment size and service level of store employees, determine the attraction of city centers. Besides, price advantages over competitors, creating a comfortable shopping ambience (e.g. inviting store interior) and an easy shop accessibility are also important for the attractiveness of a city center (Nelson, 1958 in Weltevreden & Van Rietbergen, 2007, p. 71).

Overall, Weltevreden and Van Rietbergen (2007) argue that the attractiveness of city centers is determined by a pleasant mix of shopping attractiveness, leisure activities and easy accessibility of the shopping area. All authors agree that an attractive city center perceived by consumers ensures that they will visit these cities to buy their products.

1.1.4 Brick-and-mortar business model

According to Enders and Jelassi (2000) brick-and-mortar retailers can be defined as physical stores where store employees interact with customers (p. 543).The brick-and-mortar retail channel is applied to traditional retail settings and characterized by physical store visits by consumers. The individual store choice depends on personal experience, advertising and exchange of views with other shoppers (Anderson, Chatterjee & Lakshmanan, 2003). In a brick-and-mortar store a wide range of products can be displayed to consumers. Also, consumers can interact with store employees in order to get personal product advice (Anderson et al., 2003).

Physical stores give consumers the ability to view and try out products and take them home immediately (Enders & Jelassi, 2000). After purchase, they can easily go back to the

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store to return products if they are damagedor if it does not meet their expectations (Ofek, Katona & Sarvary, 2011).

1.1.5 Retail monitor formula

Sales are important for retailers. Therefore, they undertake various activities in order to increase their sales. To analyze the consequences of their activities, retailers can use the retail monitor formula (Quix & Van der Kind, 2012). This formula shows how the sales of retailers is composed and is represented by the following formula:

S = CA X VI X VF X CR X APC X AAP S = Sales CA = Catchment Area VI = Visitors Index VF = Visitors Frequency CR = Conversion rate

APC = Articles Per Customer AAP = Average Article Price

The formula can be divided into two distinct parts: attraction value and transaction value. CA x VI X VF refers to the attraction value and can be influenced by the external marketing mix. This involves the number of visitors that the store can attract. The catchment area (CA) comprises the geographical area from which a store attracts its customers and is used to serve and support the target population in regions around the store (Gupta & Randhawa, 2008; Quix & Van der Kind, 2012). The catchment area enables retailers to find out the reach of their store and shows them where their customers come from. It also enables them to calculate the turnover potential for their store (Locatus, 2014). Locatus (2014) uses the ‘koophorizon’ in order to indicate how far consumers are willing to travel for making a

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purchase. They indicate that this distance depends on the nature of the product and the vicinity of alternative shopping areas. They make a distinction between daily and non-daily products and suppose that consumers are willing to travel longer distances for non-daily products than for daily products. In general, the greater the distance, the fewer consumers are willing to travel. The visitors index (VI) includes the percentage of residents from the catchment area who visit the shop in each period (Quix & Van der Kind, 2012, p. 296). The visitors frequency (VF) indicates how often consumers visit the store (Quix & Van der Kind, 2012, p. 296).

According to Quix and Van der Kind (2012) the transaction value can be influenced by the internal marketing mix. The transaction value is represented by CR X APC X APP and is also called the transaction value. It indicates to what extent retailers are able to convert their visitors into customers. The conversion rate (CR) is the percentage of the visitors who actually make a purchase (p. 296). The number of articles per customer (APC) and average article price (AAP) together constitute the amount that customers spend, called the average order value (AOV) or basket size.

In the next part it will be discussed how technological, demographic and economic developments (PET factors) influence brick-and-mortar retailers. In order to clarify, the following part of the conceptual framework is shown in figure 3.

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Figure 3: Conceptual framework part 1

1.2 Online retail

1.2.1 The introduction of online retail

In recent years, the retail landscape has changed dramatically by the introduction of the Internet since 1990 (Bargh & McKenna, 2004; Van Aarle et al., 2014). Especially the

introduction of e-shopping in 1994 causes changes in the shopping behavior of people over the past 20 years (Weltevreden & Boschma, 2008b). E-shopping can be defined as searching and/or buying consumer goods and services via the Internet (Mokhtarian 2004 in

Weltevreden 2006, p. 194), briefly searching or buying online (Farag, Schwanen, Dijst & Faber, 2007). E-shopping is not an independent development, but derives from the digitization of society. This trend is accompanied by a variety of new technological

developments, like increasing use of mobile Internet by consumers and the collection and storage of big data (Van Aarle et al., 2014). Several studies assume that this new type of shopping has resulted in the third revolution in retail (GfK, 2013; Schapers, 2011; Rabobank, 2013).

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Nowadays, the Internet is fully integrated into the daily lives of people. In recent years, access to the Internet has increased rapidly in the Netherlands, from 83 percent in 2005 to 97 percent in 2013, represented in table 2 (CBS, 2014a).

Table 2: Internet penetration

Internet access* 2005 2013 Access to Internet 83 97 Per device Personal computer 82 95 PC / desktop 78 71 Laptop 22 79 Mobile phone 11 72 Other devices 4 64

*as a percentage of total Dutch population Source: CBS (2014a)

1.2.2 Online business model

Anderson et al. (2003) imply that in case of online retail, aperson visits a website to view goods online, search for product information and buying products. Generally, online shops offer a wide range of products. In order to facilitate the selection process for consumers, many online shops offer search options to consumers for targeted shopping (Enders & Jelassi, 2000; Brynjolfsson, Hu and Rahman, 2009). Also recommendation tools are often provided in order to accelerate the search process (Brynjolfsson et al., 2009).

There are several electronic payment options available to complete the purchase. When the transaction is completed, the goods are delivered at home. Usually, the consumer pays the shipping fee separately, but sometimes these costs are already included in the listed price. Mostly, the shipping costs do not depend on the delivery address (Anderson et al., 2003).

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They argue thata shift from the brick-and-mortar business model to the online business model results in the elimination of personal transportation. Consumers no longer need to visit the store to buy products but can receive the products at home. In this case, the physical store acts no longer as an intermediary between producer and consumer, because goods do not need to be transported to the store but are shipped directly from the distribution center to the shopper’s home (Anderson et al., 2003). This direct-to-consumer model is also called disintermediation (Anderson et al., 2003; Bakos, 2001).

Today consumers accept new technologies more quickly (Quix, 2013). At the end of 2013, around 8.5 million people in the Netherlands make use of a smartphone. Compared to the previous year, this is an increase from 58 percent to 67 percent. In addition, the number of tablet owners increase, to approximately 7 million which implies that more than half of the Dutch population (53 percent) owns a tablet. During 2013, PC ownership has declined from by 67 percent to 65 percent. It is notable that for the first time the number of smartphones owners has exceeded the number of PC owners (GfK, 13-12-2013).

1.2.3 The advantages of online retail

The rapid adoption of e-commerce shows its advantages over shopping in physical stores and making it a potential threat for brick-and-mortar retailers. Online retail offer benefits for consumers as well as retailers. According to Enders and Jelassi (2000) consumers benefit from the flexibility (Srinivasan et al., 2002) and convenience that online stores offer. Due to the unlimited opening hours of online shops, people have the possibility to shop 24/7. Also, online shops are not tied to a physical location. According to Steinfield, Bouwman and Adelaar (2002a) this phenomenon is called ‘death of distance’and refers to situations in which Internet makes distance irrelevant. Consumers benefit from this, because purchases

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can easily be done from, for example the couch. Consequently, online retail creates a

shopping process that can occur Any Where, Any Time and with Any Device (AWATAD) (Quix & Van der Kind, 2012). In addition, Chen and Dubinsky (2003) argue that online shops offer a wide range of free accessible detailed information and search options, which ensures a quick and easy selection process for consumers. Consumers can also easily compare product prices and features of several retailers, which improves their bargaining power (Chen & Dubinsky, 2003). Online shops are able to offer a wide variety of products which creates many choices for consumers to find a product that fits their needs (Srinivasan et al., 2002). Steinfield et al. (2002a) state that consumers are generally faced with lower prices in online shops than in physical stores. All these advantages can make online shopping a time and cost saving alternative for physical shopping.

Research by Twinkle (2012, 2013a) among Dutch online shoppers has shown that for consumers convenience and service are just as important or even more important than a low price. The possibility of 24/7 shopping appears to be the main reason for online

shopping. Furthermore, a wide assortment and a good availability of products are important motivations to buy online.

Also retailers can increase their opportunities by the implementation of an online shop in their business operations. According to Grewal, Iyer and Levy (2004) retailers can increase their catchment area with an online shop and therefore enlarge their customer base. According to Steinfield et al. (2002a) retailers are no longer limited by national

boundaries, therefore they can expand their market and do business internationally. But the existence of language barriers between countries should be taken into account. According to Ishida (2006) language barriers are the biggest problem for international cooperation

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retailers can respond quickly to market changes. Furthermore, retailers have data mining capabilities; i.e. the ability to collect and store relevant customer data online easily, because it can be automatically stored in a database (Steinfield et al., 2001; Jamalpur & Sharma, 2012). Therefore they can provide personalized offers and information to their customers. In addition, online retailers can supply a wide assortment because they have less inventory constraints (Enders & Jelassi, 2000). They have the possibility to show complementary

products on their website to generate additional sales (Steinfield et al., 2002a). Also they can implement customization options on their webshop to provide tailored products to

customers in order to fulfill their needs (Srinivasan et al., 2002). Steinfield et al. (2002a) state that online retailers have more economies of scale and lower inventory, building and labor costs than physical retailers. These scale advantages and cost savings allow them to offer lower prices online. According to Brynjolfsson and Smith (2000) online retailers are faced with lower menu costs that can be defined as the costs incurred by a retailer to change prices. In most cases, physical retailers should make more efforts to adjust the prices by putting a new price tag on their products and shelves, while online retailers can change their prices with just one click. Therefore, online retailers adjust their prices faster which results in less price rigidity. At the moment, there are already some physical retailers that introduce digital price tags in the stores to adjust the prices quickly. An example is Mediamarkt who has recently introduced this new pricing system (MarketingTribune, 2014). In contrast, Srinivasan et al. (2002) emphasize that online retailers are also faced with strong price competition, less information asymmetry between buyers and sellers and the elimination of brand loyalty by implementing online retail.

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1.2.4 Retail trends

The development of new technologies such as online retail has resulted in several retail trends like the digital super consumer, glocalization, priority and transparency (Quix and Van der Kind, 2012).

Thanks to the Internet consumers are well informed. According to Quix and Van der Kind (2012) they have become experts by consulting online and offline sources to find their information, but also by the opinions of others via social media, review sites and forums. They argue that ‘word of mouth’ has changed into ‘word of mouse’: one click and the consumers can share their experiences with people all over the world. Using internet to gather information can make consumers dizzy due to the information overload about just one product. So consumers must be helped by retailers who can filter information. By visiting a store, the consumer can ask the shop assistant for advice to evaluate the product. By using a PC or a mobile, consumers look at reviews from others to decide whether or not to buy that specific product. Consumers who need social interaction during online shopping, have the opportunity to shop with others via Facebook to share their opinions and

experiences online.

Quix and Van der Kind (2012, p.138) define glocalization as a combination of global and local. More specific, “the glocal strategy approach reflects the aspirations of a global strategy approach, while the necessity for local adaptations and tailoring of business

activities is simultaneously acknowledged” (Svensson, 2001, p. 15). Retailers are able to buy their products everywhere around the world, but at the same time they are aware of the fact that Amsterdam is not Berlin, Paris, Frankfurt or Gent. In other words: needs are determined on a local base, a consumer in Paris does not want the same as a consumer in Amsterdam. That means for retailers to develop a global strategy but with an eye for local

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needs. A local need is for instance a quick delivery of products. Retailers can respond to this by local production, which accelerates the delivery time of products (Quix & Van der Kind, 2012).

Today’s consumers have a lack of time. Look around on the street, in shops and even at home, everybody is busy. So people need to decide what their priorities are. According to Quix and Van der Kind (2012) there is a mix between work and leisure time. As a

consequence, quick and slow shopping are the two sides of the medal. What counts are time and the need for a particular product. Because of the mix between work and leisure time, consumers vary online and offline shopping. Online shopping guarantees convenience and speed and offline shopping stands for enjoyment and experience (Quix and Van der Kind, 2012, p. 142). Nowadays, consumers can shop all day and night around compared with the opening and closing hours (9 till 6) from almost twenty years ago. Shopping on Sunday and in the evening is as normal as taking a shower. Retailers do not need to be open 24 hours a day, but more important is to be open at hours that are convenient for consumers.

Furthermore, quality of life is an important aspect of nowadays consumers. They also look critically at a company’s corporate social responsibility (CSR). Retailers are asked to be open and fair about their (well) doing: transparency is the key word. They should not only be transparent about their CSR, also about price, quality and service (Quix and Van der Kind, 2012, p. 146). Perhaps it is not that difficult for retailers to be open and fair about good things, but transparency also means that the retailer should be open about wrongdoings. Media coverage about social abuses during production processes (i.e. Apple, textile industry) force retailers to react and to come up with proposals to change bad working circumstances. In this respect the influence of social media cannot be underestimated: only one consumer can put whole branch in fire when posting a message about social abuses during the

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production process.

1.2.5 The functional transformation of brick-and-mortar stores

In recent years, the role of physical stores has changed from transaction to attraction channel (Morse, 2011). People not only visit shops for making a purchase (utilitarian

purposes), but also for recreational and entertainment purposes, movement, trip chaining or in order to fulfill social needs (Mokhtarian, 2002; Hsiao, 2009). This idea fits well with the thoughts of the American business strategists B. Joseph Pine II and James H Gilmore, who has been presented the concept of the experience economy in 1998. According to them, stores should not focus primarily on the most efficient sales process, but have to create a unique experience for their customers to stimulate them to buy (Van Aarle et al., 2014). Nowadays, stores are widely used by consumer to orientate themselves. Therefore, the attractiveness of the store, both external and internal, is increasingly important in order to attract consumers (Parker 1992, in Weltevreden & Van Rietbergen 2005).

Consumers would like to have a shopping experience that is enjoyable and fulfilling, so it is important for retailers to integrate in-store entertainment (Enders & Jelassi, 2000; Steinfield, Adelaar & Lai, 2002b). Ofek et al. (2011) state that retailers have the possibility to create a more comfortable and inviting shopping environment by showing an extensive number of samples and a specialized assortment in stores so that consumers can see and touch the products. Therefore they can easily find the right product. Empirical studies have shown that the attractiveness of stores is also influenced by a nice in-store atmosphere (i.a. Teller & Reutterer, 2008). This corresponds with the field theory of Lewin (1936; in Chen & Dubinsky, 2003). He argues that behavior is determined by one’s personality and the environment. Lewin’s theory has shown that store ambience and in-store stimuli, like nice

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music, a pleasant scent, assortment and enjoyable colors have a positive impact on consumers’ shopping experience and their purchase intention. Therefore, this theory is widely used in traditional retail settings (Chen & Dubinsky, 2003).

Besides providing an unforgettable shopping experience to consumers, Steinmaier et al. (2013) emphasize that retailers can also differentiate themselves from online retailers by offering various services. Quix and Van der Kind (2012) propose that consumers are looking for a solution when they visit a store. The physical retailer should anticipate this by offering a high level of service and providing professional personal advice by high qualified sales

people. In this way, the retailer ensures that consumers find the right product in order to prevent a mismatch (Ofek et al., 2001). Consequently, this results in a strong customer relationship (customer loyalty) because the customer experiences the store visit as positive and has the intention to come back. Therefore, a retailer can increase the customer

retention rate by providing service and hospitality (Weltevreden & Boschma, 2008a).

1.2.6 Cross-channel

1.2.6.1 Introduction

The advantages of the online channel have ensured that many consumers have embraced it. The online sales relative to total retail sales have increased from 3.8 percent in 2005 to 10.5 percent in 2012 in the Netherlands. In 2013, even 10.8 million people made a purchase via the Internet (Thuiswinkel.org, 2014a). E-commerce has rapidly changed the way people shop (Van Aarle et al., 2014). Due to the introduction of the Internet, the entire buying process has become more demand-driven. The consumer decides which channel is used for

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(Steinmaier et al., 2013). Steinmaier et al. (2013) argue that a cross-channel business model currently offers the best guarantee for retailers to survive. Due to increased competition (Enders & Jelassi, 2000) and the growing number of online buyers, physical retailers

increasingly adopt online activities (Quix, 2013). Cross-channel includes the combination of online and offline channels and activities and is also called clicks-and-bricks or hybrid

commerce (i.a. Grewal et al., 2004; Enders & Jelassi, 2000; Steinfield et al., 2001). According to Grewal et al. (2004) it is important for retailers to offer a combination of online and offline activities to serve customers optimally. This means that the provision of a single activity is not sufficient. According to Konuş, Neslin and Verhoef (2014) online retailers also called ‘pure players’, should open a physical store next to their webshop. Brick-and-mortar retailers should add an online channel to their physical business activities. This results in click-and-brick retailers with an integrated channel approach (Steinfield, 2002).

In a cross-channel model the channels are aligned seamlessly to each other. The customer can use multiple channels simultaneously when making a purchase (GFK, 2013; Rigby, 2011). An example of this is click-and-collect in which customers make a purchase online and pick it up in the store (Enders & Jelassi, 2000). Omni-channel is the most extensive version of a multiple channel model. This implies that the customer can use a variety of channels, like E-commerce, M-commerce and F-commerce, within a purchase, but also has the ability to use one channel within the other (Twinkle, 2013b; GFK, 2013). For example, customers view the product in store and compare the prices online at the same time. Then, they can complete the transaction with their mobile phone or tablet. This approach focuses on the needs and wants of consumers (Twinkle, 2013b). Retailers can easily build a bridge between online and offline by implementing apps which are equipped

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with augmented reality and QR-codes (ABN AMRO, 2014a).

1.2.6.2 Advantages of a cross-channel model

A cross-channel strategy provides retailers the best of two worlds (Steinmaier et al., 2013; Enders & Jelassi, 2000). Cross-channel retailers are able to offer both the advantages of online and offline channels. They can provide the convenience and favorable prices of online shopping and the social aspects (e.g. personal interaction) and the sensory experience of physical shopping to consumers (Steinmaier et al., 2013; Enders & Jelassi, 2000). Today, consumers want to use multiple channels during shopping, therefore retailers who are able to integrate the online and physical channel seamlessly, will become increasingly important (Enders & Jelassi, 2000; Rigby, 2011). Also, click-and-brick firms can achieve greater

competitive advantages compared to brick-and-mortar and online retailers (Steinfield, 2002). According to Morse (2011), the physical retail world and the online retail world cannot be considered as separate worlds, but are integrated. Both should create value for consumers.

Steinfield et al. (2001) agree with this and states that retailers who adopt a hybrid strategy are more successful than retailers who only implement a physical or online strategy. The combination of physical stores with online channels is important for several reasons. Retailers can enhance trust with consumers and they have the ability to respond well to the needs and wants of consumers. Also they can offer more shop opportunities for consumers and therefore create more value for them. Furthermore, it provides better access to relevant customer data because the buying process of customers and the movements of goods can be fully tracked, so all data remain internally (Enders & Jelassi, 2000). As a result, more targeted products and services can be offered to consumers (Steinfield, 2002).

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According to Steinfield (2002) an integrated channel approach can create many competitive advantages for retailers. First, he argues that click-and-mortar retailers possess several potential sources of synergy relative to pure players or physical retailers without an online channel. Steinfield (2002) states that click-and-mortar retailers can take advantage of a common infrastructure. They can use the same logistics (e.g. warehouses and trucks) for the distribution of goods that are purchased both online and in-store. Therefore, retailers can use their existing, well-functioning IT infrastructure in the development of the online channel. Furthermore, they can take advantage of common business operations. For example, the development of a common order processing system that can be applied both to the online and the offline channel. This creates cost savings for retailers and ensures that customers’ movements between the channels can be better tracked. They also may use common marketing and sales campaigns for both channels, including the same product magazine, common advertisements and sales staff that meet the needs of (potential) customers and should attract them to both channels. The online and offline channel of click-and-mortar retailers often focus on the same customers. As a result, these firms are able to meet the needs of a wide range of customers by providing convenience, fast delivery, improvements in customer service and customer retention (Steinfield, 2002). In addition, established companies benefit from their complementary assets, like existing network relationships, experience in the market, strong bargaining power with suppliers and a large customer base relative to new entrants. This facilitates the integration of an online channel for these companies (Enders & Jelassi, 2000).

In addition, Steinfield (2002) argues that click-and-mortar firms can avoid channel conflicts with their integrated channel approach. Channel conflicts can arise when an alternative channel for attracting customers (e.g. online store), competes with the existing

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channel (e.g. physical store) or makes it unnecessary. The latter phenomenon is also called cannibalization and refers to situations in which the introduction of e-commerce reduces the in-store sales of retailers (Biyalogorsky & Naik, 2003; Weltevreden, Atzema & Boschma, 2005). To achieve synergy benefits, retailers must ensure a clear alignment of objectives and a perfect coordination and control between the online and offline channel. Retailers should realize that customers can easily move between the different channels (Steinfield, 2002). In many cases, traditional companies do not have sufficient skills (e.g. web-development skills) to achieve synergy advantages with the adoption of e-commerce.

Lastly, Steinfield (2002) emphasizes that there are four possible advantages of an integrated channel approach for retailers: 1) lower costs, 2) differentiation through value-added services, 3) improved trust, 4) geographic and product market extension. First, a hybrid strategy can create cost savings for retailers in terms of labor, inventory, marketing & promotion and distribution. A reduction of labor costs occurs because consumers are able to find relevant information themselves online, without any help from the sales staff. Stock savings arise because goods that are less frequently sold in stores, no longer need to be physically in stock but can still be offered by retailers via their online channel. Thus, retailers are able to demonstrate the full inventory on the website (Weltevreden et al., 2005).

Marketing and promotion efficiencies are obtained because retailers can use the same strategy for both channels to inform customers about their assortment. Weltevreden et al. (2005) state that one channel can be used to promote activities in the other channel. For example, retailers can use their website to inform customers about special discounts in their store to promote store visits. According to Ofek et al. (2011), a cross-channel strategy will increase the amount of information for consumers. Hsiao (2008) argues that there is a distinction between information quality and information quantity in both channels.

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Consumers get better information quality in stores than online, but a greater amount of information online than in physical stores. Cross-channel retailers are able to provide both information components to consumers and therefore benefit more than brick-and-mortar retailers and pure players. In addition, Ofek et al. (2011) argue that there is also a difference in the costs of providing information online and offline for retailers. They state that

providing information online is free of charge and in stores expensive. According to

Steinfield (2002) savings in the shipping charges can be achieved if the physical store serves as pick-up point for consumers to take away their online purchases.

Second, Steinfield (2002) emphasizes that a hybrid strategy can also create differentiation through value-added services. Retailers can offer various services in the different phases of purchase, including pre-purchase-, purchase- and post-purchase services, in order to differentiate products and add value. Pre-purchase services can include the provision of online product information in order to facilitate the searching process of consumers and assist them in making a choice. There is also the possibility to test products in-store. Purchase services include services that people can use during their purchase, like helpdesk services, customization options, showing additional products and services. Post-purchase services contain online account management to process and store relevant customer data, loyalty programs and other after-sales services that can be provided in both channels.

Third, an integrated channel strategy can improve trust (Steinfield, 2002). Steinfield et al. (2002a) argue that in many cases there is a lack of consumer confidence during online shopping. Click-and-mortar firms are able to overcome this problem, because they have a physical presence in addition to their online channel. Several studies emphasize that a physical store increases confidence among consumers, for example due to their brand

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awareness (Grewal et al., 2004), easy return of products, possibility to ask questions and report complaints on this location (Steinfield et al., 2002a; Enders & Jelassi, 2000).

Finally, a click-and mortar strategy can contribute to geographic and product market extension and therefore attract new customers (Steinfield, 2002). An online channel ensures that geographical boundaries disappear and makes distance less relevant in the sale of products and services. In addition, the adoption of an online channel enables retailers to expand the product range and depth of physical channels and provides opportunities to offer goods online that are not sold in physical stores (Weltevreden et al., 2005). Steinfield (2002) states that (the adoption of) an online channel creates possibilities for retailers to attract new customers within the existing market. For example, customers who do not visit the physical store, but do feel attracted to the online channel because it contains other features than the physical store. Enders and Jelassi (2000) argue that the physical store can also serve to attract new online customers.

1.2.6.3 Difficulties by implementing a cross-channel approach

According to Enders and Jelassi (2000) the implementation of online activities into the existing business operations of physical retailers not only provides benefits, but can also causes several difficulties where online retailers are as well confronted with. First, retailers should make changes in the distribution system when adopting an online channel. In case of brick-and-mortar retailing the total packages of goods is transported to the stores and then distributed among consumers. In contrast, in case of online retailing a different type of stock and delivery system is required for shipping the goods individually to the homes of

consumers (Burt & Sparks, 2003). This results in the creation of a separate infrastructure for online retail in addition to their existing distribution system. Also physical retailers should

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make changes in the organizational structure to compete well in the online world, because online retail is much faster and requires more flexibility than physical retail. Online retail requires different skills of employees, for example web-based knowledge and online marketing skills (Enders & Jelassi, 2000; Burt & Sparks, 2003).

1.2.6.4 The adoption of multi-channel Internet strategies

For the adoption of a multi-channel strategy, retailers have the ability to implement several Internet strategies into their business operations. Weltevreden and Boschma (2008a) argue that there are five online selling strategies that can be implemented by retailers including an export strategy, mirror strategy, synergy strategy, anti-mirror strategy and virtual strategy. The adoption of an export strategy enables retailers to sell products online via their website, but this activity has few similarities with the sales activities in the physical store. This

strategy is often used by retailers to increase their geographic or customer market. When adopting a mirror strategy, consumers are able to buy products online and this activity shows strong similarities with the activities in the physical store. The website has the same appearance as the physical store and is intended to support the store. However, there is little movement between both channels (Steinfield et al., 2001; Weltevreden et al., 2005). According to Weltevreden and Boschma (2008a) a synergy strategy provides a strong link between the website and the physical store. Steinfield et al. (2001) argue that both channels complement each other and provide cross channel purchase possibilities to consumers. For example, consumer can order goods online and then pick them up, pay and, if necessary, return in the physical store. The retailer can use his store for building trust and his website to provide more convenience and service to customers. An anti-mirror strategy is one in which the website is the main channel and the physical store the supporting channel

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(Weltevreden and Boschma, 2008a). Therefore, Steinfield et al. (2001) state that website modifications result in adjustments in the physical store. This strategy is not frequently used by retailers in city centers because most of them consider the store as main sales channel (Weltevreden et al., 2005). Finally, in a virtual strategy the retailer has no physical presence, but only a website for purchasing goods. This strategy is mainly adopted by pure players in order to save costs by the absence of a physical store (Steinfield et al., 2001; Weltevreden & Boschma, 2008a). Overall, retailers can apply different strategies at the same time

(Weltevreden et al., 2005).

Weltevreden and Boschma (2008a) study to what extent the adoption of Internet strategies influence the performance of retailers. They confirm that the adoption of an Internet strategy has a positive impact on the sales growth, the number of customers, customer relationship and the competitiveness of retailers.

Grewal et al. (2004) argue that the physical store serves mainly to support the online sales by providing service and advice and the possibility to experience products. Whether physical stores remain important in the future depends on how important face-to-face contact for consumers will be (Enders & Jelassi, 2000). Enders and Jelassi (2000) propose that there is a possibility that the new generation of Internet customers have less need for in-store shopping than current customers.

1.2.7 New store formats

As mentioned before, new technological developments and changes in consumer behavior have resulted in the adoption of a cross-channel strategy by retailers. This strategy has also created new retail formats to serve customers optimally (Zentes, Morschett & Schramm-Klein, 2007). Kesteloo and Hoogenberg (2013) mention several new store formats to

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respond well to customer needs: flagship stores, flexible formats, virtual showrooms, segment stores, pick-up and drop-off points. They define flagship stores as large upscale stores situated on excellent locations in big cities and expect that these stores increasingly rise, even in smaller cities. According to Kesteloo and Hoogenberg (2013) these stores have a larger number of employees and they are higher skilled than employees in ordinary stores. These stores enable retailers to display a wide product range in an attractive presentation (Zentes et al., 2007). With flagship stores, retailers want to create a pleasant surrounding for customers by providing excellent customer service, hospitality, innovative store design and visual merchandising (Zentes et al., 2007; Kesteloo & Hoogenberg, 2013). For example, the store of the famous chocolate brand ‘M&M’s’ in New York, a flagship store that represent one brand. According to Kesteloo and Hoogenberg (2013) this store serves as a marketing tool to promote the brand. Creating positive feelings and experiences among consumers is the main objective of these stores. People have the ability to personalize their own M&M’s. This phenomenon can also be applied into different non-food retail segments, like the fashion and furniture industry. These ‘monobrand stores’ are increasingly visible in Dutch city centers and respond well to customer preferences by providing entertainment during shopping (Atwal & Bryson, 2014; Kozinets et al., 2002). Kozinets et al. (2002) argue that the implementation of entertainment-oriented services in monobrand stores mainly generate the revenues of these stores. These stores are mainly used by retailers in the apparel, shoe, jewelry, sport and home equipment industry (Zentes et al., 2007). According to Moore, Doherty and Doyle (2010) flagship stores are primarily used by retailers as a tool to enter the market.

Second, flexible formats refer to temporary stores, like pop-up stores. These stores are used to meet targeted customer needs and create marketing buzz. They serve as a tool

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to introduce new products and services, stimulating impulse purchases and give consumers the opportunity to test products. They try to gain customers’ attention by communicating their temporary nature and providing in-store surprise elements. Pop-up stores try to make people aware of new products of the brand and strive to stimulate positive word of mouth among consumers. For example, the Magnum pop-up store in Amsterdam.

The next format includes virtual showrooms. These stores are characterized by digital in-store interaction by means of touch screens and other electronic appliances. With the implementation of electronic devices in stores, retailers are able to inform and show customers the entire product range. Therefore, less floor space is needed. This provides opportunities for big box retailers who need a lot of physical space to show their voluminous products. Therefore, they can easily position themselves in city centers. Examples of big box retailers that can benefit from this are Audi or SieMatic (Kesteloo & Hoogenberg (2013). Kesteloo and Hoogenberg (2013) also mention segment concepts. This refers to stores that are part of the main store and focusing on a specific product category or target group. For example, the launch of Hema Beauty stores that only sell beauty products. With this concept, retailers can deepen their product range and try to improve their customer relationship.

Finally, Kesteloo and Hoogenberg (2013) note pick-up and drop-off points. These stores are launched to eliminate the disadvantages of online shopping. Consumers can pick-up and return their online product purchases at these locations at any time. Pick-pick-up and drop-off points provide more flexibility and cost savings to consumers, because they are not restricted to fixed delivery times and can avoid delivery fees. Pick-up and drop-off points can be unattended takeaway centers with lockers (e.g. De Buren) or small shops situated in neighborhood stores (e.g. bookstores and supermarkets) and on high traffic locations (e.g.

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railway stations).

1.3 Demography

1.3.1 Demographic developments

Because the retail industry is the last link in the production process, it directly serves

consumers.Therefore, demographic developments also have a major impact on this industry (Quix and Van der Kind, 2012). Demographic refers to developments in the composition and geographic distribution of the population and the lifestyle of consumers (Quix and Van der Kind, 2012). Currently, there are several demographic trends in the Netherlands that affect the retail landscape. The Netherlands is faced with a changing population in terms of an aging society, a changing household composition in terms of more single households and other demographic trends, like individualization and reducing consumption (Steinmaier et al., 2013; Quix & Van der Kind, 2012).

Quix and Van der Kind (2012) argue that the structure of the population has changed from a pyramid to a cylinder due to the aging society. This indicates a relatively higher proportion of people over the age of sixty-five in the total population. Two major causes of aging in the Netherlands are the birth development after the Second World War (1946-1970), also known as ‘the baby boom generation’, and the increasing life expectancy of people nowadays (Nationaal Kompas Volksgezondheid, 2014a). Today, these ‘new elderly’ are the main target for retailers. They have a lot of money, they want to spend, they feel young but the idea of ‘one size fits to all’ does not work for them. This group has other spending habits than younger people and different needs and wants because of their age, income and leisure time (Quix & Van der Kind, 2012). They have a need for service and