Does the Internet mean the end of Dutch retail property?

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Faculty of Economics and Business

Does the Internet mean the end of Dutch

retail property?

University of Amsterdam, Faculty of Economics & Business

Bachelor Thesis, Economics

Jessie Schot

(10216618)

Written under supervision of dhr. Stephan Jagau.

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STATEMENT OF ORIGINALITY

This document is written by Jessie Schot, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents

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ABSTRACT

Recent developments in the Dutch retail environment ensure there is a demand for research on the customer’s thoughts of physical shopping. Within this research we try to find out if there exists a future for large Dutch retailers and their physical shops from the customers’ point of view. Furthermore, we are trying to find out whether online shopping is a substitutionary or complementary channel of physical shopping. To do so, we explore the current shopping behavior of 200 Dutch respondents and ask them about their thoughts on their online- and physical shopping experience. The results are compared by making use of the Mann-Whitney test and show that online stores are referred to as a complementary channel of physical shopping, rather than a substitutionary channel. Thereby, there exists a future for large Dutch retail stores. Nevertheless, younger respondents turn out to think about the future in a different, more innovative way than the older ones and the retailers have to adapt their strategies to this matter.

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1. INTRODUCTION

The recent bankruptcies of big Dutch retailers like Vroom & Dreesman (V&D), Unlimited Sports Group (USG), DA and Macintosh, are results of the Internet making its first ‘victims’, experts suggest in many Dutch newspapers 1. According to many of them, the ‘Dutch Giants’ are suffering from lack of adaptability to new, innovative customer needs. Other Dutch retailers like Bart Smit, HEMA, BCC and many more are still in the ‘danger zone’ (Molenaar, 2016). The Rijksoverheid (2015) argues that the importance of the Dutch retail as an economic sector is, among others, reflected in it providing The Netherlands with more than 775.000 jobs. Thereby, the sector annually contributes 93 billion to the Dutch economy with its 110.000 companies. Finally, the Dutch retail giants contribute largely to Dutch welfare and the vitality, livability and attractiveness of cities and villages (Kamp, 2014). The rapidly changing retail environment affects not only the retailers, but also their employees, governments, shareholders, real estate owners and provinces (Rijksoverheid, 2015). Changes in the environment of the Dutch retail companies require changes in their way of doing business. Customers do not buy locally anymore, but wherever it suits them (Molenaar, 2016). Director of men’s fashion retailer Jones and Jones, Huijsman, supports this. He mentions in the Dutch financial newspaper ‘Het Financieele Daglad’ (FD) that the focus of retailers is shifting to delivering customer service. Huijsman does not believe in periods of discount and likes to think of a shopper as if it is their guest, not just a customer. In the same article Vaessen (2016), partner of investment company Varova, stresses the increasing importance of economies of scale. Investment companies like Varova and FNG Group own portfolios of different kinds of retailers, which collaborate and benefit from the related synergies. Besides, Vaessen states that the high-quality segment and the mass-produced, low-quality segment proved to be successful, despite the rapidly changing environment. At the same time retailers in the middle segment are having troubles (FD, 2016). One of these mid-segment retailers is V&D, the new owners of which declared in June 2016 to proceed turning it into an online store and drop the traditional retail operations (FD, 2016). Also Minister of Economic Affairs Kamp (2014) emphasizes that the retail sector has to cope with structural changes in customer behavior and the rapid expansion of online shopping. He stresses that consumer demand has fundamentally changed and that supply has become more transparent with the introduction of the Internet (Kamp, 2014).

1 http://www.telegraaf.nl/dft/nieuws_dft/24937545/__Alarmfase_1_in_winkelstraat__.html http://www.elsevier.nl/Economie/achtergrond/2015/12/2015-het-jaar-van-de-failliete-winkelketens- 2738042W/?masterpageid=158493

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In graph 1.1, recent figures of Statistics Netherlands (2016) show that Dutch online retail increased with an average of 28% over the past three quarters. Besides, it shows that the decrease in growth of retail itself is due to decreased growth of physical retail over the past three quarters (Statistics Netherlands, 2016). Other evidence of the changing retail environment can be found in the annual reports of PostNL (2016), main delivery company in the Netherlands and iDeal (2016), main Dutch online payment company. PostNL declares that its revenues on parcels have been increased with 7% in the last quarter of 2015. This year, they expect to benefit from online shopping even more (PostNL, 2016; Het Parool, 2016). iDeal is looking back at an average growth rate of 25% from 2012 until last year (iDeal, 2016). Because of these recent changes in the retail environment, the need for research on the effects and impact of the recent multichannel strategies, i.e. strategies combining online and physical channels, of Dutch retailers on the buying process of the customer is growing (Eroglu, Machleit & Davis, 2001; Wang & Malthouse, 2015). This research therefore focuses on the question if there exists a future for Dutch retail companies and their physical stores from the customer’s point of view. Specifically, we will examine if customers perceive online shopping as a substitute or a complement of physical shopping. To clearly get an insight in what is driving these perceptions of the customer, we will make use of an online survey. The remainder of this study is structured as follows: In section two, a literature review will be made on prior studies in which the effects of online shopping are examined from both the customer’s and the retailer’s point of view. This will help to find out whether there has been a change in customer- and retailer behavior over the years. Section three explains the methodology of this research and the survey design we use. Next, section four the presents the results of the survey. The research will be finished in section five with a conclusion and some points of discussion.

Graph 1.1.

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2. A LITERATURE REVIEW

A lot of research has been done on customer behavior before, though studies on the correlation between changes in customer behavior and the introduction of the Internet are relatively scarce or outdated. Certainly this is the case when focusing on the recent Dutch retail environment. Nevertheless, it is clear that the Internet provides a new alternative distribution channel, which might pose a threat to obsolete business models in traditional retail (Boschma & Weltevreden, 2008). Also studies from Burt and Sparks (2003) and Wringley et al (2002) state that Internet retailing could be a possible disruptive innovation. This study therefore tries to assess if there is a future for large Dutch retail companies in terms of physical stores in the customer’s opinion. To do so, we will use an online survey to find out what is the customer’s opinion on the current Dutch online- and physical retail environment. By making use of the survey, we will try to get insight on the customer’s general shopping behavior, their thoughts about online shopping being a substitutionary- or complementary channel to physical shopping and their perceptions of large Dutch retail stores. The literature review will therefore focus on prior studies within these topics. In combination with the results of the online survey, this will allow us to draw conclusions on the main question of the research. 2.1. Survival of the Dutch Retail Giants The focus of this study lies on the big traditional retailers of the Netherlands. In studies on the survival of retailers, often focus lies on the viewpoint of the company itself. For instance, one expects that the older the age and the higher experience of a retailer, the higher its capacity will be in the area. For instance, the model of Jovanovic and Lach (1989) predicts that the more age and size of a retailer increase, the more likely is its survival. Nevertheless, Brouwer (2005) and Levitt and March (1996) argue that age of the retailer and lock-in problems are positively correlated. If the older retailers are confronted with radical changes, like the invention of online shopping, they face problems of adaptability. In his empirical study on the relationship between the special environment, specific firm characteristics and the survival of Dutch retailers, Brouwer (2005) concludes that older Dutch retailers are more attached to their business location. Anchoring to a certain location and continual identity is important in the survival of companies in the long term. This means a tradeoff has to be made between trust and sustainability on the on hand and adaptation to environmental changes on the other (Brouwer, 2005).

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The results of a regression analysis did by Agarwal (1997) illustrate that survival of retailers is less likely, the higher the competitive intensity. On the other hand, Burt and Sparks (2003) found in their review of the impact of online shopping on the retail process, that by implementing a multichannel strategy, i.e. a strategy combining online and physical channels, large British retailers could be able to potentially profit from an enhanced competitive position in terms of process, structure and customer relationship. The study also finds that, in order to survive, existing physical shops need improvement in quality and presentation if they would like to continue to provide retail services (Burt & Sparks, 2003). Besides the one of Burt and Sparks, there are more studies that state the Internet could enable retailers to function under an increased scope and to speed up their retailing activities. Dawson (2001) and Wang, Malthouse and Krishnamurthi (2015) found that retailers could benefit from a multichannel strategy if they are able to effectively conduct the retailing activities in the changing environment. Nevertheless, if they fail to adapt operations to the rapidly changing environment, they could possibly be overtaken by competition (Dawson, 2001; Wang, Malthouse & Krishnamurthi, 2015). In their data analysis on changes of behavior of American customers as a result of online shopping, Wang, Malthouse and Krishnamurthi (2015) also found that at the moment customers get used to online shopping, both their order rate and order size, i.e. in dollars, increase. Besides, they found that even though online shopping is becoming increasingly important for retailers, they do not know how to adapt their strategy to it and recommend retailers to fully utilize their online retailing channel. Nevertheless, they advise to keep in mind that online channels are not entirely suited to launch new products or to promote certain products (Wang, Malthouse & Krishnamurthi, 2015). Venkatesh, Thong and Xu (2012) created an extended model on acceptance of information technology by the Chinese customer. They conclude that the magnitude of an effect a change, like implementing a new strategy, has on the customer depends on the way they perceive the stability of their environment. A, by the customer interpreted, rigid change in their way of life and their environment could ensure they react negatively to it. This means a newly, in the right way implemented multichannel strategy by the retailer could possibly be a merely natural evolution for the customer, which increases spending by having more access to the retailer’s storefront. This could benefit the retailer’s revenues and ensure their survival in the long run. If retailers on the other hand rigidly implement the changes, for example by entirely substituting a physical store for an online one, customers could react negatively to it and implementing an online channel will not be beneficial at all (Venkatesh, Thong & Xu, 2012).

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2.2. Substitutes or Complements To examine whether there is a future for large Dutch retailers and their physical stores, it is necessary to dig deeper in the degree of which customers perceive online shopping as a substitute of physical shopping. It has been stated before that the frequency of online shopping by the Dutch customer is increasing, but is this making a difference for the existence of physical shops and the revenues made in the Dutch retail sector? In this section customer’s and retailer’s reasons found for substituting or complementing physical- and online channels are reviewed.

2.2.1. Substitutes In 2002, Dixon and Maston found that 28% of their British respondents replaced a physical purchase, which would have been made in a town or city center, with an online purchase. A year later, Corpuz and Peachman (2003) found that 35% of their Australian respondents used the Internet for a transaction, instead of taking a physical shopping trip. Chintagunta, Chu and Cebollada (2012) integrated several kinds of transaction costs into a generalizable channel choice framework and empirically quantified the relative transaction costs between online- and physical channels. They conclude that customer choices to make use of a physical- or online store are dependent on transaction costs. Online shopping will therefore certainly become a substitute for physical shopping if it provides the customer advantages in terms of lower product prices and more efficient product delivery. Moreover, Sparks and Findlay (2000) state that if a physical store only continues to provide a location for a transaction, online stores will form a substitute for sure. Farag et al (2006) thereby investigated the spatial distribution of online buyers in the Netherlands and the impact of spatial variables on their use of online channels. They found that when the customer’s accessibility to the physical store decreases, the more likely he or she is to buy desired products online (Farag et al, 2006). On the other hand, there are studies that show though customers are browsing online stores of retailers, they still decide not to buy their products online (Ahuja, Gupta & Raman, 2003; Forsythe & Shi, 2003). One of the reasons for these findings is pointed out in Hudgins (2002): Multichannel retailers do not consider the design of their online stores carefully enough and fail to fulfill customer needs. In the same study as mentioned in the section above, Burt and Sparks (2003) state that physical stores provide an ‘experience’ to stimulate interest of the customer. In other words: Customers value shopping as an enjoyable activity. Also, Burt and Sparks found that a physical shop is highly valued by the customer by it providing human contact and advice, which helps customers through the selection stage of shopping.

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2.2.2. Complements There are studies that found retailers and their customers are using the Internet as a complementary channel instead of entirely substituting physical shopping with online shopping (Currah, 2002; Steinfield et al, 2001; Weltevreden and Atzema, 2006; Weltevreden et al, 2005; Wrigley et al, 2002), i.e. they follow a multichannel strategy. Using the Internet as a complementary channel could be valuable for large retailers. For instance, the cyclical model of technological change from Anderson and Tushman (1990) shows that the life chances of firms are increased by making incremental innovations instead of major innovations, like substituting a physical shop for an online one. As mentioned above, Venkatesh, Thong and Xu (2012) also found that the customer gives a relatively better response to changes that feel natural to them. In their advisory report to retailers, Ask et al (2011) argue that by implementing a multichannel strategy, the retailers could possibly profit from increased customer loyalty. Retailers are able to connect with their customers more frequently and to built relationships with them that are more intense. Also, Wang, Malthouse and Krishnamurthi (2015) state in the same data analysis mentioned before, that the currently developed ‘mobile lifestyle’ of the customer provides the retailer opportunities to interact with their customer on a personal and frequent basis across time and space and the ability to built stronger relationships with them. Farag, Krizek and Dijst (2005) stress even that Dutch online buyers make more physical shopping trips than customers that are only shopping physically. This implies that even if consumers buy their products online more frequently, more physical shopping trips will be made. In their study, Farag, Krizek and Dijst (2005) analyzed the reasons why customers are buying products online and the relationship between online- and physical shopping in the U.S.A. and the Netherlands. By making use of a survey, Weltevreden and Van Rietbergen (2004) found that physical- and online shopping are functioning as a complement already, namely by the customer’s gathering of information about their prospective purchase. In their research 20% of the Internet users did go to the physical store to gather information for their last three online purchases. The other way around, 15% of the Internet users searched for information online, before purchasing their product in the physical store (Weltevreden & Van Rietbergen, 2004).

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3. METHODOLOGY

3.1. Research Method and Goals The goal of this research is to answer the question if there is a future for physical shops of large Dutch retailers like V&D, HEMA, De Bijenkorf, Blokker and Bart Smit. Of course, each retailer has its own company history, but this research focuses on the viewpoint of the customer. To answer the main question, the subject of online- and physical stores being substitutes or complements will be analyzed. To get an impression of the customer’s thoughts on their current and future shopping behavior, we conduct an online survey. 3.2. Data and Sample Characteristics The data used in this study was obtained in May and June of 2016. The online survey software Qualtrics was used to build an online survey in which customer behavior and opinions were collected. The University of Amsterdam provided the software. Respondents were invited to participate via social media like Facebook and LinkedIN, but also personally. 242 respondents filled in the survey. Prior to the survey they were informed that the topic of the survey would be their shopping behavior and their shopping experience. Also, the respondents were told that the survey excluded their nutrition-related shopping behavior. The definitions of ‘big’ stores and ‘small’ stores used in the survey were made clear to subjects. In this research, stores of large Dutch retailers like HEMA, V&D and Blokker are referred to as ‘big’ stores. ‘Small stores’ was meant to signify little sole proprietorships. The latter were not the focus of the study. Lastly, the distinction between online- and physical shopping was explained and respondents’ were asked about the frequency with which they engaged in either of the two. All of the 242 respondents are making use of Internet in a general way. This study defines online shoppers as Internet users that buy products online more frequently than once a month. The other subjects are referred to as physical shoppers. Subjects were classified into five age categories: ‘15-21’, ‘22-35’, ‘36-45’, ‘46-55’ and ‘56-75’. Also the gender of subject was elicited in order to track gender differences in shopping behavior that have been reported in existing studies (cf. Dennis & McCall, 2005). We will not go further into the issue of different shopping habits across age categories here, but we report the age distribution observed in our sample. Finally, subjects’ highest attained level of educational and their profession was recorded.

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3.3. Survey Design The survey used to collect data for this research contains both open- and closed questions, though most questions are closed. These closed questions are scaled based on the Likert-scale method. Questions based on a Likert-scale ask respondents to indicate how much they agree or disagree with a statement as measured by a number of ordered intensity levels (Allen & Seaman, 2007). In the present survey, five response categories are used. For example by means of question one, the online shopping respondents indicated whether they frequently shop online. This could be answered with 1 (very weakly applicable to me), 2 (weakly applicable to me), 3 (moderately applicable to me), 4 (strongly applicable to me) or 5 (very strongly applicable to me). In this way it is possible to translate nominal data into usable, ordinal data. Respondents’ answers on open questions are used for descriptive analysis. A large part of the questions in the survey were asked to all of the respondents. By asking respondents matching questions, the possibility occurs to compare the answers between the online- and physical shoppers statistically. There were a number of questions in the survey that were about traditional Dutch retailers. There is chosen to keep the survey as general as possible though, which means no questions about specific retailers were asked. The questions were about the respondents’ perceptions of physical shopping and the Dutch large retail. A few of those questions were about the reasons why and whether physical shopping is perceived as an indispensible retail channel. Furthermore, respondents were asked if they are making use of the Internet as a complement of their physical shopping activities. This could possibly be by consulting the Internet before making a physical buy, or by using properties of the physical store before buying the product online. Finally, they were asked if they were considering changing their shopping behavior in the future and the potential reasons for such changes. Besides the matching questions, there were also questions in the survey that varied across online shoppers and physical shoppers. For example, physical shoppers were asked about their earlier online shopping experiences and about the reasons why they decide not to make a frequent use of online shopping. Secondly, they were asked about the types of products they bought online when they made use of online shopping previously. Online shoppers were asked about their online shopping perceptions and experiences. They were also asked about the reasons why they are making use of online shopping and about their thoughts of online shopping as a substitute of physical shopping. Besides, they were asked what kinds of products they buy online and which products they still decide to buy physically. Finally, they were asked about their thoughts about the future of online shopping.

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3.4. Method of Analysis To answer the main question of this research, namely if there is a future for big Dutch retailers and their physical shops, there is chosen to divide the main question into three categories. Each of the three categories will be combined to draw a conclusion on the main question. In the result section of this research, these categories will be used to analyze the survey data. Within the first category, frequencies of different results of the survey will be examined and general information will be presented. Examinations on online- and physical stores as complementary- or substitutionary channels will be made in the second category. Results on the big Dutch retailers in general will be analyzed in the third and last category. As mentioned above, the questions in the survey were asked on basis of a Likert-scale. This means the responses are ordinal. Within all of the three categories, results have to be compared between online- and physical shoppers. Data has been analyzed by making use of statistical program SPSS 23 for Windows. To verify whether there is a significant difference in Likert-scale intensities between the two groups, we compare answers using the Mann-Whitney test, also referred to as Wilcoxon rank-sum test. The Mann-Whitney test is a non-parametric equivalent of the independent t-test, which is frequently used to examine behavioral effects (Field, 2013). The test can be used to determine whether the difference in distributions of the two samples is significant, which is based upon the ranking of the Likert-scale responses from both samples. The Mann-Whitney test determines how ranked positions of scores differ between the two respondent groups (Field, 2013). Differences are referred to as significant when p < 0.05. We also examine differences across age categories, which is interesting since the ultimate goal of this study is to predict whether there is a future for the big Dutch retailers and their physical shops. The younger age categories could be seen as the future of the Dutch population. Thereby, the Internet and online shopping are a development from the past decade. Finally, there could be a difference between age categories in the degree of valuating the traditional Dutch retailers. It could be a possibility that older age categories do appreciate the traditional retailers more than the younger generation. For these reasons, one of the examined subjects is whether there exists a difference in the way older and younger respondents answer the questions of the survey. This will be analyzed by making use of frequencies found in the results between age categories.

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14 4. RESULTS

In this section, results for each of the three categories that are ultimately combined to draw a conclusion, are presented. Before the data was examined, respondents’ answers were filtered. 200 of the 242 respondents met the criteria and were included in this research. Those criteria are based on the frequency of completed answers from the survey. To test whether assumptions of the analysis of the data from the survey on customer behavior is correct, a few tools have been used: the Mann-Whitney test to compare results between the respondents that are online shopping and the ones that are physical shopping and frequencies in results to compare results between the five different age categories. If there is referred to medians, they are drawn from the Likert-scale questions. These questions are scaled from 1 until 5, where 1 means ‘very weakly applicable to me’ and where 5 is referred to as ‘very strongly applicable to me’. Mdn1 is referred to as a median of results of the physical shoppers, Mdn2 as one of the results of answers from the online shoppers. 4.1. General Information and Frequencies The 200 respondents of this survey are, first of all, categorized in gender. 74% of the respondents are female, 26% of them are male. Secondly, respondents are divided into five age categories. 15% of the respondents belong to the ‘15-21’ category. Following, 41% belongs to ‘22-35’, 11% to ‘36-45’, 27% to ‘46-55’ and finally, 6% to the ‘56-75’ category. The distinction between online- and physical shoppers is made on base of more or less frequently online shopping than once a month. 71.5% of the respondents is defined as online shoppers, 28.5% of them as physical shoppers. Further frequencies on respondents of the survey are summarized below in table 4.1. Age Category

All PS OS PS% OS% M/F M/F%

1 30 10 20 66 33 5/25 16/84 2 82 22 60 73 27 31/51 38/62 3 22 4 18 82 18 4/18 18/82 4 84 16 38 70 30 11/43 20/80 5 12 5 7 58 42 1/11 8/92 Distribution of Survey Respondents

Table 4.1.

PS – Physical shoppers PS% – Percentage physical shoppers M/F – Man/Female

OS – Online shoppers OS% – Percentage online shoppers M/F% – Percentages Man/Female

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Online shopping respondents were asked how frequently they do shop online. The median of their answers equals 3.00. The results in age categories indicated respondents in younger age categories, ‘15-21’ and ‘22-35’, are answering this question more frequently with ‘strongly applicable to me’ or ‘very strongly applicable to me’ (49%), than older age categories, ‘36-45’, ‘46-55’ and ‘56-75’ do (30%). Moreover, both physical- and online shoppers were asked how frequently they do shop physically. Both of them answered the most with ‘moderately applicable to me’. The Mann-Whitney test showed physical shoppers are shopping physically more

frequently (Mdn1 = 4.00) than online shoppers (Mdn2 = 3.00), U = 287.000, p = 0.001. Surprisingly, the younger age categories answered this question with ‘strongly applicable to me’ and ‘very strongly applicable to me’ more frequently (49.1%) than the older ones (44.3%) as well. Physical shoppers were thereby asked whether they have previously shopped online. The median of their scores is 3.00. The same holds for the question if physical shoppers are buying their products online every now and then (Mdn1 = 3.00). No firm conclusions can be made, but it is likely physical shoppers have previously bought products online and are buying products online sporadically. It is surprising to see they do not seem to have negative past experiences with online shopping (Mdn1 = 1.00) and do actually answer the question whether they do not know how to shop online with ‘very weakly applicable to me’ on average (Mdn1 = 1.00). Further, the survey results suggest that physical shoppers do not shop online as little as they do because they do not trust online stores when it comes to handling personal information (Mdn1 = 2.00) or payment details (Mdn1 = 2.00). 51% of the online shoppers responded with ‘strongly applicable to me’ or ‘very strongly applicable to me’ to the question whether they are satisfied with their online shopping experience. The Mann-Whitney test showed that answers to the question whether online- and physical shoppers are satisfied about their physical shopping experience differ significantly between the two groups of respondents. Physical shoppers are most likely to be more satisfied about their physical shopping experience (Mdn1 = 4.00) than online shoppers are (Mdn2 = 3.00), U = 3198.000, p = 0.010. Both groups were asked whether they intend to shop online more frequently in the future. The given answers suggest a slight increase of online shopping in the future, both groups on average answered mostly with ‘moderately applicable to me’. Moreover, online shoppers plan to increase their future online shopping frequency more (Mdn2 = 3.00) than physical shoppers do (Mdn1 = 2.00), U = 2642.000, p = 0.001 and younger respondents of age categories ‘15-21’ and ‘22-35’ do answer the question more frequently with ‘strongly applicable to me’ or ‘very strongly applicable to me’ (46.0%) than the older three age categories (20.9%).

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Graph 4.1. and 4.2. show the difference in given answers to this question between age categories. Online shoppers are referred to as OS and physical shoppers are named PS in all of the graphs. ‘Answer choices’ are the Likert-scale response degrees, which go from 1, ‘very weakly applicable to me’, until 5, ‘very strongly applicable to me’. Graph 4.1. Graph 4.2.

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4.2. Substitutes or Complements

This section presents the results of the survey questions about online- and physical stores as complementary or substitutionary channels.

4.2.1. Substitutes To analyze whether online- and physical stores are substitutes, results of several questions of the survey prove to be interesting. Online shoppers were asked if they believe online stores are a perfect substitute of physical stores. Younger age categories, ‘15-21’ and ‘22-35’ and older age categories ‘36-45’, ‘46-55’ and ‘56-75’ do agree on those terms, where 20% of the younger respondents and 22% of the older ones, answered the question with ‘strongly applicable to me’ or ‘very strongly applicable to me’. On average, online shoppers do not seem to believe in online shopping as a perfect substitute for physical shopping (Mdn2 = 2.00). Moreover, the same result holds for the question where online shoppers were asked whether they expect to exclusively make use of online shopping at some point in the future (Mdn2 = 2.00). This result substantiates results of the previous question on perfect substitution. The difference of results of younger (16.5%) and older (12.7%) age categories answering with ‘strongly applicable to me’ or ‘very strongly applicable to me’ is in line with the substitutionary question, though younger respondents tend to believe somewhat stronger in a future in which they exclusively will make use of online shopping. There are several reasons why online shopping could be regarded to as a substitutionary channel of physical shopping. It has been stated before that customers are making a tradeoff between physical- and online shopping based on transaction costs (Chintagunta, Chu & Cebollada, 2012). Also the possibility that some consumers value physical shopping as an enjoyable activity, that provides them with customer service and social interaction in general, could play a role in this tradeoff (Burt & Sparks, 2003). Results of the survey show that online shoppers value online shopping because they prefer shopping from home (Mdn2 = 4.00) and being able to have access to lots of stores from one spot (Mdn2 = 4.00). In this way, respondents state, they save time (Mdn2 = 4.00) and also enjoy the convenience of home delivery (Mdn2 = 4.00). However, they neither seem to prefer online

shopping that much because supply is extended to foreign countries (Mdn2 = 3.00), nor because it allows them to make a choice in a quiet environment (Mdn2 = 3.00). Also the benefits of price transparency (Mdn2 = 3.00) or price benefits at all (Mdn2 = 3.00), seem not to be valued as great advantages of online shopping. Nevertheless, online shoppers state that would increase their

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frequency of online shopping (Mdn2 = 4.00) if there were no delivery costs, and the difference in levels relative to physical shoppers is significant (Mdn1 = 3.00), U = 2865.000, p = 0.001. Also an open question that asked respondents of both categories what changes they would require to make use of online stores more frequently was answered mostly with a decrease in delivery costs and a possibility to return products for free. Both of the respondent groups seem not likely to increase their frequency of physical shopping very much if parking costs were lower (Mdn1 = 3.00; Mdn2 = 3.00), U = 3563.500, p = 0.156, or it was easier to find a parking spot at city centers (Mdn1 = 2.00; Mdn2 = 3.00), U = 3421.000, p = 0.069. Though, a lot of the online shopping respondents do answer the open question asking what changes they would require to make more physical shopping trips frequently with a decrease in parking costs and an increase in the ease of parking in general. Also a decrease in transaction costs in terms of time, money and offers made to go physical shopping was mentioned frequently.

Physical shoppers (Mdn1 = 3.00) and online shoppers (Mdn2 = 3.00) do not significantly differ in opinion as to whether they find it important to have a product instantly, U = 3538.000, p = 0.129. Both categories do mention in open questions frequently that they do prefer a short

delivery time or they do value a physical store because it enables them to get a product directly. Also, both physical- (Mdn1 = 4.00) and online shoppers (Mdn2 = 4.00) seem to value physical shopping as an enjoyable activity, U = 3496.000, p = 0.096, which is in line with results of previous studies mentioned in the literary review. More specifically, both groups (Mdn1 = 3.00; Mdn2 = 4.00) do indicate that it is the social-interaction component that gives an additional benefit to physical shopping, U = 3969.000, p = 0.765. Physical (Mdn1 = 3.00) and online shoppers (Mdn2 = 3.00) do thereby value the professional service of shop assistants, U = 3638.000, p = 0.221, though they, surprisingly enough, answered the question with ‘moderately applicable to me’ on average. This result is rather surprising, because in the literary review of this research was mentioned that previous studies found that professional service of the shop assistant was highly valued as a benefit of physical shopping by customers (Burt and Sparks, 2003). More surprisingly even, the open question asking all respondents for the reasons why they do value physical stores most was answered most frequently with the customer service and friendliness provided by the shop assistants of physical stores. When compared with the results of the open question, there can be concluded that customers indeed do appreciate a physical store because of professional service. Being able to examine products in the store could be a significant benefit of physical shopping as well. Physical shoppers tend to think it is more important to see a product in a physical store (Mdn1 = 4.00), relative to online shoppers (Mdn2 = 3.00), U = 2552.000, p = 0.000.

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They also do find it more difficult to estimate the quality of a product online (Mdn1 = 4.00),

relative to online shoppers (Mdn2 = 3.00), U = 2858.500, p = 0.001. Both of the online- and physical shoppers see it as an important benefit to be able to try on clothes in a physical store, though physical shoppers do appreciate this more (Mdn1 = 4.00) than online shoppers do (Mdn2 = 4.00), U = 3013.500, p = 0.002. Trying out other products than clothes seems to be a less valued benefit of physical shopping, but physical shoppers do also think that seeing these other products in the store is more valuable (Mdn1 = 3.00) than online shoppers do (Mdn2 = 3.00), U = 3080.000, p = 0.005. 4.2.2. Complements In the literature review, we mentioned several previous studies that suggest that online shopping could be a valuable complement relative to physical shopping. If done correctly, it could be beneficial for retailers to implement a multichannel strategy. It is even stated that online shopping could increase the frequency of physical shopping of customers (Farag, Krizek & Dijst, 2005). Finally, online shopping, as a complement of physical shopping, increases customer loyalty and frequency of interaction with the customer (Wang & Malthouse, 2015). Customers themselves value online shopping as a complementary channel, because they do not like major changes in their way of living and their environment (Venkatesh, Thong & Xu, 2012). They do thereby prefer to consult the Internet for informational purposes (Weltevreden & Van Rietbergen, 2004). It is apparent from the results of the survey that physical- and online shoppers think it is important whether a retailer implements a multichannel strategy. All the while, online shoppers tend to think this is more valuable (Mdn2 = 4.00) than physical shoppers (Mdn1 = 3.00), U = 2767.500, p = 0.000. There appears to be a big difference in results between younger and older age categories. 80.4% of age categories ‘15-21’ and ‘22-35’ answered the question with ‘strongly applicable to me’ or ‘very strongly applicable to me’, relative to 44.3% of age categories ‘36-45’, ‘46-55’ and ‘56-75’. Graph 4.3. and 4.4. on the next page show the difference in given answers to the question between age categories. Online shoppers are referred to as OS and physical shoppers are named PS in all of the graphs. ‘Answer choices’ are the Likert-scale response degrees, which go from 1, ‘very weakly applicable to me’, until 5, ‘very strongly applicable to me’.

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Online shoppers were asked whether they react to mailing about periodic sales of an online- or physical store. The median of the results was 2.50, from which can be concluded that they usually do not. Online shoppers do on the other hand make use of other buyer’s online reviews moderately frequently before buying a product online (Mdn2 = 3.00). Both online- (Mdn2 = 3.00) and physical (Mdn1 = 3.00) shoppers do also moderately make use of online reviews of other buyers before buying a product in a physical store, U = 3881.000, p = 0.583. Graph 4.4. Graph 4.3.

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Online shoppers do not frequently use the physical store to see or try out the product and afterwards buy the same product online (Mdn2 = 2.00). When they do so though, they are moderately loyal to the same online store where they examined the product (Mdn2 = 3.00). In an open question on this subject, online shoppers did indicate to do so when there is a benefit in terms of product prices. The other way around, both physical- and online shopping respondents indicate that they are making use of the Internet to search for information about a product, before buying the same product in a physical shop. Nevertheless, online shoppers do this more

frequently (Mdn2 = 4.00) than physical shoppers (Mdn1 = 3.00), U = 3226.000, p = 0.017. The extent to which the respondents are making use of the Internet to compare product prices, before buying the product in a physical shop is answered with ‘moderately applicable to me’ on average, for both categories of consumers (Mdn1 = 2.00; Mdn2 = 3.00), U = 3879.000, p = 0.580. 4.3. General Results on Dutch Retail In another section of the survey, all of the 200 respondents were asked about their opinion on big retail in general terms. First of all, they were asked whether they prefer to shop in a big shop over shopping in a small shop, which was answered with ‘weakly applicable to me’ most of the time (Mdn1 = 2.00; Mdn2 = 2.00), U = 3856.000, p = 0.587. Both of the respondent groups indicate to prefer shopping in a store they do know for a longer time (Mdn1 = 4.00; Mdn2 = 3.00), U = 3588.500, p = 0.188, but are slightly less enthusiastic about shopping in traditional physical stores like Blokker, HEMA or De Bijenkorf (Mdn1 = 3.00; Mdn2 = 3.00), U = 3771.000, p = 0.389. Online shoppers do indicate that they moderately like to shop online in traditional online stores, which are generally known (Mdn2 = 3.00). There is a significant difference between perceptions of product availability in the physical shop, U = 2149.000, p = 0.000. Online shoppers do think supply in physical stores is limited (Mdn2 = 3.00), whilst physical shoppers relatively indicate to find all the products they need (Mdn1 = 3.00). Online shoppers state that they do miss certain products in the physical store that they would actually prefer to buy physically (Mdn2 = 3.00), relative to physical shoppers (Mdn1 = 3.00), U = 2626.500, p = 0.000. While medians are equal, the significant difference in results of both of these findings could be indicating that online shoppers are better informed about general product availability and product variety across physical- and online stores. Online shoppers do also indicate in the open questions that they would shop physically more frequently if the supply of retail stores would be improved in terms of their demand and thereby enlarged.

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All of the respondents do not think that there are significant benefits from one-stop shopping (Mdn1 = 2.00; Mdn2 = 2.00), U = 3853.500, p = 0.529, which could be a benefit of going to a large retail store. To the question whether they prefer to shop in big stores over smaller stores, because they are more likely to find everything they need in larger shops, respondents react slightly more enthusiastic (Mdn1 = 3.00; Mdn2 = 3.00), U = 4002.500, p = 0.997. Another benefit from shopping in a large store could be the presence of complementary services like a restaurant or being able to use toilets. All of the respondents do on average respond with ‘moderately applicable to me’ (Mdn1 = 3.00; Mdn2 = 3.00,), which indicates they do think it is important, but that does not significantly matter. The results were not significantly different between respondent groups, U = 3600.000, p = 0.182. Besides the results of the closed questions, results of the open ones were interesting for large Dutch retailers as well. What do customers value the most about physical shopping in general terms? It is clear from the answers given that both online- and physical shoppers do value physical stores because of service and social interaction. The question was frequently answered with customer service, professional advice, personal contact and to be with people in general. Respondents also indicate they think it is important for a physical store to have a nice atmosphere and to provide the ability of shopping in a fresh, uncluttered and peaceful environment, some things that they would like to see improved in most Dutch retail stores as well. This result matches results of the study of Burt and Sparks (2003), which was mentioned in the literature review. The possibility of trying out the products respondents might buy is said to be highly valued in open questions as well. Online shoppers do thereby frequently answer the question with them finding it important physical stores are unique in supply and they do prefer to shop in smaller stores that provide more ‘experience’ to their shopping trip. Online shopping respondents moreover indicate to wish the smaller, more unique shops were beneath one roof. When looking at respondents’ opinions on online stores, the results show that online- and physical shoppers do prefer an online store that is of good quality and clear in terms of use. They highly value correspondence of online- and real-life product quality. An online shop thereby has to be quick, flexible and cheap in product delivery and there has to be an ability to easily return products bought, preferably for free. Physical- and online shoppers both frequently indicate that they would make more use of online stores when they would provide benefits in terms of product prices.

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5. CONCLUSIONS

This research attempts to answer the question whether there exists a future for big Dutch retailers, in terms of their physical stores. We focus on the consumer side of this question by conducting a survey among 242 Dutch consumers, asking them about their shopping behavior and their opinion regarding online- and physical shopping. 200 of the 242 respondents were selected for the results analysis. The survey contained questions about the current retail environment, but also about the respondents’ opinions on the future development of retail in the Netherlands.

The results of the survey suggest that respondents do not expect online retail to replace physical retail altogether in the future – irrespective of whether they are regular online shoppers, i.e. purchasing products on the internet more often than a month. The majority of subjects views online shopping as a complement to physical shopping rather than as a substitute. This result holds for younger respondents, as well as older respondents. Both of the online- and physical shopping respondent groups do highly value the retailer to implement a multichannel strategy. There is a big difference though between younger and older respondents: Younger respondents do think it is more important to be able to make use of both of the physical- and online channels from a retailer. Both of the online- and physical shopping respondent groups do make use of physical stores frequently and are satisfied with their physical shopping experience. They highly value physical shopping as an enjoyable- and social event. Also, they think it is an advantage of physical shopping to be able to try-out products they intend to buy and to make use of professional services of shop assistants. Nevertheless, both respondent groups state there are points of improvement for Dutch physical retail stores in terms of shopping experience. Concluding, the results of this study show that there exists a future for large Dutch retail stores, in particular if traditional retailers make use of the Internet as a complementary channel and update their business strategies appropriately to the changing retail environment. Younger people are making use of online shopping channels more often, which indicates the future customer will be more accustomed to making use of online stores. The Dutch retail sector has to adapt their strategy to this change in customer behavior. Both respondent groups indicate thereby that they expect to make use of online channels more frequently in the future. At the moment, the Internet is thereby frequently used as an informational channel by all of the respondents and even the physical respondents group is buying their products online once in a

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while. It seems to be valuable to implement a multichannel strategy to increase customer loyalty and the frequency of interaction, either in the actual situation, as well as in the future. It is said before that men and women differ in their shopping behavior. Women value shopping as a satisfying activity and they have a more positive attitude towards it, relative to men. Conclusions of this study are based on 200 respondents’ answers of questions from an online survey. Within this sample of 200 respondents, 74% is female. 26% of the respondents is male. This means that there is a chance on a gender bias. The same holds for the distribution between age categories. Numbers of Statistics Netherlands (2016) show that the age distribution across the whole Dutch population differs from the one observed in this study. The two youngest age categories were more frequently present than in the numbers of Statistics Netherlands, older ones, and especially the oldest one (‘56-75’) less frequently. Nevertheless, the respondents’ educational levels are reasonably in line with the numbers of Statistics Netherlands. In future studies, it might be valuable as well to look at the differences in age categories more closely. It has been stated in this study results do differ between younger and older people. This study states that physical- and online channels function as complementary channels, rather than substitutionary ones. Therefore, it would be interesting to delve more deeply in the specific changes retailers have to implement on this subject. Also, it would be nice to look more closely to specific Dutch retailers and compare them more intensively in things they do or do not succeed in.

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Does the Internet mean the end of Dutch retail property?

Faculty of Economics and Business