The decision to maintain both a physical and a Web-based storefront is a serious dilemma for many retailers. Overhead cost for retail space that covers a given market is enormous in terms of space and people. Daily challenges regarding which retail sites to build, maintain, remodel, or close can occupy entire corporate departments. Yet the cost of maintaining the infrastructure for an online buying site is ten to one hundred times less. In addition, the cost of finding the location of customers becomes less relevant on the Web because anyone can be anywhere in the virtual marketplace! The use of geographic information systems (GIS) for market analysis must now meet the challenges of this new era in retailing, where consumers venture less frequently into malls and other retailing hubs.

Is it possible that GIS applications for retail site selection, consumer product mapping, and geodemographic analyses are all crashing toward an untimely demise? And just when we were getting ready for the Census 2000. We were anticipating that the Census Bureau would send a world of data streaming through our office transoms just waiting to be analyzed for the next decision on that perfect retail site. However, this significant change in consumer behavior offers both a warning about how to analyze spatial data as well as an opportunity to discover more strategic uses of GIS technology.

Virtual Space

Before we explore this issue further, let’s start with some prognostications: First, there will be much less need for retail establishments in ten years. Online buying, assisted by better eCommerce transaction and encryption processing, plus bandwidth to make browsing swifter, will far exceed in-store retailing. Therefore, the need for GIS in site selection will be focused less on finding new sites and more on how to close unprofitable locations and to maintain only the optimum retail sites. Second, as we go online to shop, consumer lifestyle segmentation will occur in real time. Finally, distribution systems will, by necessity, emerge as the most important component of retailing. Hence, GIS will become an absolute necessity for businesses to do routing and scheduling of vehicles.

Several changes technology and consumer behavior have led to these assumptions. In 1994, the Web was just beginning to become a significant source of information and content. An experienced “Web surfer” could find almost everything about anything via the Web. However, the concept of secure online purchases seemed far in the distance. Then, in July 1995, along came Amazon.com, which has since built itself into the premier site for online buying. The Amazon site illustrates how the Web has been transformed from merely offering content into a burgeoning selling machine. At the Amazon.com site, once you have searched for a specific book by author or title, your selection is immediately classified. The site is able to match books of similar subject content or books with authors who have written on similar subject matters, and offer them to you from a list of alternative choices. The same is true with audio and video selections. Hence, it is now possible to truly classify the buyer from a sequence of purchases from previous visits to the site. At once, you not only have a history of purchases, but a profile that can be used to suggest other products that fit your profile. For the online retailer, an immediate lifestyle classification can be assigned.

The Virtual Consumer

On the Web, you are a virtual consumer. It matters not where you live; only what you buy. From a few brief questions, your profile is immediately identified. Since your computer has been identified as having visited a particular online retailer several times before, the retailer can see the pages you’ve visited and it can capture the items that you have purchased into its database. In other words, the retailer knows you!

For years, Web users were worried that consumer product retailers would invade their privacy because they knew them from their credit card purchases. They thought that banks would identify their lifestyles by the size of their accounts.

Unfortunately, precisely targeted marketing campaigns were impossible because of the time it took retailers to capture, analyze, and store consumer data for future use. Today, the Web has made it easy to apply simple lifestyle segmentation principals to online buying. Let’s look at a typical example from a “future” online shopping experience: eFood, or eShopping.

Every week we make the trek to the food store. For what? To buy many of the same things that we bought last week, and which we’ll need next week too. Silly, isn’t it? Worse, it is a waste of time. Virtual grocery stores can change that.

Unlike regular grocery stores, a virtual grocer knows your standard shopping list. For example, you may buy many of the same items every week. However, this week you are throwing a party for your favorite boss and his wife. So on this eShopping trip you check the box that appears under a “special occasion preparations” section of your Web site. You immediately jump to the page containing recipe suggestions. You peruse the list of gourmet selections and finally check the box labeled “Cappelini a Pesce.” It immediately adds the necessary ingredients to your shopping cart and sends you an electronic copy of the recipe by email.

How about the wine? May we suggest the Jepson 1997 Viogneir for $14? You say, “Sure!”

Click.

Will you need fresh flowers for your table, perhaps a small floral arrangement of Gerbera Daisies, Ginger, and Orchids?

Click.

May we deliver your groceries tomorrow at 5 p.m.? You say, make it 6 p.m., because you need to pick up the Volvo from the shop (again).

Click. Done. You’ve never left your house.

Prime Retail Space Available

The result of a reduced need for retailing space will focus on two fronts: Unloading poor sites and grabbing the absolute “optimal” ones. Competition for buyers will center on convenience. When there is a need to venture out into the retailing world, the buyer needs a good reason for making the drive. The mega-mall concept has merit in this scenario because of its additional attractiveness as an entertainment experience with a central location as well as a retailing center. At some point, consumers will eventually want to leave their virtual world to experience life beyond their CRTs.

Yet two retailers, taking historically different approaches to selling, are providing an intriguing view into the future of the virtual marketplace, each with physical retailing experiences: L.L. Bean and Egghead.

L.L. Bean has had only one retail outlet throughout its 87-year history. It is located in Freeport, Maine, the site of its headquarters. Bean’s sales have been through direct-mail catalogs, and now, the Web. They have proven that we do not necessarily need to visit a retail outlet to get either clothes of fine quality or which fit properly. The success of L.L. Bean’s Web and mail-order retailing both exemplify the epitome of customer satisfaction and they strive for excellent service. Their catalog business is legendary and they have segmented their Web site into categories similar to that in the printed version. However, L.L. Bean’s catalog business may shrink as more buyers visit their Web site. Perhaps this also means that the market for newsprint may also suffer because catalogs will no longer be in high demand.

Perhaps the most radical change in strategy came about when the computer retailer, Egghead, announced in January 1998, that it was closing its retail outlets. It is now an entirely online selling merchant, offering both computer and consumer electronic merchandise. What will happen to the other retailers who fail to have such vision? It can easily be foreseen that many more retailers will forsake the extremely high overhead cost of maintaining a physical location for the cost savings of the virtual marketplace, with its inherent opportunity to potentially reach more customers.

Efficient Distribution

The geodemographic problem for a retailer is no longer finding where its customers live, but how does the retailer reach them? The customer value battleground in eCommerce will quickly move from merchandise choices to on-time delivery at a reasonable cost. This means that just-in-time delivery from manufacturer to distributor and from distributor to customer will demand an efficient means of order tracking and scheduled deliveries. Trucking and airfreight delivery services will demand information systems that can display route information and the ability to alter schedules interactively to accommodate changes. The customer will demand prompt delivery, perhaps even expecting to take receipt of a package within a specific hour.

Network analysis solutions have long been a function of GIS. The ability to trace a route from one point to another or to multiple points has been standard functionality for many years. Now, many systems are integrating the logistical component of scheduling to routing solutions. For transportation and fleet managers of companies whose business have increased because of eCommerce, GIS will allow real time changes to routes so that efficiency is maintained, and ultimately, the customer receives better service. Drive-time analysis, now a standard tool for retailers for determining trade areas, takes on additional importance for distributors, as well. As a consequence, intelligent transportation network systems, managed by city governments, will need to feed information to fleet managers who must navigate an increasingly congested system.

For retailers, the financial stability of the business is at stake. The move among consumers is already underway. The Commerce report predicts that by the year 2000, the Internet could generate in excess of $7 billion in revenue with $115 billion likely in five to seven years. This explosion of Internet sales may not impact the $2.5 trillion retail market immediately, but the growth of internet usage foretells of widespread interest by consumers to go online and let their keyboarding do the buying.