Bricks or Clicks? The Efficiency of Alternative Retail Channels

9 Pages Posted: 24 Jun 2019 Last revised: 11 Nov 2020

See all articles by William C. Wheaton

William C. Wheaton

Massachusetts Institute of Technology (MIT) - Department of Economics

Edward Tung

Massachusetts Institute of Technology (MIT) - Center for Real Estate

Date Written: February 3, 2019

Abstract

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

Keywords: Automation, Real Estate

JEL Classification: R, L

Suggested Citation

Wheaton, William C. and Tung, Edward, Bricks or Clicks? The Efficiency of Alternative Retail Channels (February 3, 2019). MIT Center for Real Estate Research Paper No. 9, Available at SSRN: https://ssrn.com/abstract=3406046 or http://dx.doi.org/10.2139/ssrn.3406046

William C. Wheaton (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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E52-252B
Cambridge, MA 02142
United States
617-253-1723 (Phone)
617-253-1330 (Fax)

Edward Tung

Massachusetts Institute of Technology (MIT) - Center for Real Estate ( email )

United States

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