-- MikeAbend - 09 Jul 2010

Over the past decade, as retailers subtly transformed into e-tailers, I noticed that the online shopping experience was merely a new form of the mail order business that dominated commerce in the early 1900’s. But the question remained why we were reverting back to the old business model.

This paper is an evaluation of the factors that drive consumer trends and explores why consumers change the way they shop. The paper examines the reasons the mail order business emerged and thrived and then compares similar factors driving the online shopping industry.

ORIGINS OF RETAIL

At the beginning of the nineteenth century, subsistence growing and specialized crafts were the dominant forms of American production, mostly due to the limitations of transportation. Farmers would grow what their family needed to eat, and for other necessities would sell surpluses to others in nearby towns.

As transportation improved (steamboats, canals and railroads), the economy changed as well. As a result of mass production and the industrial revolution, manufacturers looked for new ways to unload their increasingly growing inventories. Taking advantage of the new distribution possibilities, entrepreneurs created mail-order houses to serve rural communities and department stores in urban centers.

WHY MAIL ORDER

So why did the rural American public shift from subsistence farming and centralized general store distribution to a mail order systems? As with any major sociological shift, a variety of factors came into play, including:

The improvement of the postal system

When the government instituted lower rates for bulk mailings, mail order houses were able to send their catalogs to a huge number of potential customers while cutting down on the shipping costs. Moreover, rural free delivery and a federal parcel post system meant customers no longer had to travel long distances to pick up their packages and could have it delivered right to their homes.

Public sentiment towards traditional methods

As rural agrarians, many of America’s Midwestern settlers lived in isolated communities and were forced to buy their supplies from overpriced general stores when in town selling their surpluses. Piggy-backing on the public sentiment of the Grange movement, mail order pioneer Aaron Montgomery Ward exploited popular hostility towards overcharging middlemen, offering a newer, cheaper, and fairer form of shopping, which consumers were more than happy to accept.

Warranty/Trust

A novel benefit, mail order houses such as Montgomery Ward offered “satisfaction guaranteed or your money back”, something general stores were not willing to embrace. The warranty eliminated much of the risk of ordering an item through 2-D representation; by slowly gaining the public’s trust, the new form of shopping eventually gained popular acceptance.

Variety

General stores were often limited in their selection and consumers were forced to take what they could get. Mail order catalogs, by eliminating the need for a physical inventory, were able to offer a seemingly limitless selection of goods. With some catalogs selling up to 25,000 individual items, consumers enjoyed a degree of convenience and personalization not available through traditional retail.

Mail order houses grew in popularity and formed many of the retail giants still in existence today. Pioneers such as Ward, Sears and Wanamaker seized the opportunity of a changing tide and created an entire new industry.

THE DOWNFALL

As with all major changes, the eventual shift from mail order back to brick-and-mortar was a product of multiple factors. A swing from an agrarian to urban and suburban society, the rise of the automobile, and the incursion of department stores into small town markets all pushed mail order closer to irrelevancy. While the industry was not completely eliminated, it became more focused on niche markets and transformed into a shadow of its former self.

WHY ONLINE COMMERCE

Online commerce is still in its infancy, but why is the purchasing public gradually shifting towards internet shopping? I think the answer may lie in many of the factors that led to the success and growth of mail order houses:

The popularization and improvement of the internet

While obviously necessary, e-tail wasn’t realistic until most consumers had readily available internet access. Better marketing and search technology allowed merchants to improve targeting of potential customers, while flash based displays gave consumers a better and more comfortable representation of the product they were buying. Online shopping not only became easier but also more efficient and time-saving.

Convenience

I can shop online anywhere that has internet access—that is the only limitation. Whether watching the kids, at work, or even in class, shopping is no longer a dominant activity. Such convenience and time saving is much more attractive than traditional shopping to those with little free time (like first year law students).

Gradual acceptance of E-commerce

Many consumers, usually those of an older generation, enjoy the brick and mortar shopping experience and are not willing to change the way they have been buying items all their life (similar to the “experience” of reading a newspaper instead of online news). However, as the younger generation raised on the internet grows into the dominant purchasing demographic, resistance to switching from traditional methods will wane.

Warranty/Trust

One of the reasons people refrain from buying items online is that they do not trust the security of the system. However, as security improves and the public sees the online market as less risky, they will grow less averse to entering their credit card number into a server. Moreover, improved technology allows more virtual interaction with potential goods, increasing consumer confidence in quality and fitness. Although not quite at the level of satisfaction guaranteed, consumers are much less likely to buy a lemon.

Variety

The online marketplace is limitless- you can literally find anything you would ever want at a store by typing it into Google.com. With an infinite virtual inventory, I can find any item I want with extreme personalization; traditional stores simply cannot compete.

CONCLUSION

All of these in part support the growing trend of online shopping. And as technology improves, I think many of the other barriers resisting the trend will be broken down. Eventually, conventional stores may become obsolete, similar to how cell-phones are overtaking land lines.

In writing this paper about the arrival of e-commerce and comparing it to mail order, I realized that mail order was eventually pushed out due to subtle shifts in society. Thus the real question may not be in finding what is driving online shopping, but in predicting what will eventually overtake it and why.

-- Hey, Mike. I just wanted to say I enjoyed reading your paper. I've been reading a lot about e-commerce lately, and I find your comparison to the old mail-order days interesting. I would only add something about how e-commerce is able to evolve to mimic/ improve upon various real-life shopping models-- for example, consider the "flash sale" as the internet translation of the sample sale. Or, more obviously, consider Ebay translating the auction model. E-commerce is king not only because it's convenient or worldwide but because it is flexible enough to adapt to our various brick-and-mortar shopping models. Mail-order died because it lacked this possibility to evolve.

Oddly, I know a lot of people, myself included, who still browse through catalogs but more as a precursor to ultimately purchasing the item from the corresponding site online. The reason is likely partly convenience (eg. calling up the company, being put on hold, etc.) and partly psychological (eg. increasing human tendency to cut out all "unnecessary" personal communication). This last point is just a random thought.

-- KalliopeKefallinos - 09 Jul 2010