Consumers respond to incentives. When they are faced with a need, they do everything necessary to satisfy that need, whereby there has to be price and choice involved. If it is clothing they want to buy, they will look at the best stores that sell quality clothes at better prices. This means they will choose whether to buy online or visit a physical store. Online stores account for only ten percent of total retail sales, while physical stores command the rest of the sales percentage.
Gara, 2014 further states that better to have lots of stores complimenting a decent online operation. That may be of some comfort to conventional retailers, because while building up an online system is tough, creating a network of hundreds or thousands of stores is tougher.
Opening up of more stores whether physical or online will spur competition since more products will be available to consumers. The sector will be much more concentrated than before, thus the retailers become price-takers – they will have to accept market prices (Rittengerg & Tregarthen, 2011). But if investors choose to open up more stores, then prices go down. Physical stores are consumers’ preferred shopping points because they find them appealing and provide them with an unparalleled experience that enables them to touch and feel commodities, take part in brand experiences, and engage with sellers to get tips and reaffirm their enthusiasm for their new purchases (Gara, 2014).
In an ideal demand and supply, buyers would get the right commodities, when and where they want them. But since these retail outlets provide a complex demand and supply chain, there is no adequately available information on products coupled with lack of harmonization between planning and execution of the buying process (Samuelson, 2010). Demand and supply for these retail stores will be affected by the factors that contribute to the economy and will affect how consumers will be willing to buy and how the retailers will sell. These factors as stated by Gara, (2014) are competition and the availability of substitutes between online and physical stores and the threat of new retailers in the market. The similarity of products offered makes it easy for consumers to substitute the retail stores.
These retail outlets exist in a perfect competition market structure due to their limited barriers to start up operation. They have a potential to exploit the economies of scale and their distribution mode of their commodities distribution is under the control of one enterprise. These stores provide the consumer with an opportunity to switch their supplier, depending on changes in market conditions, over a given period of time. This will be affected by degree of loyalty to a retail chain. Persuasive advertising of online stores can change a consumer’s preferred choice of buying, whereby they can turn to online stores for their purchases, for some stores provide videos on how to use a product and hence making the consumer to have a real appeal of the products. The retail outlets are in a position to make abnormal profits in the short run, but can only make normal profits in the long run.
Gara, 2014 notes that online retailers have greater opportunities staring at them, especially in picking-off business from weaker physical retailers that have inadequate resources to compete in the market. This is evidenced by Amazon whose growth shows no sign of slowing down. More online store will mean healthy competition in the retail sector of the economy, meaning that consumers will get value for their money since the same quality products will be available to them at reduced prices.