With the advent of internet, the entire world is going through a revolution, both economic and cultural. There is no doubt that e-commerce has become main stream of retailing. According to recent news from ZDNet, suddenly, big-time retailers including Wal-Mart, Kmart and Circuit City are unveiling their online presence through strategic partnerships with portals. It is too early to predict where the revolution will lead us. However, today's managers, whether in retailing or not, need to be seriously concerned with the new medium, called internet. The full impact of internet is that it fosters dis-intermediation and re-intermediation. As the change progresses expeditiously, there will be social process reengineering(SPR) where every single social activity gets affected.
Given the state of e-commerce and its proliferation, several questions are needed to be addressed for the CEOs, eCEOs or others concerned, including:1. What is the difference between the Net-only retailers and the conventional retailers? 2. How should managers or investors evaluate the online firms? 3. What are the factors that affect e-biz's market cap?
Previous research on e-business mainly dealt with internet marketing model, business transformation model and business transformation for retailing. Those researches have great contribution on strategic guideline for the conventional business and e-business. An in-depth look at financial ratios in this study offers an insightful comparison between net-only company's managerial performance and that of traditional retailers.
This study analyzes the financial difference between conventional approach retailers(39s) and net-only retailers(27s) based on real data of USA retailers which include the biggest retailers such as Wal-mart, Penney(J.C.), Amazon and eBay.
Using t-test analysis, this study reported that there is significant difference between conventional business and pure cyber(net-only) business. Characteristic differences between net-only retailers and conventional retailers are found in price sales ratios, sales, net income, number of employees, sales per employee, income per employee, EPS and ROA. However, there were no difference in stock price, market cap, inventory turnover and long term debt.
In correlation and regression analysis, this study found the followings;
Firstly, as assets or sales increase, market cap increases both in conventional and in net-only business. This shows assets and sales are important factors in the analysis of two types of business. However, current online firms' average price sales ratio is around 80, a figure previously unseen until the advent of internet and so called eBiz. This amount is huge compared to traditional firms' price sales ratio of 1 times.
Secondly, as net income increases, market cap increases in conventional business but not in net-only business. This result shows that net income of internet company does not affect on its market cap. So we can't not value a net-only company based on its net income.
Finally, as year or debt increases, market cap does not increases in both types of business. However, net-only business's debt-on-equity ratio is 0.36 which is less than traditional's 0.54. In additional analysis, as year increases debt of traditional business increases but not in net-only firms. The reason of this result is that debt might not be needed because internet companys can raise money easily from public offering.
Limitations of this study and the suggestions for further researches were discussed.
