Marketing Channels 8th Edition by Bert Rosenbloom

Exercise 4

Web fulfillment companies may start a new trend in online retailing. These firms allow conventional retailers to operate their online divisions without the expense and hassle of developing and running their own e-commerce operations. GSI Commerce, for example, handles Web site design, order fulfillment, and customer service for retailers who do not want to perform these distribution tasks themselves. Major retailers such as Dick's Sporting Goods, Modell's, QVC and Kmart have outsourced their online businesses to GSI Commerce. But as far as customers know, they are dealing only with the retailer when they visit the Web site. The Web fulfillment company stays completely behind the scenes. So, with almost no capital or human resources invested, retailers can still have a first-rate Web site as well as online sales and service capabilities. The catch is that the Web fulfillment company gets to keep as much as 90 percent of online revenue. But on the other hand, the 10 percent that goes to the retailer is virtually pure profit.
Do arrangements such as these make sense? What are the advantages and disadvantages from the retailer's point of view?