Vertical Integration and Internet Strategies in the Apparel Industry

We explore the relationship between vertical scope and the ability to respond to a significant economic shock by studying how firms in the apparel industry have adapted to the Internet. We find that vertically integrated specialty retailers, e.g., The Gap, tended to start on-line sales sooner than non-integrated vendors, e.g., Nautica, and department stores. We also find that the products of vertically integrated retailers are more available on-line than those of non-integrated vendors. These results are consistent with greater contractual barriers, coordination costs and incentive problems that non-integrated brands face relative to integrated companies in responding to the e-commerce opportunity.