Who’ll Be the Internet’s Jolliest Holiday Merchants?
It is an open secret this holiday shopping season that many of the retailers poised to do well on the Web didn’t start out with dot-com in their names.
Sears, Roebuck & Co., J.C. Penney Co., Gap Inc. and other shopping mall stalwarts are successfully carving out territory in cyberspace using time-honored retail tools: exclusive products, strong customer service and trusted brands.
They aren’t yet considered dominant Internet players, in the way Amazon.com rules the online book business. But as the Internet begins to grow up, and more so-called click-and-mortars come online, more companies are realizing that e-commerce is not that different from old-fashioned retailing.
Success in cyberspace, as in the real world, belongs to merchants who master the basics.
And for all the sexiness of the Internet, click-and-mortar stores are finding that their real-world real estate can be an advantage.
Circuit City and Penney’s allow customers to pick up and return e-merchandise at stores. Disney Stores and Gap are installing Internet terminals to let holiday shoppers find items they can’t find on the shelves. And traditional retailers are making use of every inch of space they’ve got--from shopping bags and customer receipts to in-store signs and advertising--to plug their Web sites.
“The principles we apply to our Internet sites are the same principles we apply to our stores,” said Jeanne Jackson, chief executive of Gap Inc.’s Banana Republic stores and the new leader of Gap’s online business. “Putting your customers first and making it easy work in bricks-and-mortar, they work in catalog and they work on the Internet.”
It’s certainly too soon to predict the eventual winners, retail analysts say. But they add that click-and-mortars will capture a healthy chunk of the $6 billion to $12 billion to be spent on the Web this holiday season.
Indeed, the Internet is breathing new life into those department stores long regarded as dinosaurs. Penney’s, though it still is suffering dismal sales at its stores, is the largest apparel seller in cyberspace. Penney expects to ring up sales of $90 million online this year.
“The fact is that although our retail sales have been sluggish, we do have millions of customers that shop at Penney’s stores and catalogs week in and week out,” said Richard Last, executive vice president of JCP Internet Commerce Solutions Inc., Penney’s online unit. “And we’ve done a real good job of communicating that there is a third option or choice for them, the Internet.”
The online picture for the 1999 holiday season is much different from last year’s, when few click-and-mortars had even gotten their virtual toes wet and pure online retailers, Amazon.com most prominently among them, captured most of the buzz. Holiday e-commerce sales totaled $3 billion. This holiday season, the stakes are higher, with an estimated four times as many people buying online compared with last year, according to research firm Harris Interactive.
The season’s online sales will, to be sure, be just a fraction of the $185 billion that will be spent in the real world. In fact, many important brick-and-mortar players, such as Wal-Mart and Best Buy, are making no extraordinary effort to participate in the Internet shopping frenzy, offering a fairly limited site or no site at all. But with click-and-mortars’ joining an already crowded online market, this year will be “the shakeout of ‘GiveGrandmaAGift.com,’ the sort of no-name sites, the companies that had no other premise than to get involved in the din of marketing online sites,” said David Cooperstein, research director of consumer e-commerce for Forrester in Boston. “A new business . . . will have to go beyond just spending money on advertising--it has to be an investment in technology, differentiation, in assets beyond the brand.”
In other words, those who fail to learn the lesson of Amazon.com’s success: Don’t forget the retail basics.
While music and book superstore customers were complaining about poor service, Amazon promised and delivered 24-hour friendly service via telephone, for those areas in which its extensive online information offerings fell short. In the process--and before any competitors could move online--Amazon built a brand much the way Gap or any other traditional retailer has, by offering quality merchandise, good prices, cheerful help and a fierce desire to dominate. The company now is leveraging its brand identity as it expands into toys, tools and other items. It is the most powerful online retailer today in terms of visitors and sales, though it has yet to turn a profit.
“If we don’t provide the best shopping experience, then shame on us,” Amazon spokesman Bill Curry said.
Competitor Barnes & Noble, which conquered the brick-and-mortar world with its large selections and ambient cafes, has been struggling to catch up. It split off its Internet business into a separate company, saving the online business from having to charge sales tax in every state that houses one of the bookstores, thus enabling it to better compete with Amazon on price.
Department stores too are finding they need to reinvent themselves to succeed online. Their chief longtime real-world advantage--one-stop shopping--is irrelevant on the Internet, where competing merchants are only a click away.
Nor can they compete on price. And their vaunted selections, if placed online, would be too tedious to wade through. So department store chains are focusing their offerings to compete in the new realm. Nordstrom.com, for example, chose to be the leader in shoes, with 20 million pairs in a host of regular and hard-to-find sizes.
By offering its best-known and most-trusted items--Craftsman tools and Kenmore appliances among them--Sears has created a cyberspace powerhouse. And a Web site that has won accolades for its ease of use and helpful information is helping to give the old-timer an image make-over.
“We think Sears.com gives us an opportunity to update that image,” said Alice Peterson, vice president and business manager for Sears.com. “We’re finding that shoppers of our site are younger, they are more affluent than our brick-and-mortar shoppers on average, so we are attracting new customers to Sears through our Web offering.”
Certain specialty retailers, not surprisingly, often do well on the Net, for the same reasons they thrive at the malls: They offer proprietary products unavailable anywhere else and that are therefore immune to price comparisons.
The brand advantage is even greater when it comes to specialty apparel. It is hard to grow a new apparel brand online--as it is with a catalog--because consumers are unsure about quality and fit and view returns as a hassle.
Marketing information company NPD Group predicts that online apparel sales will more than double this holiday season to $600 million. That translates into good news for the most popular online brands and for catalog merchants who specialize in selling people basics and replacement items. That’s especially so for the most established catalogers, who know all about selling to people who will never feel, see or try merchandise before buying.
Gap stores, whose separates have achieved American-classic status, along with J. Crew and reliable mail merchant L.L. Bean, have so far dominated Web specialty apparel sales for just those reasons, according to James Vogtle, e-commerce research director for Boston Consulting Group.
And they’re the same reasons Web-only retailer Bluefly.com is among the Net’s most successful apparel merchants--it focuses on selling designer brands at a discount. But the company also trades on those other retailing basics: Remember the customer, make it easy and offer them something competitors don’t. Bluefly does that by showing the shopper a personalized view of its offerings based on the shopper’s favorite brands.
“The entire premise of Bluefly is oriented around providing a full-service experience when shopping for designer brands at discounted prices,” Chief Executive Ken Seiff said. “This contrasts starkly with the traditional off-price experience of searching through racks and bins.”
Beyond being able to leverage their brand names or catalogs or advertising budgets, part of the advantage that established real-world merchants enjoy, ironically, is technology--the fact that it isn’t advanced enough for many Internet-only companies present their merchandise in the best way.
“When people are less familiar with products, you need to get accurate colors displayed online, a picture quality good enough to tell textures,” Vogtle said.
Yet Gap is so confident in the power of its brand that next spring it will use the Net as a testing ground for a new maternity line--negating the need to stock an experiment in 2,000 stores, Jackson said.
The bottom line, of course, is that a retailer must have what people want--online or off. Traditional-clothing catalog merchant Lands’ End saw huge increases this year in the number of visitors to its Web site. Last year, 15 million visitors clicked in; this year, the tally hit 14 million by July. Through its third quarter, moreover, e-commerce sales were up 250% over a year earlier, said Bill Bass, Lands’ End’s vice president of e-commerce.
Thus, its Web success seemed to offer Lands’ End an opportunity to save money by cutting back on the number of catalog mailings, which accounted for 95% of its sales last year. But Lands’ End says that it may have been over-optimistic about the Web. November sales fell 18% compared with November 1998. Analysts also blame a poor mix of merchandise, a problem that hurt it last holiday season. The company promises an improved selection next spring.
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Familiar Names?
Of those who plan to buy online in a given category this season, some have specific e-tailers in mind. Percentage of such shoppers (based on a sample of 2,823 adults polled Nov. 2 and 5):
Source: Harris Interactive/Amazon.com survey
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Top Shopping Sites
Online retailing isnt much different from selling in the mall. Both require quality merchandise, good prices, a strong brand identity, cheerful help and a fierce desire to dominate. Winners, online and off, will be the companies that understand the basics. Nielsen/NetRatings Top 20 holiday shopping sites for the week ended Nov. 28:
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Site No. of Unique visitors Avg. minutes spent Amazon.com 4,461,816 11.6 EBay.com 3,950,182 52.4 EToys.com 1,847,988 11.2 Shopping.aol.com 1,484,912 1.7 Toysrus.com 1,464,887 13.7 Store.yahoo.com 1,193,403 3.5 CDNow.com 1,184,658 6.7 Barnesandoble.com 1,138,911 6.6 Shopping.yahoo.com 875,778 1.7 Auctions.yahoo.com 723,082 19.1 KBKids.com 715,467 10.1 Egghead.com 698,441 13.9 Sony.com 668,828 13.2 Buy.com 662,268 10.9 JCPenney.com 613,047 12.3 Walmart.com 487,208 5.2 Hallmark.com 443,550 9.8 Gap.com 443,115 7.9 Columbiahouse.com 431,827 15.4 BMGmusicservice.com 412,619 13.0
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Source: Nielsen/NetRatings
