Is E*Trade's store late to the party?
By Bloomberg News
April 5, 2001, 11:00 a.m. PT
NEW YORK--The new E*Trade Center on Madison Avenue here harkens back to a different time, two years ago, when stocks were booming and trading was the rage.
Scrolling tickers and 109 flat "plasma" TV screens broadcast stock prices and E*Trade commercials and slogans, such as "Rock and Roll Investing" and "Be Not Afraid." Some 220 Compaq Computer PCs are dispersed over four levels, locked onto E*trade.com and the other sites of the Menlo Park, Calif., online broker.
Employees in black slacks and black tops troll the glass-enclosed 30,000 square feet, offering help on how to open an account or details about E*Trade knickknacks for sale on the top level. On the same floor, the Mangia "couture cafeteria" sells focaccia pizza, scones and orange juice.
But one ingredient is missing from this month-old operation: steady customers. The Nasdaq's 68 percent decline from its peak has failed to stoke demand for $40 E*Trade golf shirts or, more importantly, new E*Trade accounts.
"If you wonder whether the bubble burst, this says it better than I could," said Mark McDonnell, a 41-year-old bond fund manager who wandered into the store at 55th Street recently. "There's no one here."
There are some 20 million U.S. online brokerage accounts, said Keefe, Bruyette & Woods analyst Russell Keene. Yet the number of households trading online declined about 20 percent in six months, according to a survey released last month by J.D. Power and Associates, an Agoura Hills, Calif., research firm.
It might seem odd that in a bear market, with online broker growth stalled and their shares at two-year lows, E*Trade opened its first "financial services superstore." Odder still is that many of its competitors are doing, more or less, the same.
For years, online brokers argued they had a cost advantage over full-service competitors. Now many e-brokers, won over by the success of Charles Schwab, are convinced the best strategy for recruiting and retaining customers is offering online services complemented by in-person customer service.
Schwab, the largest discount brokerage, has 418 branches around the country and about 30 in the works this year, spokeswoman Marta von Loewenfeldt said. There, investors open accounts, trade and get advice. CSFBdirect just opened its second branch, on Park Avenue in New York, a few blocks from the E*Trade Center. CSFBdirect has 20 branches planned in the next 12 months.
"The early adopters are already online," CSFBdirect Chief Executive Blake Darcy said. "The next wave we want to attract are at firms like Merrill Lynch. It's basic human nature that people want to deal with other people when there's a problem."
Street-level space also helps online companies lure wealthier customers, they say.
Outside on the street, Richard Lopresti, an E*Trade Center "host," hands out copies of "It's Your Money," a "guide to online investing" by Chief Executive Christos Cotsakos. "A little light reading for your lunch," Lopresti says.
Schwab's 7.5 million customers have an average $116,000 with the company, according to calculations derived from company data. E*Trade's average active brokerage account is about $15,000. And with stocks in the dumps, investors of all sizes are more receptive to one-on-one advice, said Brian Cohen, the manager of the CSFBdirect branch at 300 Park Ave.
"People are more open to 'asset allocation'," the 37-year-old said. "A year ago, people thought of asset allocation as having 80 percent in technology stocks."
E*Trade is opening its store at a tough time. In the quarter ending Dec. 31, the number of new E*Trade accounts fell 28 percent from the previous three months. The marketing cost associated with acquiring a new account rose 43 percent to $302 from $211, and average daily trades were unchanged, at 150,000. Its stock fell 9 cents to $5.56 Wednesday, its lowest since 1998, down from a peak of $62.75 in April 1999.
Chief Financial Officer Leonard Purkis said the company will boost profit in part by increasing cross-selling of brokerage services to its 360,000 E*Trade Bank customers and increasing "online assets" tenfold in five years. Marketing costs this year will decline from last year's $500 million. He declined to disclose E*Trade Center's cost. Depending on how it does, the company plans similar stores in other cities.
The outlet, which had its official opening Wednesday, is paying some promotional dividends. Jason Basso, a 23-year-old consultant, said after visiting he may transfer his account from Ameritrade to E*Trade.
"You can eat. You can trade," he said. "It's really high tech." |
