Think throughly about this. Don't you think soem of these brick and mortar stocks should be in your core portfolio.. think long...As bricks-and-mortar and Internet retailers join battle for business on the web, it is the bricks-and-mortar firms that are likely to win, why not some Walmarts leaps..???
The real Internet revolution
. . . and now
everybody can sell online
The Internet
NOTHING stands still for long in cyberspace. Six months ago, on the web and on Wall Street, people expected the Internet to drive conventional retailers off the map. Web retailing was cool and new. Customers were excited by the convenience and choice compared with physical stores. They liked the chat rooms, free information and smart features such as birthday reminders.
Pure web companies had a price advantage over the big retail chains, too. Web retailers had lower property and stock-keeping costs than their land-bound brethren, and avoided the printing and postage expenses of catalogue retailers. Updating their offerings did not involve closing stores or refitting. And, in America, retailers which have no physical presence in a state do not have to collect the local sales tax, usually around 6%, giving Internet-only retailers another advantage over the bricks-and-mortar guys.
Investors seemed to believe that, even if bricks-and-mortar companies tried to venture on to the web, the Internet-based companies would triumph. Stodgy old retailers, after all, did not ?get? the web. And, true to stereotype, many of the bricks-and-mortar companies regarded Internet retailing as a fad, or a way of losing money, or both.
Today, much of that thinking has changed. Convergence is the new religion. With e-commerce in America alone set to rise from $12 billion this year to $41 billion by 2002, according to Jupiter Communications, traditional retailers can no longer ignore it. At the same time, and against all expectations, Internet retailers are being forced to recognise the importance of having a physical presence. Many firms are now betting on the power of integrated shopping?combining stores, the Internet, catalogues, the telephone and eventually television.
Already, bricks-and-mortar or catalogue companies that sell online?known as multi-channel retailers?account for 62% of e-commerce (see chart). That is mostly because these retailers are selling high-value goods such as computers, tickets and financial services. But most of the high-street retailers have been slow to get online. In America only two?bn.com (website of Barnes & Noble, a bookseller) and Ticketmaster?count among the top ten most visited sites in June, according to Media Metrix, an Internet ratings company.
But they are coming, now. David Pecaut, an analyst with the Boston Consulting Group (BCG) expects the multi-channel retailers to generate 85% of online revenues within five years. The biggest of them all, Wal-Mart, is soon to take the plunge. After an experiment last year with a dull site and a limited range of products, it is scheduled for a big relaunch this autumn. Wal-Mart is teaming up with Fingerhut, a catalogue distributor, and with Books-A-Million, which will help with fulfilment. Also this autumn, Tiffany, having sworn a year ago never to sell its diamonds and pearls over something as common as the web, will do just that. Department stores and discounters such as J.C. Penney, Kmart, Nordstrom and Sears are upgrading their websites.
At the same time, Internet retailers are venturing offline. Alloy.com sold clothes and accessories, but became a hit only after it launched a catalogue. The day the catalogue was launched, the group?s server crashed as teenagers flocked to the site. In June, Drugstore.com, which once dismissed bricks-and-mortar retailing, agreed to sell a 25% stake in itself to Rite-Aid, a large drug chain, not long after its rival, Soma.com, was bought by CVS, America?s largest drug-store chain. eBay, an online auction house, has acquired tradition and trust with the purchase of Butterfield, a firm of auctioneers.
One reason for this U-turn is a loss of faith in the pure web model. Fierce competition has forced web companies to slash prices. The drive to improve service through better content, faster delivery and live telephone support has raised costs. Amazon?s efforts to build itself a top-class distribution system is racking up huge losses.
Building a brand from nothing overnight is also expensive. Boo.com, backed by Bernard Arnault, a French billionaire who is chairman of LVMH, is spending a fortune on public relations to get its glamorous Swedish founders on magazine covers. For bricks-and-mortar retailers, the cost of sticking a web address on an existing advertising campaign is marginal (see chart). While Internet-only retailers are spending massively on marketing, their multi-channel rivals acquire new customers for around half the cost, according to BCG.
The biggest real-world retailers have another strength: market clout. Wal-Mart, whose sales, at $138 billion, are considerably more than all electronic retailing combined, has huge buying power with established suppliers that helps keep its prices at rock bottom. Bert Flickinger, managing director of Reach Marketing, a consultancy, says: ?With its $4 billion capital spending budget and procurement power, Wal-Mart could wipe the floor with Amazon.? Traditional retailers also have access to an unfashionable resource?profits. They can use that cash to subsidise a website in its early years.
Established companies also have established distribution and fulfilment systems. That has helped catalogue retailers, such as LL Bean and Land?s End, to exploit the web: they already know how to handle millions of small orders. The older companies also have the kind of brand loyalty?built through years of investment in marketing?that most virtual retailers can only dream of. And shoppers like the ease of returning products bought online to a store.
Traditional retailers can cross-market between the website and the stores. Marie Toulantis, chief financial officer of bn.com, says that the 300m visits made each year to Barnes & Noble?s 530 superstores create a huge opportunity to collect purchase and credit-card data and use that information to recruit online customers. The Gap has begun collecting e-mail addresses of its online visitors and has computers in its shops allowing customers to order online what they cannot find in the store.
The main uncertainty is exactly how online and physical retailing will knit together. The hardest part will be uniting two different cultures. Toys ?R? Us?s online operation, set up as a joint venture with Benchmark Capital, blew apart this week. Benchmark dropped the project, which has had two chief executives in four months, and observers doubt that Toys ?R? Us will achieve its aim of beating eToys, its Internet-based rival, in this year?s Christmas sales.
This tension will be difficult to manage. Web and physical stores need to work together, but online businesses need to be at arm?s length to save them from suffocation by stodgier bricks-and-mortar businesses. Financial engineering?through stockmarket spin-offs or so-called tracking shares?can create the necessary currency for rewarding employees and making acquisitions.
Traditional companies will also need to learn how to use their bricks and mortar differently. In the future, physical sites may be used mainly to attract and sign up customers to the web. Charles Schwab has done just that in financial services: around two-thirds of its online customers are recruited through its branches. Gateway sells computers through catalogues and the web, but also has 164 shops across America which are in effect computer petting-zoos, carrying little stock, but allowing buyers to get the feel of a machine before ordering it. Even if the old retailers dominate the new channel, shopping will never be the same again.
from The Economist
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