E-Tail 101 ...
Scrambling at the Online Mall: Can Traditional Stores Catch Up?
By LESLIE KAUFMAN
From a public relations standpoint, the decision by Victoria's Secret to put its annual Manhattan fashion show on its new Internet site early this month was an unqualified master stroke.
Three days after a high-profile Super Bowl commercial invited the world to tune in, the lingerie retailer offered up its parade of semiclothed seductresses, live on the Web. A record 750,000 users viewed the event the evening it occurred and millions more heard about it through media coverage.
The perspective from cyberspace, however, was a good deal less beguiling. Like many other Internet aficionados, Jakob Nielsen, a site design expert and publisher in Atherton, Calif., considered the event a disappointment, a missed opportunity to exploit an expansive new medium.
Never mind that it took forever to get access to the pictures, which were grainy enough to have been beamed back from an Apollo space mission. The real shame, Nielsen said, was the retailer's failure to use its models in a fashion show that was interactive -- "where visitors asked questions and learned about fabrics and prices."
"They blew a chance to get millions of people to feel welcome at their site," Nielsen added.
After years of hanging back, brick-and-mortar retailers, as sellers with real stores are now having to call themselves, are arriving on the Internet in droves. In its year-end 1998 survey of 125 traditional retailers, the accounting and consulting firm Ernst & Young found that 76 percent of the respondents were selling on the Web or would be soon, up from 36 percent in 1997.
Yet despite this influx, the list of the 50 most popular Web shopping sites, as rated by Media Metrix, an Internet audience measurement firm, contains few familiar names. Making the cut were Barnes & Noble; Macy's, a unit of Federated Department Stores, and Wal-Mart. Not on the list were Gap; Sears, Roebuck, and Bloomingdale's, another Federated unit.
Even at this early date, some investors question whether traditional retailers will ever catch up in the electronic bazaar. The issue is not just academic. Wall Street is betting that the Internet-only retailers who got there first, and got it right -- the bookseller Amazon.com, for example, or the toy, game and software retailer Etoys Inc. -- are in a position to dominate online sales long into the future, taking an increasing share of sales from stores.
Forrester Research has predicted that the Web, which accounted for less than 1 percent of retail sales last year, will account for 6 percent in 2003.
Toby Lenk, chief executive of Etoys, crows that in convenience and overall appeal, traditional retailers will never catch up. "Customers are now looking to buy at Web pure plays because they know we are doing a better job," he said. "Being a land-based brand is becoming a handicap." By December, Etoys, of Santa Monica, Calif., was the fifth-most-visited Internet retail site, according to Media Metrix.
Most terrestrial merchants no longer insist, as they once did, that they can do without an Internet presence. But many say they cannot simply ape the electronic merchants, especially when it comes to selling goods, like clothing, that are more high touch than high technology.
The old-line retailers bring some formidable advantages to electronic commerce: recognized names, established images and nationwide networks of distribution and service centers (also known as stores).
Some, like Wal-Mart and Gap, seem best poised to make the most of these advantages in the long term. Others, like Toys "R" Us and the Tower Records unit of MTS Inc., have been slow starters.
But most, like Victoria's Secret, owned by Intimate Brands, are in between. The company defends its Webcast, which may not have wowed the Webocracy but which it says has yielded advantages all the same. While 90 percent of its store customers are women, 60 percent of its Internet buyers in the last holiday season were men.
So the site is attracting a new base of shoppers, who wouldn't think of pawing through racks of lacy chemises in public.
Because few traditional retailers report Internet sales separately, outsiders have little by which to gauge performance, besides technical virtuosity and site traffic. Store chains, however, complain that site-visitor counts, or "hits," are not a complete measure of success. How can anyone account for a customer who sees what he wants on a Web site, but then buys it in a store?
Based on the little wisdom accumulated so far, Web consultants and the retailing chains themselves are cobbling together a whole new set of rules and standards for success -- among them are speedy site navigation, generous return policies and companywide coordination. But the guidelines are still in flux, and subject to change at the click of a mouse.
The conventional wisdom among many Web merchants is that first is best. As Bruce Judson, co-author of "Hyperwars" (Scribner, 1999), said in a recent interview, "There is a huge advantage in first-to-market."
Pointing to companies like Amazon.com, Etoys and CD Now, which Media Metrix lists as among the 10 top E-stores by number of visitors, he chided their competitors -- Barnes & Noble, Toys "R" Us and Tower Records.
Any and all of the come-latelies, of course, may yet gain a strong Web presence. The online traffic at Barnesandnoble.com is growing rapidly, but it's only about half that of Amazon.com. Still, if any of them had jumped in early -- the debut of Barnesandnoble followed Amazon's by nearly two years -- "they could have prevented what will be intense competition from now on," Judson said.
Some traditional retailers say they have good reason to proceed with caution: They have a lot to lose. A poorly conceived Web site could cannibalize their stores' customer base, undermine their brand names and cost them a fortune in site development and support.
One common strategy is to use the Web as a billboard, to advertise and affirm a company image. Among the land-bound powers that have sites where visitors can look, but not order, are Target, a unit of Dayton Hudson; Neiman Marcus, part of Harcourt General, and Abercrombie & Fitch.
Abercrombie's nostalgic black-and-white site deftly offers free e-mail accounts, a pinball game and electronic postcards of beach soccer matches -- all fitting the romanticized frat-boy life style that its stores are merchandising.
The retailers in this group have no apologies about missing the first wave. Carolyn Brookter, a Target spokeswoman, said: "As a company, we are cautious about moving into unknown territory. We are still asking, 'Is this where we want to be?"'
NM Direct, Neiman's catalog arm, plans to have the retailer's Web site allow purchases by this fall. But Sharen Turney, an NM Direct executive working on the Internet effort, sees no rush. "There is no such thing as being too late," she said. "Everyone is learning."
Kate Delhagen, director of online retail strategies for Forrester Research, says that going slowly, however, comes at a cost. She said she was sure that those "in the toe-dipping realm have had complaints, as in, 'Why do we have to schlep to your stores?"'
Remember, she said, that every day such retailers aren't selling on line, they are losing that market share to competitors -- and, perhaps more importantly, giving them a head start on working out the kinks of the system.
Over all, Ms. Delhagen said, sooner is better than later, and a retailers' lack of online selling will be acceptable only for another 12 to 18 months. "The window of customer acceptance of not selling is closing fast," she said.
When it comes to peddling wares, E-tailers have the advantage of a narrow focus. As Lenk of Etoys said, "We live and die by this stuff."
They have done better as a group in part because they concentrate exclusively on the needs of Web customers, from insuring that their sites are easy to navigate to getting the goods out quickly.
During the Christmas season, Amazon.com dispatched its executives to its warehouse, where they helped pack boxes to make sure that gifts arrived on time. It is hard to imagine an elegant chief executive like Leslie H. Wexner of the Limited Inc. up to his knees in cardboard and sweating out delivery schedules.
David Cowan, a partner with Bessemer Venture Partners, an investment firm in Menlo Park, Calif., that is financing more than a dozen Internet start-ups, says traditional retailers must be willing to cannibalize their own stores. "The Silicon Valley perspective is that retailers who use their Web sites to drive traffic to their stores are not going to be competitive," he said. "They have to be willing to write off existing channels and dive in neck deep."
For chains with hundreds of stores, of course, disregarding current operations isn't a realistic option. Nor is it wise. While E-retailers, lacking name recognition, must spend huge amounts to build their brands and images, standard retailers, like political incumbents, have the advantage of well-known names. They also have stores that can educate visitors about their Web sites.
The real question is whether they are committed to leveraging their good names.
The steps necessary to selling on the Web often throw a company into a civil war, analysts say. Letting customers return their Web purchases to the stores can give standard retailers a huge edge over their electronic competitors. But at many chains, analysts say, store managers resent taking returns of Internet purchases because their sales figures will be depressed. Mall operators would complain because their rents are tied to store sales.
Then there is the problem of state sales tax; merchandise from stores can be subject to it, but on the Internet it is not mandatory. That means if retailers add the tax to online purchases, they could lose the competitive pricing edge; but if they don't, store returns can be difficult negotiations. This has resulted in policies all over the board.
Customers shouldn't bother trying to return the pink Valentine's Day teddy they bought from the Victoria's Secret Web site to the chain's stores, for example; it won't be accepted there. But at a Macy's or a J.C. Penney store, Web-purchase returns are no problem. Most consultants say old-line retailers must get everyone in the company to back the Web campaign by promoting and supporting it through the stores.
First prize in this category goes to Gap. Every Gap ad, store and shopping bag proclaims the Web address. Returns of online goods are accepted through every Gap channel. At its flagship stores, Gap has set up stations for ordering from the Web. Teen-aged mall rats are entertained, while the computer-queasy are gently initiated.
Gap has even experimented with using its network of 1,450 United States stores as tiny distribution centers for same-day delivery, an effort with obvious implications for Web purchases. According to analysts, a Manhattan test with bike messengers last summer did not go too smoothly.
The company disagreed, but would not say when it would try again. If the effort ever takes off, it could set a standard for other traditional merchants that would clearly be challenging to E-tailers. "It is visionary," said Julianna Nelson, an apparel retail analyst with the International Data Corp., a research firm in Framingham, Mass.
The bedrock principle of Web-page design is that viewers value speed over visual virtuosity. Proof is seen in the popularity of Yahoo, which is devoid of eye candy. In guiding consumers to the products they want, successful Web retailers like Amazon.com observe the "three-click rule," meaning that a shopper can get to the product he wants within three clicks of the mouse.
They also keep downloading time to a minimum, at least until shoppers reach the products they want to see up close and buy. In other words, no luxuriously detailed photos or graphics up front.
Such gulag-style design standards are anathema to retailers who have spent years cultivating upscale images. Some department stores would sooner empty their display windows than have their introductory Web home pages dispense with sensuous shots of cashmere and simpering models. But Nielsen, the Web designer, called these images "the equivalent of hiring well-dressed clerks who are too snooty to serve."
Fred Crawford, who manages Ernst & Young's retail consulting practice, calls for a compromise between appearances and convenience. "The look and feel and image of a site should be consistent with brand image," he said. But until technology improves, he acknowledged, the Web will remain more friendly to retailers like Wal-Mart and Costco that emphasize low pricing, no frills and wide selections.
Established retailers and upstarts also usually differ in how much they rely on technology to shape their approach. Web-based merchants tend to swear by software that analyzes a customer's buying patterns, predicts likely purchases and offers them up.
At the CD Now site, for example, clicking on "Wide Open Spaces" by the Dixie Chicks produces a link to albums like Bonnie Raitt's "Fundamental" that have attracted other Dixie Chicks fans.
Retailers with years of merchandising experience, however, are skeptical of software that acts as if it's smarter than their customers, or them. Assuming too much about a customer based on previous purchases could eliminate an impulse purchase, they say.
"We analyze to a certain extent, but we don't want to categorize our customers in a group where they might not belong," said Kim Miller, vice president for Internet strategies at Macys.com.
Good enough, said Judson, the "Hyperwars" author, but no reason that Macy's can't offer a matching blouse every time a buyer clicks on a pair of slacks. "Remember," he said, "you've got to go with the medium."
Another way to go with the medium is with interactivity -- something the most successful pioneers used early and often. Etoys, for example, allows visitors to plug in birthdays that they want to be reminded of. And Mothernature.com, a natural-products site, allows shoppers to customize their entire product selection: diabetics, for instance, can ask not to be shown any item with more than 5 milligrams of sugar.
Unlike lavishly decorated stores, Web sites are supple enough to be renovated at little cost. Retailers might get it wrong, but they can always change course. The best will probably learn as they go, erring on the side of boldness and speed.
Roger Black, president of Interactive Bureau, a Web-design firm in New York, says that no amount of sitting around in a conference room, analyzing options, will let any company get a Web site perfect from the start. His advice: "Build it first and quickly, and then rebuild it until you get it right."
Sunday, February 21, 1999
Copyright 1999 The New York Times |
