April 26, 1999
The Outlook
MINNEAPOLIS
In a Select Comfort store in the gigantic Mall of America here,
Sharon Lemieux touts the benefits of a $1,600 air mattress. But
she reckons that bricks-and-mortar buildings don't hold the future
of retailing.
"Online is the future," Ms. Lemieux says. "Everything's going that way."
It's a sign of the mania surrounding electronic commerce that even the
salespeople in the stores are convinced that the Internet will transform their
industries, their jobs and the way their customers shop. And it isn't just the
clerks.
At Select Comfort Corp. headquarters in nearby Plymouth, Minn., executives
are putting the finishing touches on a new Web site. They are hoping
e-commerce will deliver sales, profit and maybe even a boost for the stock
price.
It's a testament to these entrepreneurial times that selling expensive beds over
the Internet isn't considered loony. Suddenly, American retailing is crowded
with Amazon.com wannabes.
Yet, here and there are the first signs that 1999 may be the year
where a touch of reality sets in. Even if Visa International Inc.
recently predicted that global electronic commerce -- including
business-to-business transactions -- would reach more than $1
trillion annually by 2003, some retailers say it's time for a reality
check.
For one thing, people like to shop in the real world. Last year, 43 million
people visited the Mall of America, just south of Minneapolis -- more than
visited Disney World. There were day-trippers from Montana and package
tours from Europe. People continue to fly here even from troubled Asia. In
all, the 500 stores in the Mall of America racked up $800 million of business
last year, up 7% from 1997.
Granted, the mall is special. It offers amusement-park attractions, as well as
nightclubs and real restaurants. But should Melvin Simon & Associates, the
mall's major developer, be concerned about an Internet upstart called
Reallybigmall.com (www.reallybigmall.com)? Instead of shelves and aisles,
the competitor has links to 1,000 Web sites of retailers. The upstart proudly
boasts twice as many "stores" as the Mall of America.
"I would say it's a lot easier to get on a plane and come here, and it's a lot
more fun," says Maureen Hooley Bausch, the associate general manager of the
nonvirtual mall.
Other major real-world retailers say that rather than sink piles of money into
Internet-based grocery shopping, they are investing in technology to get
people through the checkout lines faster in existing stores. One such company
is Supervalu Corp., a food retailer and distributor based in the Minneapolis
suburb of Eden Prairie. Executives there say the Internet may be crucial to
linking the company, with $17 billion in revenue, in business-to-business
transactions up and down the supply chain. But they doubt that grocery
shopping on the Internet is more than an intriguing idea for now, especially
with the delivery problems that have left many consumers dissatisfied.
The growing list of customer complaints makes it clear that
electronic commerce is tougher than expected. Customers can't
find the product they want on the Web site, even though they know
it's in the catalog. Their credit card keeps getting rejected. The
merchandise shows up a week late, and the shipping costs can be
astronomical.
If "1998 was the year of electronic commerce, 1999 will be the year of
customer dissatisfaction," says Charles Wilson, managing director of
AisleFive, a Minneapolis-based affiliate of Yamamoto Moss, which designs
marketing campaigns for corporations.
None of this is to suggest that online retailing isn't going to be big someday. It
probably will be. The payoff has already been huge for investors in many
Internet stocks, and Internet entrepreneurs have become rich almost
overnight, at least on paper, leaving many executives in traditional companies
with an acute case of Internet envy.
For consumers, the Internet experience can be disappointing, but it is
potentially a powerful shopping tool. With the help of some computerized
online guides, consumers can quickly produce price comparisons for the best
deals.
For manufacturers, the rise of the Internet means they can test a new product
or marketing idea much more quickly.
When Joel Ronning ran a traditional computer-software mail-order company,
it took 90 days to organize and test a marketing campaign. Today, Mr.
Ronning has moved to the Internet. As chief executive of Digital River Inc.,
he distributes computer software through other companies' Web sites. The
turnaround time on a new marketing campaign is only three days, he says.
Over time, rather than just cannibalize conventional sales, chances
are the Internet will expand the overall market for goods and
services. But the bricks-and-mortar stores will still command the
lion's share of the business for years to come.
Wall Street stock analysts and Internet day traders may be willing to value
Internet retailers at huge multiples of skimpy or nonexistent earnings. And
certain categories, such as books and music, may well soar. But it will
probably be some time before computers can substitute for a good pharmacist
when a child has an earache.
And it will probably be a while before those Montana matrons decide they
would rather cruise the Web than hop on a plane and cruise the real Mall of
America next holiday season.
--BERNARD WYSOCKI JR. |
