E-Tailer's Digest in Gifts & Decorative Accessories February, 2000

George Matyjewicz

of GAP Enterprises, a management and marketing "solutioning" firm, is the moderator of "E-Tailer’s Digest," an Internet retail discussion forum. georgem(at)gapent.com.

Bricks and Clicks:
The New "New Economy"

Today’s Internet world is a far cry from what it was a couple of years ago, or even last year. The old guard in retailing has let the dust settle, and have now joined the “new economy” in what is dubbed “bricks and clicks.” And they are making a success of it!

A couple of years ago, forecasters predicted Internet companies would put retailers out of business, while shopping centers would go the way of buggy whip factories. Why would anybody drive to the mall or walk to a store when they could shop online in their pajamas in the middle of the night?

Well it looks like the inexperienced twenty-somethings have gone away, and we’re finally going to see the retail gurus online with their expertise in merchandising and retailing. Giants such as Wal-Mart, Federated Department Stores and Staples are expanding their Web offerings or combining Internet operations with their catalog businesses. And companies like Borders are partnering with “pure play” Amazon.com, which makes more financial sense for both companies.

The traditional retailers are finding the Internet a much easier place to do business than the small start-ups that first tackled e-tailing, without business, merchandising or retailing experience. With established brands and deep pockets, big-name traditional retailers are expected to fare better on the Internet than their upstart predecessors. And the smart independent can follow on their coat tails.

How are bricks and clicks retailers using the Web?

Bricks and clicks retailers are using their Web site as a valuable tool --- not necessarily for sales, but for marketing and customer relations.

Store and product locator. Many retailers like CompUSA allow the customer to search for a product online. You enter your zip code, and they then list stores near you and how many each store has in stock. It's a lot cheaper and more effective then calling and tying up an associate's time.

Many customers don't want to shop online. Rather they want to know if their local store carries particular merchandise. Last fall Home Depot was ready to launch an online shop with 5,000 general items, until they learned that their customers really wanted a view into their local store. (author’s note: Surprisingly enough, in January 1998, when I was a keynote speaker at Gifts & Dec’s conference at the Dallas Gift Retail Trade Show I noted that 51% of Americans who use the Internet do so to access local information. )

Bridal Registry. Stores like Target find the bridal registry is the most popular area of their site. Visitors can print out the couples wish list, and go to a local Target to purchase. Since bridal registries have always been a bear to control throughout a chain, the Internet is a natural.

Catalog or Remote “store.” For areas with less population, some retailers like Home Depot are offering Internet ordering, simply because there aren't enough people in those areas to justify building new stores. Just like catalogs did decades ago. In fact, Federated Department Stores (Bloomingdale's, Rich's and Macy's) is combining its Internet operations with its catalog businesses, in part to cut costs and reduce redundancies.

Advertising. The Internet is an up-to-date, massive ad campaign going 24 hours a day, 365 days a year. And the public is looking at those ads. In 1998, according to market researcher IDC , only 30 percent of U.S. households had Internet access. Today, 47 percent can log on, and by 2005 it is projected that 75 percent of all US households will be able to access the Internet.

Why will they succeed?

“Land Grab” is over. When the Internet was a novelty and anybody could “open a store” most had the erroneous idea that you could sell cheaper online and they tried to gain a foothold in this new medium. Hence there was a lot of heavy discounting and very expensive marketing and promotions, which forced the inexperienced out of business. Remember Super Bowl 2000 when one company spent more on one ad than their sales for the prior (and coming year)? I consulted at one major online store that applied a 30% markup across the board for all their gift items. When I explained that a 30% markup represented a 23% gross profit, and their competitors were applying a 100% markup, they tried to justify their actions by saying the competition had more of an overhead. This from a company who just spent $2.5 million for a computerized inventory tracking, scanning and billing processes and another $2 million for a warehouse buildout. Plus, they had sixty people in customer service!

Established Brands. These brick and mortar retailers already have well-known brands and all the marketing they need. And they will have the merchandise in stock.

Multichannel. A customer can find and/or purchase products online and/or purchase or return it to the store. Hallmark's vision is to create synergies among its physical stores and online ventures such as Hallmark Flowers. One of Hallmark's first steps will be to build a powerful customer database that supports its retail and online channels. It will have to consolidate separate customer databases devoted to its 15 million loyalty card members, Keepsakes Collectibles clubs, retailers, and Hallmark.com.

Retailers are coming to realize that there's something to lose by divorcing online operations from retail stores. A survey by Jupiter Communications Inc. found that 76 percent of retailers could not track their customers across store, online, and catalog channels. However, business practice issues prevent many retailers from a total integration. Store managers are often given incentives to minimize returns, and returning goods bought online will affect those managers. Breaking down barriers between traditional stores and online operations will require a rethinking of outdated, provincial policies.

Borders’ vision is a customer going online to see if her local Borders store has a book she wants, reserve it, then drive down to the store to pick it up and pay for it --- sitting in on a poetry reading and buying a latte while she's there.

Retailers must understand that the consumer is in search of convenience. The Gap, for example, offers its customers the opportunity to purchase a garment online, and then return it at a physical store if they choose to do so. To succeed, retailers need to be customer-centric and to provide adequate services across all channels.

Integrated Information Technology. Retailers have the IT systems to run their businesses offline, and by combining that expertise with Web development they can improve customer service and consistency in business processes. One challenge they will face is that businesses frequently run some core operations on older computer systems, while online properties were generally built on newer technologies. Many software products can help facilitate data integration, but the effort still involves time-consuming and costly programming and data conversion.

Management at bookseller Borders can't tell whether customers who buy books in the company's retail stores are the same who buy from its website. But, they are building a data warehouse, at a cost of $1 million, which will pull information from multiple databases and provide a consolidated view of customers of Borders Books and Borders Music superstores, Borders-owned Waldenbooks stores, and Borders.com.

Kmart has a database on 90 million households, and its Bluelight.com Internet operation has a database of 4 million customers. Yet they are completely separate.

Others like CVS and Gymboree recognize the need for a data warehouse, but they have other priorities for the next year or two. It is a big investment.

Keeping it separate.

Clicks and bricks integration isn't the goal for everyone. Some companies continue to run their divisions separately. Nordstrom has a separate company Nordstrom.com with a separate buying group and different product mix. Earlier this year, bookseller Barnes & Noble Inc. spun off its online operation in a public offering, Barnesandnoble.com Inc. And although the parent retains a minority stake, their IT systems are not and were never linked.

Obviously separate databases negatively affects customer rewards programs. And, over time these companies will learn that integration of all operations is the key to success.

Still, businesses that maintain both online and offline stores, are not showing a real sense of urgency in establishing cooperative efforts. For example, recently barnesandnoble.com had a top-selling book for 50 percent off retail, while in the brick-and-mortar counterpart, the same book was only 20 percent off. And you can find a book at barnesandnoble.com which will not be available in the stores.

Furthermore, some companies have not yet recognized the necessity of offering easy returns for consumers. CompUSA, the national computer retail outfit, will not accept returns of merchandise that was purchased at CompUSA.com.

What will the retailer gain with bricks and clicks?

One of the major benefits of a Web site for retailers is cost savings, especially with calls to the stores for product information, store directions and even customer service. Customers can learn more about a company and it’s products and services and receive consistent answers each time.

More importantly, the Web site is an opportunity for the retailer to keep it’s name in front of the public in a consistent, timely and cost-effective manner. And it is a great way to drive more traffic to the stores.

How can the independent retailer take advantage of bricks and clicks?

One method that is not being capitalized on enough is gift registries, which worth the same as bridal registries, except there are more gift-giving occasions. Independent retailers could have a registration form where their customers can enter information about family members, i.e., birthdays, anniversaries, special occasions. Then the store could send an e-mailing to family members reminding them of the upcoming event. And, if the persons likes and dislikes are also recorded, the mailing could provide some suggestions. Better yet, allow the person to develop a wish list. Amazon.com has a wish list on their site.

Some simple methods:

Become customer-centric. Ask what your customer want? What will help you service them better? The customer only sees one of you, not an online and brick and mortar store.
Make sure you have all your branded products listed in your keywords Meta tags when you submit your site to search engines. If you carry Hummel, Keepsakes Collectibles, Beanie Babies and Hot Wheels be sure you include them. Arrange your keywords in order of importance as some search engines have a limit. If I search for Keepsakes Collectibles in your town, your store should appear.
Get listed as a retailer with your suppliers at their sites. If somebody goes to Hallmark, they should find your store in their town.
Update your site with new information regularly. If you are having a sale, announce it. If you received new merchandise, advertise it.
Even if you don't display all products on your site, list the main product lines and brands. And if you do display products, provide as much detail about the product as possible dimensions, weight, needs batteries, colors, etc.
Give directions, or link to the online map services like Mapquest to enable visitors to find you.
Provide store hours. One retailer I knew got an unexpected sale because his competitor up the street had a sale, but was closed on a Thursday night when most customers shop.

Hopefully you can be one of these successful bricks and clicks retailers.

###

George Matyjewicz of GAP Enterprises Ltd., a management and marketing “solutioning” firm, can be e-mailed at georgem(at)gapent.com. E-Tailer’s Digest is a moderated Internet retail discussion forum, located at http://www.etailersdigest.com