- George Matyjewicz
- George Matyjewicz of
- GAP Enterprises, a
management and marketing "solutioning" firm, can be e-mailed at
georgem(at)(at)gapent.com. He is the moderator of "E-Tailers Digest," an Internet
retail discussion forum located at www.gapent.com/etailer/.
|Tales From eTail 99
Learning a lesson from the big guys in online
In my last two columns for Gifts & Dec (July and August
1999), I outlined the reasons why you, the specialty retailer, should be developing
your own Web site, if you havent already done so. At about the same time, I attended
the eTail 99 conference in Chicago, where more than 400 retailers gathered to hear
32 online retailers discuss their strategies for success and the issues they face, such as
branding, cannibalization, channel conflicts, customer relationships, technological
developments, fulfillment strategies, and management commitment. Sponsored by Worldwide
Business Research (www.wbresearch.com), the event offered a close-up look at how the big
boys are playing the game, and tips that smaller retailers can use in their own Web sites.
Take It From the Top
The successful companies at the conference all shared one essential element:
commitment from the top. Retailers like Nordstrom and Borders have hired top-level people
to develop and manage their online stores, and the results reflect this. They have also
set large budgets for their online ventures. For example, Toys "R" Us recently
budgeted $80 million for its new online store.
At the conference, Alec Cooper, senior manager at Dell Online Worldwide, discussed his
companys Internet strategy. From the beginning, boss Michael Dell supported and
financed the online venture. The result? The company now does $18 million in online
business per day ¾
thats $6.57 billion in annual sales!
Jonathan Morris, executive vice president at Bluefly.com, suggested that managers ask
questions and use the results to shape a business model before beginning an online site.
Is your objective to acquire new customers, to enhance your legitimacy with existing
customers, to strengthen your brand, or to block the competition? What is the lifetime
value of your shopper? What does it cost to acquire a customer?
The Consumer Is King
Most e-tailers believe that e-commerce is about brand, price, merchandise, traffic,
conversion, and technology. Chuck Davis, senior vice president at Disneys online
business, isnt one of them. "E-commerce is all about the consumer," he
said. "What do we know about Net users? They are younger (37 vs. the 44 average for
U.S. adults); smarter (40 percent are college graduates); have better demographics (52
percent are male, and 46 percent have kids in the household)." He added that Web
surfers are ambitious, in a hurry, and prone to multi-tasking; in short, they are adopting
the computer and the Net as part of their lifestyle.
"Consumers have different ¾ and higher ¾ expectations when dealing with online brands," Davis
explained. They expect name-brand merchandise, 24-hour convenience, fast response in real
time, personalized relationships, ease of use, and security. In order to fulfill these
expectations, he said, you need to provide customer service, 100 percent accuracy on
orders, 24-hour online and telephone support, prompt exchanges/returns, and loyalty
programs for frequent shoppers.
Everyone at eTail 99 agreed that technology is the key to success. Without a
good back-office system to handle orders, your online venture will fail. One company
purchased a mainframe computer before it opened its virtual doors in October 1998. Venture
capitalists thought the owner of the company was nuts for making that expenditure, until
December 10. Until then, the company was averaging 25 orders a day; but on December 10, it
suddenly got 10,000 orders. Another company fashioned a major online promotion for its
mall; it was so successful that one merchant received 4,000 orders in one day, and, unable
to handle the volume, asked if the promotion could stop.
Integrating and Globalizing
Your Internet venture must be integrated into your business as a whole if it is to
succeed. Borders, for example, has implemented a concept called "retail
convergence." According to Rick VanZura, senior vice president of Internet and
fulfillment services, the company has fully integrated its distribution center with its
back office, in-store processing, point-of-service business, and Internet operation. Each
Borders store will soon contain a kiosk that is connected to the Net. A customer who
cant find a particular book in the store can look it up online and place a special
order. Borders offers other in-store and online cross-selling services, such as
bounce-back cappuccino coupons, crossover gift certificates, in-store returns for products
purchased online; promotion of physical store events on the Web site, and in-store
marketing for the Web site. Using retail convergence, Borders hopes to bridge the Internet
and brick-and-mortar worlds, creating a business that is bigger than the sum of its parts.
A good Web site is not only integrated, but globalized. In each of the 11 most wired
countries, more than 10 percent of the national population is online. And some four
trillion email messages pass through the Net each day. Recognizing the global nature of
the Internet, Dell has broadened its focus to include a multicultural audience. It now has
Web sites in 42 countries and 21 languages. The company now does 30 percent of its
Internet sales volume internationally.
Channel synchronization was another big issue at eTail 99. How do
manufacturers sell online and not lose their normal distribution channels (i.e.
retailers)? According to Angela Kapp, vice president of special markets and new media at
Estée Lauder, the average conversion rate for a Web retail site is less than 5 percent;
in other words, roughly 95 percent of visitors dont buy. For this reason, its
important to focus on new customers instead of on replenishment. If the brands you are
selling online are "destination brands" (i.e., household names), you can sell
direct to the consumer; if they arent, you will have a harder sell.
Both Dells Cooper and Borders VanZura agree that the cannibalization of
your brick-and-mortar store by your online store is a necessary evil ¾ if you dont do it,
others will. Dont let yourself be "Amazoned" (i.e., let an online upstart
run away with your market, as Amazon did to Barnes & Noble).
Promotion in Motion
Weve all heard department store founder John Wanamakers famous quote:
"Half of my advertising is wasted. Trouble is, I dont know which half."
While it is easier to track results online than it is in brick-and-mortar retailing, you
still need to look at the total picture and consider alternative methods of advertising,
according to Kathy Brio, CEO of the Strategic Interactive Group. For example, online
banner ads have a $30 CPM (cost per thousand), whereas television ads have a $10 CPM.
While we may be entering a brave new era in retailing, old-fashioned merchandising
still rules. Sam Salkin, vice president of merchandising at Greentree.com, suggested that
you include this weeks best selling items on your home page. Greentree.com did this
and increased sales of those items by 300 percent. Heidi Messer, president of Linkshare,
noted that her company has a customized "virtual storefront" on its home page,
which is very similar to point-of-purchase displays in a traditional store.
Dells Cooper dispelled some common myths about e-commerce: It is not quick and
easy. The Net doesnt make you instantly global. And online businesses arent
significantly cheaper to run. Just like your brick-and-mortar store, your online store
cant succeed unless it answers the question, "Why should I do business with