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+++ S P E C I A L R E P O R T +++
"Brick & Mortar: Energy Slowed Down?"
Jacques Chevron - Partner - JRC&A Consulting
Branding Strategy and New Product Development
URL: http://JRCandA.com 

April 20, 2001
A Branding Lesson from the Internet

The champions of e-commerce would have you believe that because electronic commerce is made from virtual stores, using electrons moving at the speed of light, they represent the efficient way that business will be conducted in the future. Using Einstein's famous equation for support (E=MC2 tweaked to M=E/C2) they point out that "Mass is but energy slowed down to the point where you can see it." In their calculations, Brick & Mortar stores are the stodgy "mass." They, the e-retailers, are the pure energy and nothing will slow them down. 

In addition, e-commerce has borrowed some of the vocabulary tricks from politicians who can appropriate common names like "security" so as to foster illusion, as in "Social Security." They name themselves "e-commerce" where the "e" stands for electronics, speed and energy; they name traditional retailers "Brick & Mortar" connoting weight, heaviness, old materials, dirty to have around. They speak of "browsing" even though the act of browsing an Internet site is much more purpose-driven, and thus essentially different from browsing a store. They build virtual "Shopping Malls" which group several virtual stores, usually on a web page with several links to click-through, even though the synergy between them doesn't approach that of a real shopping mall. 

And who cares about today's temporary failures, they say. One store can easily be replaced with another and at very little cost: all electrons are 100% recycled! Cyber-retailers will keep trying until they get it right. The youthful enthusiasm of a new industry powered by technologies that are still under development and staffed by people in their 20's has quickly convinced you that Brick & Mortar stores are a thing of the past. 

Of course, e-commerce is still a small phenomenon because, according to a CommerceNet/Nielsen study, while 73% of net users shop, i.e., gather information about a planned purchase, only 15% of net users have actually purchased something on-line. However, that last number is bound to grow, as people become more comfortable with the concept and its security, creating a tremendous boom for e-commerce. Brick & Mortar chains should shake in their foundations! 

Or should they? 

Not at all according to a study by the Boston Consulting Group and Shop.org. The 15% of net users who actually bought something on the net generated $15b in revenues for American retailers in 1998. Even though that figure is projected to grow to between $36b and $60b in 1999, it is still small potatoes compared to the $2.3 trillion in merchandise sold in stores in 1998. This means that there is time for traditional retailers to adjust their operations. 

What ought to be particularly interesting to Brick & Mortar retailers is that those among them who also sell on-line (we'll call them "multi-channel retailers" for short) account for 62% of all on-line sales! Their share of the e-commerce dollars is expected to grow to 85% within five years. 

The good performance of multi-channel retailers in generating sales on the net is compounded by their ability to spend less to acquire new customers: They spend 13% of revenue for marketing and advertising compared to the staggering 76% spent by their internet-only counterparts. As a result, and because their average sale is higher, the cost of acquiring a new on-line customer is $22 for the multi-channel retailer as opposed to the $42 spent by the internet-only retailer. That ought to make profitability easier to reach. 

There are several reasons for the strong performance of multi-channel retailers. One of the most compelling is that they are known entities. The fact that an Internet shopper is not able to touch the merchandise before hand makes it more important to choose a trusted retailer. And it is much easier to trust someone who has been around the corner than a cyberspace entity. In other words they trust the retailer's brand. And that brand is reinforced by the fact that it is associated with Brick & Mortar outlets. It's paradoxical that the synergy of which e-retailers speak for their electronic malls seems to exist in reality between the Brick & Mortar stores and their Internet operations! 

Internet retailers will learn to build brands too. Amazon.com did it and so can others. But it will require them to understand that Internet advertising is essentially promotional in nature and contributes little to their brand. Furthermore, a lot of the advertising on offline media which touts internet sites goes for the shock value rather than for the communication of long term brand values. Those commercials can be memorable and entertaining without necessarily being brand-building. 

Another small piece of data is revealing to a branding strategist because it may indicate that Brick & Mortar stores not only have strong brands but also are more adept at protecting them. Many Web sites rent some space, usually a one-inch banner across the top of their page. That space is used to advertise, or rather to promote other web sites for unrelated businesses. The rent collected from those advertisers can generate significant supplemental revenue for the site owner. Revenue that was as high as 12% of total on-line revenue for internet-only retailers but accounted for less that 1% of on-line revenue for the multi-channel retailers. 

Why would multi-channel retailers forego this additional source of revenue? We do not see this as an oversight but rather as an indication of their savvy in protecting a brand. Internet-only retailers, with less brand property to preserve, may not yet see the danger of diluting a brand in this endless stream of uncontrolled media impressions. They learn very fast, though. 

Traditional retailers must enshrine their brands and their brand strategies so as to better protect their most essential competitive tool. Then they should go on-line with the confidence that their brand can do battle for them. For, giving another look at that famous equation, there is a tremendous amount of branding energy in a good old ton of bricks... and mortar too! 

1999 Jacques Chevron 

http://jrcanda.com/art_eequalmc2.html
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Jacques Chevron - Partner - JRC&A Consulting
Branding Strategy and New Product Development
URL: http://JRCandA.com 

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