Retailers, still reeling from the cavalry charge of off-price operators that overran their once-sacred ”standard” prices, are beginning to experience the first rumblings of another shock wave, one that may well revolutionize the way people shop by 1990.
By that time, consumers across the country will be able to sign on to a computer, either in their homes or at a special kiosk in their favorite store, look at pictures and read detailed descriptions of selected merchandise, comparison shop for features and prices, then use their credit cards to order, all in matter of minutes, and all by spending little or no time in a store.
Far from being a version of ”Star Wars,” this so-called electronic retailing is expected to grow from $285 million in sales in 1985 to $17 billion by 1990, according to estimates by Chicago-based R.R. Donnelley & Sons Co.
”Currently, the size (of the electronic shopping market) is minimal, but the potential is enormous,” said William Jacobs, a consultant with Management Horizons in Columbus, Ohio. ”We`ve just barely scratched the surface.”
Forecasts from the national accounting firm of Touche Ross & Co., which maintains one of the country`s largest retail consulting services, are more modest than Donnelley`s, but no less dramatic for a form of shopping virtually unheard of five years ago.
Touche Ross estimates that consumers will buy between $5 billion and $10 billion of merchandise a year from 50,000 electronic (in-store) shopping kiosks throughout the U.S. by 1989. An additional 50,000 terminals in retail stores and other public facilities such as shopping malls will provide up-to- date information on products sold nearby.
”Electronic shopping isn`t likely to account for more than 10 percent of all general retail sales at most,” said Thomas Rauh, a management consulting partner in the San Francisco office of Touche Ross and author of its electronic-shopping study. ”But in today`s dollars, that`s easily $100 billion.”
The explosive growth of electronic shopping, which has paralleled the development of home computers and videotext services, will bring profound changes to the retail industry, Rauh warns. Retailers will have to take a
”triple-threat” approach to selling, he says, using a combination of stores, mail-order catalogues and electronic shopping services to attract more quality- and value-conscious shoppers.
”It`s going to continue the trend favoring the large retailer over the small one, because only the large companies are in a position to participate in the high technology,” Rauh said. ”Eventually, we`ll see electronic shopping machines in the smaller stores, but it`s going to take a while.”
Two companies on the cutting edge of this electronic-shopping revolution, Comp-U-Card International Inc. in Stamford, Conn., and printing giant R.R. Donnelley, illustrate two approaches to it.
Comp-U-Card has spent the last decade, with several false starts, building a predominantly in-home electronic shopping business, while Donnelley announced its in-store ”Electronistore” kiosks last November.
Comp-U-Card and Donnelley are rapidly being joined by others, including CompuServe in Columbus, Ohio (a subsidiary of H&R Block Inc. designed to go after the home-computer market), CompuSave in Los Angeles (essentially another Comp-U-Corp), ByVideo and retailers` own in-house systems.
”During the past year, the electronic-shopping industry doubled in size and extended its reach to a number of new market segments,” according to the Touche Ross study. ”More than 100 companies now provide shopping systems and services, including a dozen from the Fortune 500.”
”Comp-U-Card was founded upon the idea that the next major revolution in retailing would offer the consumer the choice of shopping electronically from the convenience of the home,” Chairman Walter A. Forbes said in the company`s annual report. ”The past decade brought a burgeoning in catalogue sales; the coming decade will bring a dramatic growth in electronic shopping.”
Comp-U-Card`s swelling membership seems to bear out the growing popularity of electronic retailing. Partly through expanded direct-mail solicitations, membership has more than tripled to 1.5 million this month from 450,000 at the end of 1983. Despite recent flat sales of personal computers, some 25,000 of those members belong to ”Comp-U-Store On Line,” its home-computer shopping service.
In addition, the company is now licensed in 29 markets worldwide, including Canada, Japan and England.
”People have proven ready and willing to shop from the home,” said Forbes, a former executive with a Harvard-connected venture-capital firm who took over the foundering Comp-U-Card in 1977, when its original investors were piling up little besides losses.
Today, Comp-U-Card`s 170 employees are busy developing the Electronic Mall, offering merchandise ranging from gourmet foods, flowers, paintings and books and men`s and women`s apparel to auto supplies and computers. The mall is available to Comp-U-Card`s On Line customers, who can order products directly from companies such as Long Distance Roses or from such retailers as Neiman-Marcus, Saks Fifth Avenue or I. Magnin.
The mall is an outgrowth of Comp-U-Card`s basic business, Comp-U-Store, which allows its 1.5 million members access to 60,000 name-brand products, all with full manufacturers` warranties. Most of Comp-U-Store`s products are higher-priced durables such as VCRs, cameras, stereos, furniture and kitchen appliances from such widely recognized manufacturers as Sony, Amana, Nikon and General Electric, delivered direct to the customer from the warehouse or factory at a savings of up to 50 percent on the in-store price.
Forbes is direct about the threat to conventional retailers: ”We want to create an electronic source of distribution into the home and sell every product imaginable.”
It hasn`t been a smooth road to success for Comp-U-Store, which went public in 1983, backed by the prestigious Wall Street investment firm of Morgan Stanley & Co. Originally founded in 1973 by a group of Harvard professors and investors, Comp-U-Card was forced to deliver its services through toll-free telephone numbers (still 90 percent of its business) when home-computer usage grew more slowly than it anticipated.
”The idea was 10 years ahead of its time,” Forbes said, noting that Comp-U-Card started its On Line network in 1973. ”It`s still 10 years ahead of its time, but it`s getting there.”
R.R. Donnelley`s Electronistore takes a different approach, testing a system that retailers can use to expand their product lines without adding expensive floor space or even-more-costly salespeople. Donnelley is testing the system in Mervyn`s, a Dayton-Hudson Corp. subsidiary on the West Coast, whose upscale discount operations have earned a national reputation for innovation.
”The retailer decides how to use the Electronistore and what to sell,”
said William D. McDonald Jr., president of Donnelley`s Electronistore Services Inc. ”It becomes as much a part of the store environment as a boutique.”
In fact, if an Electronistore, a kiosk-style booth with a video screen, keyboard and seat, sits in a store`s home-furnishings department, it would be surrounded by the type of merchandise that shoppers could order from it. The shopper`s credit card activates the system, allowing him to look at merchandise, which is presented through both voice and pictures. In a matter of seconds, if he chooses, he can order the merchandise, have it delivered to his home and receive a printed receipt.
The big selling point for store customers, McDonald says, is ”they don`t have to deal with a salesperson,” which is often frustrating and time-consuming. McDonald says tests have shown that consumers also appreciate the ease and convenience of the machines and that 60 percent ”re-shop,” or continue to use them.
For stores, the machine offers the opportunity to add the equivalent of an entire 2,500-square-foot department in a few feet of space without the salespeople and inventory accumulation. Other advantages include being able to use the store`s normal pricing, adjusted for ”sales” or ”specials” in a matter of seconds, and being able to know, through the computer terminal, where and what goods the customer looked at but didn`t buy.
”If you`re a retailer, you`re not going to sell the same thing with Electronistore that you`re selling on the floor–it`s an extension of what you`re offering there,” McDonald said, pointing out that small retailers could become department stores by installing an Electronistore or one of its competitors, such as Comp-U-Card`s Shopping Machine.
Donnelley, which has signed at least five clients in addition to Mervyn`s but won`t disclose their names, says some merchandise, particularly designer ready-to-wear and customized furniture, just won`t sell electronically. But so-called ”generic” apparel–running gear and shoes, blouses, sweaters–and most hard goods sell very well, say both Donnelley and Comp-U-Card.
The electronic retail revolution may be ready to erupt, but neither Donnelley nor Comp-U-Card predict any quick ”rags to riches” stories.
”Twenty or 30 companies will come in (in the next few years), there`ll be a shakeout, and two or three will remain,” Forbes said. ”There aren`t going to be any giant overnight successes in this.”
