‘Tis the season that makes or breaks retailers–and this year, there’s a new elf in town: the Internet.
Faster than you can say ho, ho, ho, traditional retailers like Crate & Barrel, Williams-Sonoma, Inc. and Neiman Marcus Group Inc. have set up shop on the World Wide Web. The hope is by expanding their brick-and-mortar storefronts to the Web, they’ll capitalize on some of the Internet’s click-and-mortarless momentum.
Wall Street, never kind to companies that post less-than-stellar profits, remains downright jolly when it comes to e-tail ventures–even as dot.coms like Amazon.com Inc., eToys Inc. and Emusic.com, Inc. post gallons of red ink.
These dot.coms remain the darling of Wall Street–and Christmas should only add a few Yule logs to that blaze. Although retail analyst Alan Mak with Argus Research Corp. points out that stock prices of many on-line commerce companies have leveled out over recent weeks, he and other analysts remain bullish on the sector.
And with good reason. Forrester Research Inc., which tracks the Internet, predicts that 8.6 million households will spend a cool $4 billion on-line between Thanksgiving and New Year’s Day. That’s up 166 percent over 1998, our first-ever e-Commerce holidays.
“The growth has been just amazing,” said Jackie Goforth, a partner in the Detroit office of PricewaterhouseCoopers LLP. “I think that it’s probably above and beyond what a lot of people have expected.”
Goforth ticked off the reasons click-and-mortar sites are grabbing greater wallet share: convenience, prompt delivery, competitive prices and–perhaps best of all–no hassle over parking spaces.
“You can take that wish list and instantly, boom, here it is,” said Goforth, who specializes in technology. “It’s so convenient to be able to jump on-line and shop 24 hours a day.”
Goforth and Mak agree that today’s retail climate makes it a necessity for traditional brick-and-mortar retailers to have an on-line presence. But he cautions against racing to the Web with a “shoddy” site, much like Toys ‘R Us Inc. did last holiday season.
“Their site was barely functional last year,” Mak said. “It’s a lot better this year: They expanded their product offerings and improved the user experience. That’s really key right now, because it is your new medium.”
He explained that Toys ‘R Us made a mistake common among traditional retailers and catalog companies by viewing the Internet as a threat, rather than an opportunity. “(The Internet) really serves to expand your market,” Mak said. “It’s a lot cheaper to run your Web site than to mail out massive amounts of catalogs.”
He praised Gap, Inc. as one retailer that’s as comfortable with bricks as it is with clicks.
“They have been on the Internet for over two years and have done a phenomenal job in terms of cross promoting and really using their Internet presence as leverage for their land-based stores,” he said.
Another company that has won analyst praise for building its brand identity–and its sales–on-line is Intimate Brands, Inc., which runs Victoria’s Secret and Bath & Body Works. The $3.9 billion specialty retailer’s www.victoriassecret.com Web site is a fully functional shopping experience where you can order products, request a catalog or ogle supermodel Heidi Klum and the $10 million Millennium bra. Victoria’s Secret’s considerable expertise in distribution and fulfilment from years of running its catalog operations has positioned it for success on-line, according to a report by retail analyst Stacy Pak of Prudential Securities.
The same can be said for Lands’ End, Inc. Lands’ End embraced the Internet early on, according to Mak, launching a site in 1995 that offered 100 products. Today, the company sells nearly all of its products on-line and offers customer-tailored advantages such as Your Personal Model, which allows shoppers to create models with their dimensions who then try on skirts and sweaters before buying. Sales have grown accordingly for the nation’s second largest mail-order clothier, which posted sales of $1.371 billion for fiscal 1999. About $61 million came from www.landsend.com.
L.L. Bean, which got its start selling hunting boots in 1912, has also embraced e-commerce. The Maine retailer and catalog company, which remains privately held by Bean descendants, boasts that its flagship retail store in Freeport, Maine, never closes. That makes the Internet perfect for the outdoor supplier, which jumped on-line two years ago.
In October, L.L. Bean redesigned its Web site (www.llbean.com) to better merchandise its clothes as well as travel gear.
What does it take to drive eyeballs to a Web site?
A lot more than low-priced fruitcake. Mak said that shoppers need to be able to download the site quickly and navigate it easily. More than 30 seconds of download time–or three clicks to get around–and impatient shoppers will be gone, Mak says.
First-time Internet shoppers will find themselves befuddled by the sheer number of e-commerce sites available. Mak said that on-line buyers face a “lot of noise” this holiday season, complicated by the amount of advertising being done in traditional media–television, radio and print. For example, Amazon.com will spend $100 million during the fourth quarter of 1999 on traditional media just to get above the noise.
Amazon.com, of course, enjoys the luxury of being first to the table. That notoriety allows some perks, Goforth said, but it won’t last forever.
“What it really reflects is that this is a whole new world, and they were one of the first ones there,” she said. “They’re getting the benefit of that. At some point in time, companies like Amazon are going to have to become profitable. Let’s face it: Cash is king.”
Mak said Amazon.com’s book business will turn a profit by the end of the year, its first profit after more than four years in business. He rates the company a buy, noting that its business has changed entirely over the past year. Once known entirely for books, music and videos, Amazon.com now sells software, toys, home improvement items and electronics, in addition to hosting auctions.
Amazon.com, which went public in May 1997 at $18 a share, hit an eye-popping $356 at its peak. The stock has split three times since its initial public offering and was trading in the neighborhood of $95 last week, adjusted for splits. While eBay didn’t enjoy the privilege of first to market, it adopted a pure “consumer-to-consumer” model that has made it hyper-successful.
eBay’s stock has followed suit. The company, whose stock debuted at $47-plus a share (split adjusted) in September 1998, traded for $334 a share before splitting in March of this year. Last week, the stock was trading at about $153, and the company holds the distinction of being the first–and only–e-commerce site to turn a profit.
Not all e-tailers have enjoyed such phenomenal runs, though. On-line bookseller barnesandnoble.com, Inc. debuted at $22-plus per share in May 1999 and was trading last week in the neighborhood of $18 per share.At Emusic.com, Inc., which opened at $20-plus per share in May 1999, yo-yoed awhile, and was trading last week in the $14-$15 range.
