Let's Get Physical - ZoZa.com combines stores and Web presence - Company Business and Marketing

Industry Standard, The, Dec, 2000 by Blair Clarkson

ONLINE RETAILERS ARE DISCOVERING A NEW WAY TO ENTICE CUSTOMERS: OFFLINE MUSCLE.

Mel and Patricia Ziegler build companies the way Martha Stewart throws garden parties for 500 people: They make it look so easy. The Zieglers' successes so far include Banana Republic, which had revenues of $191 million when they sold it to the Gap in 1988, and the Republic of Tea, which they built into a $4 million company before selling out in 1994. Last October they embarked on a new venture, an online clothing company called ZoZa. Despite all the dot-compost out there, the Zieglers are confident. Because once again they're on top of a trend: getting physical.

Mel Ziegler thinks pure-plays won't work, period. So, for ZoZa.com he's come up with a "walk-in Web site." The walk-in part will debut in the tony Marin County, Calif., town of Mill Valley. It's a shop, but it's equipped with minimal staff and inventory. Customers can try on clothes, but they have to order from computers in the store -- and then wait for delivery.

ZoZa was first mapped out as a Web-only enterprise. But Ziegler decided it's not feasible to create a brand exclusively online. "We built Banana Republic through catalogs," he says. "We plan to build ZoZa using the Web, but as just another medium. We'll start with the Web, but we'll have a catalog, and then we're going to build stores next year."

The Zieglers are known for marching to their own Northern California tune -- they call themselves "Zentrepreneurs." But their new effort follows in the footsteps of other online retailers trooping back to terra firma. It's the latest stage in the rapid evolution of e-tail: Having realized they can't simply wave a shiny ad campaign and wait for shoppers to come running. Web retailers are taking concrete measures to draw customers -- building stores, printing catalogs and setting up kiosks to sell their products.

Former cosmetics pure-play Bluemercury.com now has two stores in Washington, D.C., and plans a third in Philadelphia. IParty.com, which sells party supplies online, recently bought 33 outlets in the Northeast from the bankrupt Big Party chain. In October, when Gazoontite declared Chapter 11, the bricks-and-clicks purveyor of allergy remedies shut down its site altogether and bet its future on its five real-world retail outlets. "The stores are our best shot at profitability," CEO Dan Korn said at the time. "The Web site is not nearly as attractive an investment."

Other e-tailers are stepping more gingerly back to earth. Lucy.com, Estyle, eZiba, Food.com, Art.com, Allpets.com and others have hired direct-marketing execs from such companies as Lands' End and launched catalogs.

The reason is plain: Consumer catalog sales topped $59 billion in 1999; online sales totaled $14 billion. What's more, catalog shoppers tend to spend more per order than Web shoppers.

Of course, simply whipping up a glossy print production is no guarantee of profits. The paper medium has its own pitfalls. But many e-tailers see catalogs as a move in the right direction -- away from extravagant ad campaigns, and toward more targeted expenditure of their shrinking cash reserves. Garden.com mailed its debut catalog in April and says it has lowered customer-acquisition costs by 30 percent. Lucy.com VP of business development Kate Delhagen says her firm's new 40-page catalog cost over $1 million, but adds that catalog spending is just 25 percent of Lucy.com's marketing budget -- less than the site spends on traditional advertising.

Catalogs typically run between 75 cents and $1.50 each to produce. Variables include the quality of the paper and the quality of the mailing list. Lucy.com distributed 1 million copies of its first catalog this past September and another 400,000 for the holidays. Delhagen says she'll need to wait until she can analyze responses before she decides whether to stick with the strategy. Art.com reports that it spent $1 per catalog and anticipates a return of $2.50 to $5 on each.

Also in September, Allpets started sending its 92-page catalog to 2 million customers and new prospects whose names it bought from other mailing lists. The target market is pet-owning women between 25 and 60 who make at least $57,000 annually.

E-tailers judge catalogs not only by sales but by Web traffic generated. The idea is to put a tangible, tantalizing sample of your merchandise in consumers' hands and hope they go online to find out more -- or, better yet, buy something. A survey by the Direct Marketing Association, a trade group for marketers, found that half the people who received a catalog from a company that also had a Web site placed an order at the site.

"It may be much easier to put up a Web site overnight, but [dot-coms] are realizing that catalogs are very useful for targeting customers," says Robert Wientzen, president of the Direct Marketing Association. "It's not just slapping up a banner ad and hoping people will come.

The lifespan of the catalog is filled with chances to make an impression. When it arrives in the mail, customers thumb through it and decide whether to keep it. Even if it's dumped immediately, a catalog leaves a more lasting impression than mass e-mailed (and quickly deleted) product newsletters.