There's more than one kind of revolution under way - electronic retailing - Editorial

Discount Store News, May 15, 1995 by Tony Lisanti

In keeping with the theme of this month's International Mass Retail Association annual convention, "Revolution in Mass Retailing," DSN is devoting this special IMRA issue to "Reinventing the Discount Store." The rationalization is that if you are involved in a revolution, you probably need to do a little reinvention!

So many new ideas and concepts are being developed as part of this revolution and reinventing, as the editors of DSN point out beginning on page 37. Almost every retailer that wants to be in business beyond the turn of the century is re-evaluating every aspect of its operation from customer service to technology, merchandising to store design, and logistics to diversification. Furthermore, reacting to the pressure of retailers, every supplier is assessing ways to drive down costs and become a more efficient producer of goods.

For example, some discounters are focusing on ancillary services such as fast food or hair salons. Others are revamping logistics or creating merchandising areas that entertain customers.

Regardless of the focus of reinvention, the point is that every aspect of doing business is being closely scrutinized and challenged with more open-mindness and creativity than ever before.

But perhaps the trend that will ultimately have the greatest impact on the traditional retail business will be non-store retailing, or retailing on the Internet, or, better yet, what is referred to in Wired magazine jargon as "E-tailing."

I don't mean simply the current on-line services like America Online, Compuserve and Prodigy, but also the vast World Wide Web within which virtually any company or person can set up a "storefront" and sell something. Believe it or not, this is happening in record numbers. According to one estimate, more than 34,000 commercial enterprises are currently registered.

The Internet offers the ultimate or ideal scenario in almost every discipline of traditional retailing. Consider that the Internet is open 24 hours a day, 365 days a year; it lets customers order from the safety of their homes and offers instant gratification as well as quick, efficient and easy ordering and processing; it allows users to communicate directly with sales and support personnel; and it requires low start-up costs.

E-tailing could dramatically alter the nature of competition as we now know it for every segment of retailing. Consider the fact that any company--from a mail order house to a mom and pop specialty store on Main Street--on the Internet can compete with every retailer in the world. Several retailers are researching the Internet; some have already signed on. In March, Service Merchandise went on line with CompuServe, and OfficeMax went on line with internetMCI. A company called Peapod allows consumers in Chicago and San Francisco to order groceries on a PC, then delivers within hours.

The Internet also provides an opportunity for suppliers to sell directly to an audience of users now estimated at 25 million and projected to top 200 million by the year 2000.

While E-tailing will have some impact on traditional store retailers, no one is really sure how serious a threat it will pose, nor exactly how big the market will be. Since 1990, estimates about the size of the home shopping market have ranged anywhere from $50 billion in 1995 to $200 billion by 2010. Obviously, it has not yet achieved a fraction of that growth.

But don't underestimate E-tailing's powerful potential.

A recent study by Andersen Consulting reported that nonstore retailing, which accounted for 15% of total GAF sales in 1992, will grow to over half of total sales by 2010. Home Shopping Network chairman Gerald Hogan predicted earlier this year that E-tailing will reach $100 billion in sales by 2005.

However, a recent study by Deloitte & Touche, described interactive retailing as a minimal threat to store-based retailers.

The phenomenon is likely to alter the retail landscape over the next 10 years. With that in mind, DSN has commissioned a special report to define and analyze the market. Working with Mastersmith, a consulting firm, "Retailing on the Internet" will discuss what attracts businesses to the Internet, who is retailing there and how to plan an Internet storefront. It will also provide a list of the major Internet service providers and profile the leading companies selling on line. For more information, or to share some comments about E-tailing, fax me at 212-756-5125 or e-mail me at TonyLDSN@aol.com.