Electronic storefronts provide complementary sales channel - Retailing on the Internet

Discount Store News, Sept 4, 1995 by Ed Rubinstein

Although shopping by computer has not gained critical mass, advances in technology, a greater number of home PCs (many containing CD-ROM drives, modems and sound cards) and millions of Internet users provide impetus for an additional channel of distribution for all retailers and catalogers. In 1994, more than 15 million multimedia PCs were sold for the home market, according to Dataquest. The market research firm forecasts that this number will double for 1995. With this, the emergence of dozens of electronic shopping malls is a clear sign that computer technology has not only caught up with the printed catalog, but has surpassed it.

But what is the value? Clearly, most shoppers prefer to shop in stores. According to Anthony Perkins, editor and publisher of The Red Herring, a monthly investment magazine published in San Francisco, and author of the "Follow Your Money" column in Wired magazine, "the Internet is very valuable as a means by which companies who are selling products that require the consumer to gather information in advance in order to make informed purchases. It needs to be viewed as a complementary sales channel. It complements telecommunications, print advertising and all other traditional ways of selling. If you don't have an Internet strategy, you are not going to be competitive."

Recent industry studies support this value and substantiate Internet market entry among all merchants. A recent study of the communications industry by Veronis, Suhler & Associates, N.Y.-based investment banking firm, forecasts that interactive digital media will grow at an annual rate of almost 20% over the next five years. Spending in this segment is predicted to reach $14.2 billion by 1999, compared to $5.75 billion in 1994. The main thrust behind this growth is the Internet.

To date, there are at least 50 separate shopping malls on the Internet with numerous merchants on each. Digital's Electronic Shopping Mall (http://www.service.digital.com/html/emall.html) offers businesses the chance to set up a storefront on its home page and features the Vermont Teddy Bear Co. CompuServe's Electronic Mall, now in its 11th year, offers more than 2,000 products from about 170 retailers and catalogers.

The emergence of shopping malls is somewhat rooted in changing demographics and shopping patterns, as well as long lead times involved in printing catalogs. According to sources, between 1980 and 1990, traffic in U.S. malls declined by 50%. For a large cataloger, it can take from six to 12 months to develop a catalog.

In fact, many catalog companies produce the catalog before they produce the product. In retail, a tremendous challenge is to reduce buying lead time and production lead time (the actual catalog).

With low entry barriers, shopping malls have become an opportunity for independent merchants to offer products and services over the Internet. One clear example of this is ShopOnline (http://www.shoponline.com), a Dallas-based outfit that is setting up sites for independent retailers. Nate Crain, president of ShopOnline, has developed unique marketing campaigns for this site including advertisements in the Wall Street Journal and a sponsorship for Netscape Communications (where an icon at Netscape's site will be hyperlinked with ShopOnline).

Currently, ShopOnline is working with two retail clients in Dallas. Duxiana of Dallas provides high-tech sleeping systems that are hand-crafted in Sweden. Another independent is Yarn & Stitches, an arts and crafts store that offers a wide assortment of knitting and crocheting supplies and kits.

Crain views on-line shopping as a bonus for small and medium-sized businesses. He calls this the "great equalizer." Crain maintains that his site is getting up to 5,000 hits per day.

Among specialty retailers, The Sharper Image has capitalized on the Internet through relationships with a number of on-line platforms. "Our customers expect us to be there [the Internet] because we represent the newest and the latest, which matches the demographics behind home computers," said Sydney Klevatt, senior vice president of marketing for the San Francisco-based retailer/cataloger. The company began its Internet initiative in 1993 and launched its own Web site June 1 (http://www.sharperimage.com). The site features more than 100 products, a store directory and a coupon worth $10 off on any purchase of $75 or more at any The Sharper Image store.

The Sharper Image's site is maintained by Evergreen CyberMart Inc., Scottsdale, Ariz., which is the same Internet service provider used by Spiegel for its Web site (http://www.spiegel.com). Evergreen CyberMart pioneered mail order catalogs over the Internet and was the first to put a major consumer catalog on the Internet, Robert Redford's Sundance Catalog. The Internet software product, called CyberCat, allows shoppers to scroll through pictures and text and provides secure credit card transactions.

According to Klevatt, the second part of The Sharper Image's electronic strategy is to "link ourselves with as many people [as possible] so that more people will find us." In addition to DreamShop, the firm can be accessed from the Internet Shopping Network (http://www.internet.com); 2Market, the America Online/Apple Computer joint venture; and Shopping 2000 (http://www.shopping2000.com), a cybermall and interactive CD-ROM service developed by New York-based ContentWare. Retailers on Shopping 2000 include JCPenney, Lands' End and Tower Records.