Old names to dominate e-tailing

Mainstream: Wal-Mart and other old-style retailers are expected to dominate an area blazed by dot-coms.

January 21, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Online retailing - still in its infancy but growing fast despite some early stumbles - will continue moving into the mainstream of consumer buying in 2001.

Last year, a crowded field of purely Internet start-ups fought it out for market share, bringing on a wave of layoffs, bankruptcies and plummeting stock valuations. Some of the casualties were:

Eve.com, furniture.com, Toysmart, and pets.com, which featured a sock puppet as its spokesman.

In 2001, traditional retailers, such as Wal-Mart Stores Inc., Kmart Corp. and Target Corp. - which proved themselves online during the 2000 holiday season - are likely to dominate in e-commerce.

"Many of the large, well-known retailers have sat on the sidelines as the `pure plays' [Internet-only companies] have spent money and built services," said Scot Melland, chief executive officer of Vcommerce, which handles distribution and customer service on an outsource basis for e-retailers.

"Now you'll have some big, powerful players that will be butting heads. It will be much more difficult today for a start-up to go into the market and be successful because the big players are serious about it now and going after it."

This year, U.S. online retail sales are projected to grow nearly 65 percent, from an estimated $45 billion in 2000 to an estimated $74 billion fueled by an anticipated 8 million new computer-based shoppers, according to Forrester Research Inc. of Cambridge, Mass.

And Internet retailing hasn't peaked yet, experts say.

"This whole revolution in retail is still at the beginning," said Scott Silverman, vice president of Internet retailing for the National Retail Federation. "Consumers are getting a real good sense for what buying online is best for."

Rather than being lured by promotions such as free shipping - as in the earliest days of online shopping - "consumers are making online purchases because of the convenience, the selection ability," he said.

Though Internet-only and traditional retailers will share in the year's sales, much of the consumer traffic is expected to direct itself to the well-known brands of the big brick and mortar companies, such as Target and J. C. Penney Co. Inc., experts say.

Retailers such as Best Buy Co. Inc., Penney and Kmart have begun to integrate their various shopping channels. They should have some key advantages over internet-only retailers - buying power, for one.

"This is the first year they're actively advertising and pushing" the Internet channel, and "it's happening at the same time when pure plays are in trouble," said Melland.

This year, consumers should expect to see more traditional retailers moving online, because now they can do it in a more thoughtful, measured way, said James Vogtle, e-commerce research director for the Boston Consulting Group.

"Retailers are realizing e-tailing is just a form of retailing, not dramatically different from where they're coming from," said Elaine Rubin, chairman of Shop.org, a trade group for online retailers.

The Container Store is one retailer that only recently made the jump to online sales. The chain said it took its time to make sure it could handle distribution, completely redesigning and rebuilding its sole distribution center.

"We wanted to make sure that we really were developing it in a way that our customers would find the same service level they've found in our stores," said John Thrailkill, the e-business marketing director for the Container Store. "The real challenge was not competing with another retailer in our space, it was competing with our own expectations."

"We don't feel like we've missed out in any way," he said. "We're doing it at the right time. There are revenues we could have driven, but we could have done more damage if we didn't have the systems in place."

In 2001, Vogtle expects more consolidation, mergers and failures of dotcoms.

"It's a function of explosive growth we've had over the last year, with so many online retailers; it's difficult for them all to survive," Vogtle said.

If the U.S. sees an economic downturn, the Internet could offer some immunity. "A growing pool of value-focused customers will flock online as the economy dips," Evie Black Dykema said in a Forrester report.

The analyst expects price-conscious consumers to be drawn to tax-free shopping on Walmart.com, to price comparison sites such as mySimon.com, to liquidation merchandise on Overstock.com and to J. C. Penney's Red Alert Shop.

This year, Silverman expects more pure Internet retailers to start catalog operations, open stores to give consumers a place to visit or partner with traditional retailers as Toys R Us has done with Amazon.com.

Already, lucy.com, a women's sportswear seller, has opened its first flagship store in New York and launched a catalog, and babystyle.com also has an online catalog.

"A lot of pure play retailers are recognizing that a physical presence is an advantage to leverage, and they're developing strategies to bring some of the advantages in to their own realm," Silverman said.

Meanwhile, the "multichannel" retailers - those who sell in the stores, in catalogs and online - are expected to find ways to make it easier for shoppers to move seamlessly between shopping venues and get the same information and service in each area.

"The real focus for all retailers, whether or not they're `bricks and mortar,' is how do we create one face to the consumer and create a presence for the consumer," Rubin said.

Some categories that should continue to do well online include apparel, especially more traditional clothing, music, videos, books, computers and hardware.

"Just about any category in Internet shopping will continue to improve as the speed that users have at home increases," Silverman said. "We'll find there will be more categories that will have some application on line."

Big challenges in 2001 include reducing costs per customer acquisition, increasing repeat visits and repeat purchases, converting browsers into buyers and boosting profitability, experts said.

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