A decade has passed since eBay and Amazon opened their doors, and most online retailers are now profitable and adding to offline businesses in ways that were scarcely imagined at the beginning of the dot-com boom. Sales online reached $137 billion in 2004, according to Forrester Research.
As online retail matures, retailers are learning valuable lessons about what works and what doesn’t. Unique offerings, good deals, convenience and strong brands are the chief drivers of a successful online business, according to Michael Conn, senior vice president of business development for GSI Commerce of King of Prussia, Pa. The e-commerce Web site developer counts Polo and Liz Claiborne among its clients. Conn’s observations were echoed in interviews with online retailers.
Good Deals. The Web started as a good place to get a deal, and low prices are what make sites such as Overstock and eBay so popular.
“We lead everything we do with education,” said Mark Vadon, chief executive officer of Blue Nile of Seattle, which sells diamonds and fine jewelry online. “If our customers have perfect information, we’ll win with every sale. If you’re the lowest-cost provider in an industry, you want the customer making a rational decision.”
The company’s gross margin is 22 percent, versus the 50 percent gross margins storefront businesses need to compete, according to Vadon. The company has never charged for shipping, and its average ticket is about $1,200, or $5,600 for engagement rings. Its conversion rate is about 1 percent of visitors. “We get a tremendous amount of traffic relative to people who actually convert, but when they do, it tends to be a higher ticket,” he said.
The company offers build-your-own rings with millions of possible combinations and employs about 30 bench jewelers in Seattle to assemble them. The company became profitable in 2002, partly because it grew big enough to cover its costs, according to Vadon.
Unique Offerings. Many retailers are taking advantage of the Web to offer their customers deep and broad assortments and sizes they don’t have room to stock in their physical stores. For example, J.C. Penney offers a broad assortment of big and tall sizes and bras through its catalogue and Web site. Gap Inc. tested plus sizes and maternity online before launching those assortments in selected Gap and Old Navy stores.
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Custom fit and styles have proven popular at retailers such as Land’s End, Polo, Nike and Timberland. Polo offers monogramming online, and shoppers also can customize a shirt by choosing the color of the embroidered pony logo. GSI helped Timberland launch its custom boot builder in fall of 2004. The program offers a large number of options, including 11 colors for the upper, a choice of hardware finishes and a monogrammed hangtag.
Etoys of Denver, Colo., uses technology from My Virtual Model to let its customers create a doll that resembles their child. Customers can choose hairstyle and face options online, or send in a photo, and artists will create a hairstyle and paint facial features to match. The dolls start at $119 each, and the venture has been a success, according to eToys ceo Michael Wagner.
Convenience. “Convenience is such a huge part of the online shopping experience,” said Conn. It pays to make a site easy to navigate, and clear descriptions and detailed photos are key, he said. People like to buy gifts online because it’s so easy, especially if they ship them directly to the recipient.
“We’re known for our one-click shopping, building ease of use into search and browse, offering great service and great turnaround time,” said Russ Grandinetti, vice president of Amazon’s apparel and jewelry stores. “That’s another reason that makes people feel comfortable about shopping with us.”
The convenience of a multichannel approach seems to resonate with customers, leading to more spending overall and higher retailer revenues. For example, Saks customers who shop more than one channel spend five times more than customers who shop only one, said Denise Incandela, senior vice president of Saks Direct, speaking at a panel on e-tailing moderated by Forrester analyst Carrie Johnson at the NRF conference in New York earlier this year.
Even more telling: 40 percent of Saks’ online customers had never shopped the retailer (at least not in five years, which is how long Saks keeps records). Now 40 percent of those new customers also are shopping in Saks’ physical stores, she said. In addition, Saks’ online customers are on average 10 years younger than the group that doesn’t shop online, she said.
“We are the top 10 store out of 65 stores we have. We’re a very profitable store. We consider multichannel to be a very significant opportunity,” Incandela said.
“We’re transforming ourselves into a multichannel, customer-centric company,” said Best Buy’s Sam Taylor, senior vice president, online stores and marketing, at the same panel. The company has 820 physical stores, three Internet sites, telephone sales and a 24-hour computer support service called the Geek Squad, which makes house calls. “About half our customers in the store have done research online before coming into the store,” he said. “The biggest thing we’re learning is the amount of influence the online channel can have on a brick-and-mortar business. You need to do both.”
Not surprisingly, customers expect a retailer’s multiple channels to be integrated. They want to preshop online to see if a store has what they’re looking for, try it on in the store if they wish, order it online after they make a decision and return it to a store without having to visit the post office or pay return shipping.
The chain stores were among the first to offer a seamless experience, and J. Crew has sales associates who will help customers locate an item anywhere in the system.
Some of the smaller pure plays, perhaps eager to increase awareness of their brand and merchandise as well as increase revenue, have recently opened offline stores. Bluefly opened a store in SoHo last year, and Girlshop, a contemporary boutique featuring hard-to-find small designers that was one of the first apparel stores online, will open its first store in New York’s Meatpacking District later this month.
Strong Brands. “One common thing is that the brand is really important,” said Conn. “Consumers are already looking for brands that they have familiarity with and trust with. That drives people to sites.”
That holds true whether the brand belongs to a retailer the consumer trusts or a manufacturer whose quality and fit the customer knows. Web sites also can help build awareness and familiarity with a brand.
“But what we’re getting overall out of e-commerce is that it’s more than the transactions that are taking place on the Web site,” said Conn. “It’s about building brands and driving customers into offline stores.”