*E-Commerce Presents Different Challenges for Penney and Ames

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SAN DIEGO -- The Internet presents different dilemmas and opportunities for J.C. Penney Co. and Ames Department Stores.

For the more established and nationally renowned Penney, Plano, TX, e-commerce is another adjunct to its catalog operations. Ames, scheduled to add e-commerce Nov. 1, faces problems associated with being regional and boasting a clientele that rarely shops with a credit card.

In their attempts to grab market share in a shrinking retail pie, the two bricks-and-mortar retailers took divergent approaches to e-commerce.

"One of the best strategic decisions our company made was having the Internet division reporting to the catalog," George Stasic, president of JCPenney Internet Solutions, told the audience yesterday at the National Retail Federation's NRF.com conference here.

Doing so allowed Penney's e-commerce and catalog arms to share many services, Stasic said, including customer service, database, fulfillment and marketing.

Add to that traffic from Penney's 1,100 stores nationwide, vendor relationships, and returns and pick-up sites. Most importantly, the site at jcpenney.com features the complete catalog of 250,000 items.

The Penney site last year posted sales of $90 million and this year will top $300 million.

"Today, our site is primarily a duplication of the catalog, although with more richness of content," Stasic said.

By contrast, Ames, Rocky Hill, CT, has had to struggle with a host of issues before launching an e-commerce site. Though it boasts $4 billion in sales through 476 stores in 19 states and the District of Columbia, it does not have the size, brand recognition or geographic reach of Penney. Even among discount retailers, it lags behind Wal-Mart, Kmart and Target.

So, when Ames wanted to offer e-commerce, the challenge was whether "to go national or go after the customer on the Internet," Rolando de Aguiar, president of AmesPlace.com and senior executive vice president at Ames Department Stores, told the NRF.com audience.

Tapping its store customer base -- budget-conscious, lower-middle-income women who earn up to $35,000 a year -- is not easy. Up until six months ago, this demographic had the lowest Internet penetration.

"Eighty percent of our customers pay in cash," de Aguiar said.

While low brand recognition nationally and a price-sensitive customer base were troubling, a major drawback was Ames' lack of a catalog.

With no previous remote-selling experience, Ames did not know how to reflect online its high-low price strategy.

"What do we put on the Internet -- everyday low prices, or do we put different merchandise on the site?" de Aguiar asked.

Ames tried many approaches. In-store kiosks were a bust. Kiosks in 20 stores over three months yielded only one customer a day. Third-party links with other sites stole traffic. Co-branding offered more control but limited income.

Tapping Ames' database of 3 million names, taken from its stores and the Amesmeds.com online pharmacy, was key. The AmesPlace.com site currently attracts 1 million visitors a month.

"Ninety-five percent of visitors are through AOL, and that leads us to have some alliances with folks like AOL," de Aguiar said.

So the November introduction of e-commerce is to outsource almost everything that does not need to be handled inhouse, including fulfillment.

"We're outsourcing everything, until we have revenues of $40 million to $50 million," de Aguiar said. "We did not want to go into any aspect of this business unless we can make a profit or break even."

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