Mass Merchants Make Their Move Online

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Wal-Mart, Kmart and Target have operated bricks-and-mortar general merchandise stores for nearly 40 years. Though they are accomplished merchants in the physical world, their business does not automatically translate into success online.


How do these mass merchants make their foray online into an e-commerce success story?


For starters, they need to understand the potential. Gomez Inc., Lincoln, MA, estimates domestic online retail sales will grow more than $60 billion, to $160 billion, in 2001. General merchandise e-tailers relish this potential and likely will claim a percentage of the market for a variety of reasons.


First, they are able to cross-merchandise items among categories, which effectively generates higher consumer spending. Also, with a diverse product offering, they can cater to a wide base of consumers. For example, look at their Internet counterpart, Amazon.com. The online giant has amassed a customer base of 25 million in five years. Though it had a first-mover advantage, it would not have built this foundation by selling books alone.


Lastly, compared with niche-focused online retailers, these e-tailers can market unique aspects of convenience. Not only do they offer consumers one-stop shopping and reduced shipping costs (as they typically can ship multiple products from one distribution center and in one order), they also are able to store customers' personal information, including credit card numbers, addresses and purchasing histories on one site. With all of this activity, general merchandise retailers can better understand consumer purchase behavior.


Although the opportunity is significant, online general merchants face numerous challenges. Their success will hinge on their ability to generate economies of scale, find a competitive advantage and deliver a positive purchasing experience. To overcome these issues, the following tactical and strategic recommendations are made:


Set up a cohesive organization.


Creating a cohesive, cost-effective online organization is perhaps the biggest challenge in managing any e-commerce venture but is particularly challenging for general merchants. High-level e-tailer goals include the following: creating an advanced fulfillment system to ensure the fewest shipments per customer order (i.e., maintaining a process for ensuring that two diverse products, such as a blender and a fleece jacket, can be delivered at the same time); optimizing product breadth and depth; developing effective customer acquisition and retention tactics; and maintaining a trained customer service organization so that a consumer can have category-specific questions answered quickly and expertly.


While online-only e-tailers face the challenge of building purchasing power and creating vendor relationships, as well as achieving financial viability, clicks-and-mortar e-tailers are able to leverage their existing buying power, resources and branding across online and offline channels. However, the multichannel e-tailers face the additional challenge of integrating systems and processes across their channels. The most successful general merchandise e-tailers will be the ones that drive organizational focus -- despite managing numerous categories -- and effectively integrate multiple channels, all while keeping an eye on profitability.


Meet and beat the competition. In the offline world, discount stores leverage one-stop shopping convenience to attract consumers. This value proposition is diminished online, however, as rival stores are a click rather than a 10-minute drive away. Online category-dominant retailers, such as REI, Tiffany's and Staples, are able to offer a deeper product selection in their focus areas, more content (such as glossaries, related articles, and consumer and professional reviews) and product-related advanced tools (such as Lands' End's My Virtual Model, which shows consumers how apparel products would look on their figures). General merchant e-tailers typically do not have the resources to offer this depth in each and every category they offer.


This is where partnerships come in handy. Relationships can take many forms, such as branded or private-labeled, bartered or financial-based, reciprocal or one-way, depending on the retailer's needs. For example, Global Sports merchandises and fulfills numerous general merchants' sites, including Kmart, buy.com and iQVC. The rationale: It eases the e-tailer's work of managing hundreds of sporting goods manufacturers and thousands of product SKUs. Other relationships can involve content licensing. Content can be sourced from experts, such as consumer reviews from deja.com and ConsumerReview.com, music information from Muze and electronics content from eTown. Circuitcity.com, Amazon.com and BestBuy.com, respectively, leverage these relationships.


E-tailers also can completely outsource a product category, such as iQVC's use of ArtSelect, which sells artwork online. ArtSelect's products are pulled and the shopping basket is integrated into iQVC's site. Relationships such as these will mushroom in the future, as integration of commerce, content and community becomes standard fare.


Make the site easy to use. Offering numerous categories on one site can spell navigation disaster. General merchandisers need to ensure that their sites are clearly laid out, well-organized and consistent so that consumers can navigate and purchase quickly. Many of the general merchants, including Wal-Mart, Kmart and Target, recently re-crafted their sites' designs, aiming for an optimum purchasing experience.


To make sites easy to use, key links such as customer service, contact information and shopping basket need to be on every single virtual-store page. Product categories need to be easily accessible. Amazon was one of the first e-tailers to introduce tabs into site design, making it easier to display multiple product categories. Recently, however, while Wal-Mart added the tab design, Amazon departed from its tab structure because it offers too many categories to effectively use this navigational structure.


In addition, product pages need to be consistent among categories. Buy.com has designed its site this way, and simply differentiates each product section with a different color. Lastly, sites need to keep their pages clean and uncluttered. Too many links to product and content on one page can be overwhelming to the consumer. Target is one of the more effective general merchant e-tailers in offering a clean, easy-to-navigate home page.


As we look into the future, general merchandise e-tailers need to evolve their technology, product offerings and site experience to offer a personalized, differentiated consumer experience. Decision support tools, such as the personalized purchase recommendations and lists of best-selling products offered by Amazon, will evolve to further enhance the purchasing process. As with any online or offline retailer, the online general merchants' success will be driven by the ability to amass an offering that effectively creates a strong consumer relationship.


• Barrett LaMothe Ladd is a senior retail analyst at Gomez Inc., Lincoln, MA. Reach her at bladd@gomez.com.
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