Old-Guard Retailers Take Closer Notice of E-Commerce

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More traditional retailers are joining the National Retail Federation's Shop.org, a sure sign that e-commerce is now being taken seriously among the old guard.


Membership of Shop.org, Washington, is up 50 retailers and marketers this year to 225, while attrition was limited to 25 dot-com heyday members that mainly went out of business.


Notable new recruits are Coldwater Creek, Kohl's, Crate and Barrel, REI, Polo.com, Wal-Mart Stores, Blockbuster, Things Remembered, Retail Brand Alliance's Brooks Brothers and Casual Corner, and Weight Watchers International. New members also include American Eagle Outfitters, Blair, Home Depot, CompUSA, Talbots, EBGames and USA Interactive for Home Shopping Network and Tickets.com.


Even young dot-coms such as Overstock.com and SmartBargains.com have joined Shop.org, a trade body for online retailers that the NRF bought in early 2001.


"It's fairly representative of consumer choices for retailing online," said Scott Silverman, executive director of Shop.org.


Roughly three-fourths of the new members already belong to the NRF, the nation's leading trade body with about 2,300 members. But many had not previously given much thought to joining an e-commerce trade body that survived the carnage of end-of-century Internet excess.


"I think as an organization we've evolved and we've got several large members," Silverman said. "But I think there was some misunderstanding in the past or just plain unawareness, just not an awareness level of who Shop.org was."


Another factor is at work. E-commerce is the one bright spot for retailers suffering from events related to the dot-com bust, resultant stock market falloff, recession and the Sept. 11 attacks.


According to Boston Consulting Group's State of Retailing Online 5.0 study for Shop.org, online sales last year rose 21 percent to $51.3 billion. This was 2.4 percent of the $2.14 trillion in total retail sales tracked last year nationwide by the Shop.org study.


Shop.org's projections for this year are equally rosy. Online retail sales are expected to grow 41 percent to $72.1 billion, or 3.2 percent of the total Shop.org-tracked retail spending. The organization does not separately track holiday sales.


A clear sign that retailers value e-commerce as a serious channel is the number of attendees last month at Shop.org's annual conference in New York. An estimated 350 senior e-commerce and marketing executives showed from companies like Martha Stewart Living Omnimedia, Newport News, Neiman Marcus, Amazon, Godiva, Ralph Lauren, J.C. Williams Group, Wilsons Leather, Lands' End and its Sears, Roebuck and Co. parent.


By contrast, only about 200 executives had registered for last year's Shop.org annual summit. That show subsequently was canceled because of the Sept. 11 tragedy.


"Two years ago, most of the attendees were the younger marketing managers from many of the large traditional companies," said Michael Crotty, vice president of marketing at Neiman Marcus Online, Irving, TX, and also secretary of Shop.org. "As sales from the online channel have grown, we're now seeing more senior-level executives from large, traditional retail companies attend the Shop.org events."


Retailers see the Internet as a means to build customer loyalty, hence the heightened interest in Shop.org.


"For some retailers, it's the direct response channel they never had as a store-based retailer," he said. "So there are some retailers that wished they had some of the capabilities a catalog would bring to them, and the online channel is an entrance into the world of direct response selling."


What helps is the incremental nature of online sales to the overall bottom line, if anecdotal accounts from retailers are to be believed.


"They're finding that if they're store-based and they have limited locations that they're getting sales from ZIP codes that they never were getting sales from," Silverman said. "And they're finding that their best customers are spending more with them."


Rapid Internet adoption rates have helped increase online penetration, though not to the level of catalogs, which typically account for $1 out of every $10 spent on retail nationwide.


Still, well-executed e-commerce strategies can swing sales from catalogs, telephone and retail stores to the more economical Web site. For instance, more than half of J. Crew Group's sales are from e-commerce, and 20 percent of cataloger Lands' End's revenue now comes from online.


Penetration levels are slowly building, as the Internet accounted for more than 5 percent penetration in seven categories last year, according to BCG and Shop.org. It accounted for 18 percent of sales in computer hardware and software. Similarly, it was 11 percent for books, 7 percent for music and videos, 6.3 percent for travel and 6.1 percent for toys. For events and tickets it was 5.6 percent, and for consumer electronics it was 5.3 percent.


But it is not all blue skies for online retail. A key issue retailers continue to battle is making their disparate channels work in concert. Another sticky spot is internal perceptions of e-commerce with senior company decision makers.


"The big challenge is getting louder evidence and data to demonstrate the value that this new channel is contributing to this organization," Silverman said.


"Today, e-commerce is a memo item on a financial statement -- 'Web-influenced sales,' " he said. "I don't think there are any major retail CFOs who will treat that type of data the same as they would something like sales per square foot or comp-store sales [comparable sales for a store that has been open for a year]."


So it boils down to earning respect by performance.


The upcoming holiday season obviously weighs on online retail executives. For many retailers, November and December typically account for 40 percent of annual online and offline sales. For a category like toys, it is almost 50 percent.


Not for these retailers the worries of not fulfilling orders on time. Enough experience has accumulated over the past few holiday seasons for better preparedness.


In fact, Shop.org has partnered with market researcher BizRate.com, Los Angeles, to poll online retailers every two weeks in the holiday season. The surveys will query Shop.org members on whether their sales are up and by what percentage, and inventory levels, to name a few. This information will be shared with members. Results will be compared for members to benchmark against their peers in this crucial heads-down time.


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