E-Retail Summiters Predict 4Q Gains, Recommend Focus on Profitability

NEW YORK–Leading online retailers said last week they expect their holiday sales this year to be 200 percent to 300 percent higher than fourth-quarter sales in 1997.

The five panelists also told 350 attendees at the eRetailing '98 summit here that recent stock market uncertainty will force Internet merchants to start playing by the same rules as their offline counterparts and focus more on profitability.

“Currently, virtual companies get away with things that brick-and-mortar companies just can't get away with,” said Donna Iucalano, vice president of interactive services at 1-800-Flowers.

Case in point: Amazon.com's site recently was down for nine hours with no explanation, Iucalono said.

“I don't know if people would be as forgiving if they went to a Disney store in a mall and saw a big sign that said, 'Just for no reason, we're kind of closed,' ” she said. “It's been interesting to follow how some companies can lose millions and millions of dollars quarter after quarter and still have their stocks increase in value while you have brick-and-mortar companies making a profit and their stocks are worth a quarter of what the virtual company's are.”

Many think the time for Internet firms to get real has finally arrived.

“My advice is that we should all look to get profitable sometime in the next year or certainly have a plan in place that demonstrates that we can get profitable because the laws of gravity are going to start to re-apply here,” said Alan Fisher, chief technology officer of auction site Onsale Inc.

Amazon.com's stocks have been high because investors are eyeing more than just the company's future profitability, Fisher said.

“Investors are betting that the Amazon.com brand name will become almost like Coca Cola or McDonalds, a well-known globally recognized brand that extends beyond just bookselling,” he said.

The eRetailing '98 summit was the first sponsored in part by shop.org, a trade association of merchants selling online, including Eddie Bauer, Barnes & Noble, 1-800- Flowers and Virtual Vineyards. The panelists unanimously agreed that online selling does not cannibalize sales from other channels.

“People will buy more if we merchandise better,” said Chuck Davis, senior vice president of Buena Vista Internet Group, Disney Online Inc.

Davis outlined four keys to the growth of e-commerce:

* Exclusivity. Sites should carry merchandise unavailable elsewhere.

* The experience should be fun.

* Sites should promote impulse buying.

* Companies should help promote the idea that shopping on the Internet is safe.

“All we need is one or two bad eggs in our group, and the whole industry can stall,” he said.

“At Disney, we have parity pricing in our 660 retail stores and the Disney store online to avoid channel conflict,” he said. “From a synergy standpoint, if there's parity, our ventures will do a good job of self-promoting and cross-promoting.”

Also at the summit, shop.org released preliminary results of an ongoing survey of more than 100 Internet merchants who have sold more than $1 million online. According to the study, 91 percent of e-commerce sites' revenue comes from selling products or services. Nine percent comes from supplemental revenue streams like membership fees, referrals and advertising.

“But that nine percent is very significant from a profitability point of view,” said David Pecaut, senior vice president of the Boston Consulting Group.

Repeat customers are 36 percent of the e-commerce sites' customer base. About 3 percent of the sites' unique visitors buy, according to the study.

“It doesn't seem very high when you compare it to traditional retail space — but if you look at mall visits, you'll get numbers under 10 percent and if you look at direct mail, you'll get numbers more like 2 or 3 percent,” Pecaut said.

According to the Internet merchants surveyed, marketing and advertising accounts for 43 percent of their revenue. Average cost per order was $21. Average cost per new customer was $34.

The key to making the numbers work is no surprise: get more repeat business.

“Right now, if you were in a steady-state business, this would look like an enormously foolish proposition,” Pecaut said.

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