Six years ago, the Internet skyline was a wide-open horizon, unpopulated and uncluttered. The retailers that stuck first had grabbed the attention of a growing and increasingly aware and interested Internet population, building well-known brands. Amazon.com is an example of one of the strongest brands on the Internet.
In recent years, scores of online retailers flooded the Internet, hoping to steal their share of online consumers and establish, defendable brands. Often, this rush flew in the face of common sense. I am still waiting for someone to explain how Pets.com, Petsmart.com and Petopia.com all got funded and launched.
Granted, the pet-supply industry is huge, but the lack of barriers to enter this commodity product industry makes the establishment of a distinct brand and customer loyalty virtually impossible. The recent stock plunges of these companies support this claim.
The result of this blind overexuberance is the crowded, indistinguishable online retailing landscape we face today.
The problems plaguing online retailers are even more severe in luxury-good categories. For new players trying to enter this arena, the outlook is bleak. Spending your way to brand in this online world of washed-out brands and consumer apathy is a losing game, as demonstrated by Boo.com’s fiery implosion earlier this year.
More difficult is the task of attracting and maintaining luxury products and brands to satisfy consumer desires. Established retailers do not have this problem, but new entrants face several hurdles.
First, luxury-goods manufacturers are reluctant to allow unknown, third parties to represent the brands they have spent so heavily to build. Brands such as high-end apparel manufacturers must be careful not to have their images diminished with their decision to allow distribution through discount retailers.
Additionally, brands want to avoid sharing space with competition whenever possible. Yet for new online retailers, product variety is a necessity. Ironically, it is this very need that, in many cases, makes achieving this goal impossible.
Finally, for many online retailers, the only way to establish presence is through severe price cuts and discounts. This does not sit well with many luxury-good manufacturers, whose customers are relatively price insensitive and which primarily view discounts as detrimental to brand equity.
Thus, for the most part, purely virtual retailers that have not already secured a strong market presence and a solid product line, will not be able to do so. This leaves the established luxury-good retailers — the same companies whose death was signaled several years ago by the advent of online commerce.
E-commerce is not yet a fully viable retailing option for most luxury-good products, such as high-end apparel, watches and jewelry. There are several reasons why.
First, they are typically higher-ticketed items, reaching into dollar amounts that consumers have yet to become comfortable with over the Internet. Second, and more importantly, luxury-goods manufacturers produce items that consumers prefer to see, touch and try on before buying. Finally, there is a shopping experience associated with luxury goods that consumers are similarly unwilling to forfeit.
While Jupiter Communications, New York, projects total online retailing to represent about 7 percent of total U.S. retailing by 2003, the penetration rate for luxury-goods retailers is projected to be lower — 3.7 percent for apparel and 2.1 percent for footwear.
How do established luxury-goods retailers maximize the effectiveness of their Web presences in driving sales when the products they represent are not conducive to e-commerce?
The answer lies in using the Web to enhance strong, established, recognizable bricks-and-mortar retailer presences, providing the weapons necessary to combat the shortcomings of e-commerce as it relates to luxury goods. The key for retailers and vendors of luxury goods in the digital age is to find ways to use their Web sites and Web presences to drive traffic and sales back into their competitive advantages, namely their stores.
This is not to say that these retailers should not offer e-commerce options. Instead, they must realize that the true power of their Web sites will be uncovered by the extent to which they can use them to promote their brands and their real-world locations. Strong retailing brands can use the power of these brands to create immediate, strong online presences.
The key is to leverage their power bases — their retail stores — through these Web presences and, in turn, drive up the return on investment on their Web sites.
The most important element of this strategy must be information provision. The truth is that the vast majority of visitors to any retailer’s site use that site not for purchases, but as a source of information regarding the product and purchase options.
Retailers must equip their Web sites with the tools to provide consumers with information that can convert online product researchers into in-store customers. This information can include store location information, store- specific information (hours of operation, special promotions, etc.) and item availability.
The object is to grab online product researchers when the product is freshest in their minds and lead them to the store for the item. By getting customers in the store, retailers can take advantage of the impulse expenditures that happen so readily in the store, yet so infrequently online.
The power balance on the online retailing game has shifted to the established retailers that were declared dead less than three years ago. It is imperative that these luxury-goods retailers realize the limitations that are killing their younger competitors and use the Internet and their Web sites to leverage the power of their real-world brands. This is something their competitors cannot do.
The Internet is a powerful means of distributing information but is limited in its ability to facilitate online sales in certain product categories. Luxury-goods retailers must use their virtual presences to promote their brand, promote their product and, most importantly, drive traffic back into their stores.
• Chris DeStefano is president/CEO of HybriNet Inc., Newark, NJ. Reach him at [email protected]