Success Hasnt Come Cheap

By eweek  |  Posted 2001-09-03 Print this article Print

Success Hasnt Come Cheap

Online success has not come cheap. Last year, Sears invested $75 million in its online retail operations. After enduring the taunts of pure online operations in the early days of Internet retailing, click-and-mortar merchants are clearly emerging as the winners in online sales. "The reason bricks-and-clicks is successful is thats what the American consumer wants," Honan says. "They want the integrated experience."

Heather Dougherty, a Jupiter retail analyst, agrees. "All of the retailers that had existing infrastructure are coming to profitability quicker," she says. The success of click-and-mortar operators is one reason Amazon, the leading online retailer, is partnering with established retailers such as Circuit City. Through the partnership, Amazon can sell a television without incurring the high cost of delivering it to the buyers home.

Like the Amazon-Circuit City deal, Sears plans to offer in-store pickup of products sold online. The arrangement is certain to pull more shoppers into the stores, where they can make additional purchases.

While is expected to be profitable on its own sometime next year, company officials say the site is already boosting the companys overall revenue. "If you looked at the site in terms of in-store influence, would be profitable right now," Sears Woolman says. " influences about 10 percent of in-store purchases of major appliances, and thats about $500 million a year. One of every 20 purchases of home office or home and garden products is influenced by the site."

Analysts agree with that view of online impact for brick-and-mortar retailers. "For every $1 spent online, $5.50 is going to be spent offline as a result of research done online," Dougherty says. "So, the Internet has a powerful impact."

When retail executives get down to calculating the returns on investment (ROI) for their Web efforts, they are forgetting to turn their eyes offline, according to a recent report from Forrester Research.

"Multichannel retailers looking for ROI from their e-commerce investments without taking companywide returns into consideration are like nomads in the desert hoping to happen upon a lake," says Lisa Allen, research director of Forrester in Cambridge, Mass. "Chances are it just wont happen. Retailers have to recognize the cost savings, efficiencies and incremental revenue that an e-commerce site contributes to the company as a whole."

Sears online operation allows the company to improve efficiencies with a central database, improved inventory, and better information for employees online and off, Sears Honan says. Despite that ability to track merchandise and inventory through a central database, Sears has no plans to launch online apparel sales anytime soon, he says.

Jupiters Dougherty agrees that plan makes sense for Sears. But other retailers would be remiss to leave clothing out of their online stores, she says. "Sears has taken an interesting strategy, different than others, focusing on products where they know they can do well — hard goods, such as DVDs, rather than apparel," she says. "For someone like Lands End, it makes sense to sell apparel and invest in things like virtual dressing rooms."

While online sales still amount to a drop in the bucket compared with Sears overall sales, the growing online sales trend is promising. A study conducted by The Boston Consulting Group shows the North American online retail market is expected to grow 45 percent in 2001, to $65 billion.

"While consumer demand continues to propel growth, online retailers have wrestled with operational issues and improving their performance in key areas such as customer acquisition and buyer conversion," says Elaine Rubin, chairman of "There is a steep learning curve in becoming an online retailer. Those players that were unable to excel in all facets of this complex business just didnt make it to the end of 2000."

At Sears, the online sales channel is rock solid, company execs say — far from the flimsy image of hundreds of failed dot-coms. "Online is able to deliver a great experience," Honan says. "Online will prove just as valuable as the catalog was."


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