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It's every traditional retailer's nightmare: An Internet entrepreneur attracts venture capital and launches a site called insertyourproductcategoryhere.com. Soon it's selling everything the retailer does, but cheaper.
To win on the online front, retailers have to fight back.
While plenty of traditional retailers like
Federated Department Stores
have quickly made online sales a priority, many other bricks-and-mortar retailers have lagged while virtual competitors swooped in to grab customers. Most famously,
Barnes & Noble
snoozed for nearly two years before launching a challenge to
Even though most analysts concede that the real-world bookseller has made strides by spinning off its online division and creating a Web site that rivals Amazon's in product depth and ease of use,
still has less than a quarter of Amazon's 8.4 million customers.
It's too simple to say that everyone who's not selling online is asleep at the switch. "There are very sophisticated retail organizations that have taken slow, methodical, sensible steps to move online," says George Whalin, president of
Retail Management Consultants
in San Marcos, Calif. "There are others for whom it's not necessarily been appropriate to go on the Internet."
Some face tough logistical obstacles. "If you're a retailer and you've got no plumbing, it's like building a house without a sink -- you've got to first become a direct marketer and then an online merchant," says Lauren Freedman, president of
the e-tailing group
in Chicago, an Internet consulting firm.
Others have delayed because, despite projections for big sales in the future, the current payoff is piddling. (And the recent market performance of Internet stocks suggests there's no free ride there either.) Sales from the Gap's successful site are a rounding error in the context of its $9 billion in 1998 sales. And the costs of e-commerce are high, particularly when -- unlike the virtual competition -- traditional retailers are still constrained by the inconvenience of turning a profit. Amazon can get away with losing money, but shareholders would be enraged if Gap CEO Mickey Drexler told them he plowed the year's profits into the company's Web site.
Those constraints aside, many bricks-and-mortar retailers dawdled because they underestimated the Web's potential for sales online, instead viewing it as a marketing tool alone. Others were hampered by agreements with suppliers. And there are those who were unconvinced that their products would sell online until a Net startup opened the door.
, for one, misjudged how quickly consumers would embrace e-commerce. That company's stately Web site offers refined advice on etiquette and shopping tips about diamonds and pearls as well as a chance to order a catalog. But as of yet, there's no way to order blue-boxed baubles online.
"We only launched the site a year ago, and at that point, frankly, I told investors we had no plans to sell online," says Mark Aaron, company spokesman. "But we've watched how the Internet has developed at a rapid pace," he says. Tiffany is now working on developing e-commerce for late 1999 or early 2000, with offerings from its catalog.
The famed jeweler is lucky. Analysts say its unique market niche means it's unlikely to be hurt by the delay. "This is not like Barnes & Noble vs.
vs. Amazon," says Amy Ryan, an analyst with
who rates Tiffany a strong buy. Her firm hasn't done underwriting for the company. "If someone wants Tiffany merchandise, they want Tiffany merchandise. They're not going to go to
Abercrombie & Fitch
, which also misjudged the Web by initially viewing it only as a brand-building tool, doesn't have the same luxury. Real-world competitors like
and Gap are already eating its lunch online.
"A&F is late, in that teens and twentysomethings have been online for a while," says Kate Delhagen, director of e-commerce research for
. "But apparel in general is just now developing. They just need to kick it up a notch."
To date, A&F's Web site offers beefcake screen savers, music samples and email accounts. But this fall, in time for the back-to-school season, A&F will launch online sales of certain merchandise from its quarterly catalog, says spokesman Lonnie Fogel.
"No cataloger has an excuse for not being online," Delhagen says, since they've already got the back-end infrastructure and delivery systems.
In some industries, delicate agreements with suppliers may inhibit retailers' online efforts. For instance,
says it has no current plans to sell online because it's agreed with its manufacturers not to advertise their names.
"We'd be afraid of cutting off our normal distribution channels," says Janet Kanios, vice president of marketing at Ross. In addition, the company doesn't currently track size and colors, which make it hard to shop online.
Ross' dilemma is going to be an issue for all discounters, says Marcia Aaron, an analyst with
BT Alex. Brown
, who rates Ross shares a buy. Her firm hasn't done underwriting for Ross. "Vendors don't want people to be able to search on their name and price compare," she says. Moreover, virtual companies may find it hard to deal with return rates of as much as 20% to 25%, says Aaron.
Nevertheless, off-price e-tailers like
are forging ahead.
In other instances, it's taken virtual competitors to convince real-world players that their goods will, in fact, sell online. Who'd think that anyone would buy furniture on the Internet?
, for one. Now
is planning to dip its toe into e-commerce this fall, beginning with accessories like lamps and then phasing in bigger-ticket items, says Farooq Kathwari, Ethan Allen's chairman and chief executive. Ethan Allen's approach is aimed as much at driving traffic to its retail stores -- like its direct-mail magazines do now -- as it is toward building online sales.
"We've seen the furniture category pop open," says Delhagen, who adds that Ethan Allen should rapidly increase its offerings so it doesn't look weak compared with online competitors.
Whatever their product category, no traditional retailer can afford to ignore the projected growth of the online market for long. In the world of e-commerce, tiny sales can turn amazonian pretty quickly.