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It's betting the online mall's time has arrived

When Anton Nazaruk of Brick Town, N.J., was pricing Jeep Cherokees in August, he called local dealers and then he E-mailed two Internet auto sites. The next morning, he got a reply from one, AutoVantage, which suggested he drive 50 miles to McCafferty Ford in Langhorne, Pa. Nazaruk did and ended up paying $1,000 less than the local best offer. As for the other Web site, ''I still haven't heard from them,'' says the retired firefighter.

Nazaruk is the kind of customer who could turn a 24-year-old dream into reality for Walter A. Forbes. Since 1973, the founder of Comp-U-Card has envisioned a day when shoppers would buy everything from Cuisinarts to couches via their home computers. But for years, this seemed like little more than a harebrained notion out of The Jetsons. So Forbes built CUC International Inc. into two dozen mail-order shopping, travel, auto, entertainment, and financial-services clubs, with some 68 million members and 1996 revenues of $2.4 billion.

But Forbes's time may have arrived. Today, the 54-year-old chief executive is pulling out the stops to make his shopping-club powerhouse an Internet phenom. In June, he opened the doors on his flagship Web site, netMarket, an electronic superstore offering price discounts of 10% to 50% off manufacturer's list prices on some 250,000 brand-name products--everything from perfume to Geo Prizms. To get those discounts, CUC has set up netMarket like its regular shopping clubs where the cut rates are made possible by membership fees. By the end of 1998, vows Forbes, netMarket ''will sell 90% of what you'd want in your home.''

The only question is: Will enough Netizens buy his goods? CUC has offered shopper's clubs on the Net for the past two years at its site that includes online access to its traditional clubs--Shoppers Advantage, Travelers Advantage, and AutoVantage, each charging, on average, $49.95 a year. But those sites are just interactive versions of CUC's traditional 800-number approach that claim some 350,000 interactive members--a decent following but no barn burner.

BIG BANG THEORY. Forbes has grander plans: turning netMarket into a mall-like site that links all these clubs--and more--into one locale. Today, netMarket offers travel services, deals on new and used cars, an auction site, games, a flea market, books, and flowers. But in the coming months, Forbes plans to add videos, financial services, and classified advertising--all for a single fee of $69.95 a year. What's more, he's linking all the CUC Web sites to get more bang for the buck. A Web surfer who visits the travel section of CUC's bookseller, Book Stacks Unlimited, for example, might see a link to a vacation trip to Maui and find details just a tap away in netMarket.

There's just one snag: Malls have a troubled history on the Net. In real malls, clustering stores makes shopping more convenient, but on the Web, zipping from one merchant to another is just a mouse click away. In June, IBM pulled the plug on its cybermall, World Ave. And iMall, which has some 1,600 online storefronts, lost $1 million on revenues of $9.2 million in the first six months of 1997. iMall CEO Richard M. Rosenblatt says the loss is the result of expansion costs, but analysts are gloomy about electronic shopping centers. ''Online malls are dead,'' says analyst Kate Delhagen of Forrester Research Inc.

Not so, counters Forbes. He predicts that in a few years, Net shopping habits will mimic those in the brick-and-mortar world, where 80% of sales are concentrated in a handful of merchants. Besides, he says, netMarket is not just a cybermall but a discounter that promises to match the lowest prices of its rivals. Jim Wood of Phoenix is a believer. He compares prices at Sam's Clubs and online discounters such as Onsale but usually ends up buying at Shoppers Advantage, and now netMarket. ''Their prices are just lower than any other place I've looked at,'' he says, after having bought a $200 (list price) trampoline for $70 from netMarket.

MIDDLEMAN. But CUC's real leg up may be its proven computer system for taking huge volumes of orders and delivering in a timely manner. ''Most of what will make Internet commerce successful is the blocking and tackling,'' says analyst Christopher A. Feiss of Alex. Brown & Sons Inc. ''None of this is a slam-dunk. But CUC has an advantage.''

NetMarket's modus operandi is different from most Web merchants, anyway. CUC cashes in on membership fees, not on the products, which it delivers as the middleman. On a traditional $49.95 membership, CUC loses $58.95 the first year in marketing and overhead costs. In subsequent years, it makes $30 per member, and since 70% renew on average, that has meant a steady revenue stream. Online members are even more lucrative, since they require less telemarketing costs.

Still, Forbes isn't betting the CUC farm on the Net yet. In October, CUC will merge with competitor HFS Inc., which owns brand names including Avis and Century 21 and makes its money on franchiser royalties. The combined company, Cendant Corp., should have 1997 revenues of $5.1 billion, says analyst James J. Pettit of Hambrecht & Quist.

That should cushion any growing pains netMarket might have in the near term--and give Forbes time to reach for his 24-year-old cyberdream.

By Susan Jackson in Stamford, Conn.


TABLE: A Directory of CUC's Online Stores


Updated Sept. 4, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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