Lessons of a Web shopping spree: The convenience is unbeatable. But the price most often is not

THE DIGITAL BAZAAR Click for June 22, 1998 issue

These days, it seems, everyone is talking about the deal they got by shopping on the Web. After all, it's less expensive for retailers to hang their shingle on the Internet than in a shopping mall--no rent and minimal staff, among other cost savings.

But don't rush to fire up that browser, expecting to click your way to a great bargain. While shopping electronically is almost always a time-saver, so far the economics of the Web are not being passed to consumers. Sure, at first glance there appear to be some deals on the Info Highway. But add in shipping and taxes, and there go the savings. Except for a couple of exceptions--say, in books and compact disks-- few online merchants are willing to upset the status quo by offering radically lower prices in their virtual stores.

Even Netrepreneurs such as eToys have no desire to be price pioneers. Instead, the toy merchant has a more modest goal of generally matching the price tags offered by rival brick-and-mortar retailers. ''We don't have lower pricing,'' says Phil Polishook, vice-president of marketing. ''Our research shows that while price is important, convenience is more important right now.'' And the establishment? Forget it. Brand-name manufacturers don't want to undercut retailers. And retailers certainly don't want to give shoppers a reason to stay away from their stores.

The bottom line: E-shopping is really about convenience, not price. The enthusiasm oozing from the colleague who just ordered a stack of CDs is really from the combination of an easy shopping experience and competitive prices. ''What really locks the consumer in,'' says Steve Johnson, a co-director of Andersen Consulting's electronic-commerce practice, ''is the convenience and the satisfaction of knowing that price is in the ballpark.''

To get a feel for what the E-shopper can find in the way of discounts, BUSINESS WEEK went on a cyber window-shopping spree. We decided to stay away from online auction houses, because many have surplus or odd-lot merchandise. Mostly we shopped for brand-name goods. We found some nice deals, but not many--at least not enough to declare online shopping the Price Club of the Internet Age. And we came across only one item with the kind of discount that gives hard-core bargain hunters that warm glow--a book at 50% off.

What did we shop for? Everything: clothes, watches, barbecues, blenders, vacuums, books, computers, airline tickets, insurance, cars, even bicycle helmets. In all, some three dozen products from name-brand manufacturers and retailers, ranging from Wal-Mart (WMT) to (AMZN) to Gap (GPS). Sadly, fewer than 10% of the products in virtual stores had better prices than what could be found on terra firma.

DOLLARS AND SCENTS. Those few good deals could be had on products ranging from the serious (books) to the sublime (perfume). Barnes & Noble (BKS) Online has a great deal on Freedomland, the new novel by Richard Price. At $12.50 for the hardcover copy, it is 29% lower than and 44% lower than its own store, where it sells for $22.50. Meanwhile, and other online booksellers such as Powell's Books are 30% cheaper than Encore Books, a retail chain where you can pony up $27.13 for the Price novel. As for those typically pricey perfumes, Fragrancenet, a four-year-old company, is selling a 4-ml bottle of Oscar for $9, 55% off the retail price.

You also save a few bucks at cyber shops that don't hit you with a local sales tax. In New York, for example, it's an additional 8.5% on top of shipping and handling costs. That's why buying a $149.99 top-of-the-line bicycle helmet online or through a catalog is $5 cheaper than walking into a bike shop in Wantagh, N.Y.

Still, buyer be aware. Remember those khakis that look so cool in the Gap ad on TV with the couples dancing? Well, it's cheaper to go to the store. A pair of women's slim fit khakis costs $41.84 if you buy them at Gap's online store. Walk into any Gap (in New York) and you'll save 12%, or $4.95, because you won't get hit with shipping charges. And while you're at the mall, check out that briefcase from Eddie Bauer you saw online for $60.03. You can walk out with it for $52.08--that's 13% less than it costs at the company's online store.

The same goes for lots of other products. At eToys, Mattel Inc.'s (MAT) Sing & Snore Ernie comes to $34.94, more than what you would pay by venturing out to a store. (Wal-Mart Online has it for $37.30.) But at Noodle Kidoodle (NKID) and Service Merchandise (SME) stores, the price came to $32.54, including tax. The best deal: $21.67 including tax, at good old Toys 'R' Us (TOY).

Ditto for that Timex watch. The 8-Lap Ironman Triathlon can be ordered from Timex' online store for $46.60. Stop in at Caldor (CLDR) and you can pick it up for $46.59. By the way, Service Merchandise has a sale running till June 28: That watch is $34.99 for walk-in or click-in trade.

Something just isn't computing. With all the talk about the Internet being a cheaper sales channel for businesses, why isn't that reflected in consumer prices? The economics of setting up an E-shop vary greatly, and so do the goals of most companies online. Manufacturers are not going to ace out their retailers with lower prices online. ''We don't currently have any plans to sell more online, it's disruptive to our channel partners,'' says Kathleen Rarey, director of corporate communications at Calphalon, a maker of cookware. The company has been selling online since 1997, but with a very limited line of products--fewer than 10 items that are discontinued or special order. ''We want to increase product awareness and drive consumers to retailers.''

Even QVC Inc., the king of home shopping, doesn't want to risk messing things up. It offers a few weekly online promotions at 10% below what's on TV. But the online unit, iQVC, mostly prices goods on par with the TV service, says Stuart M. Spiegel, general manager of iQVC.

BASE BUILDING. For now, E-shopping is still a new phenomenon, and many merchants have to recoup online costs before the benefits really kick in. Analyst Jamie Kiggen of Donaldson, Lufkin & Jenrette Inc. estimates that has spent up to $50 million to set up shop. But he doesn't expect the bookseller to reach the kind of scale--in buying power and customer base--that will give it significant volume until 2001. By then, he projects, operating margins will start to grow, reaching a healthy 12% by 2003, far above the typical low-to-mid single digits for a storefront bookseller.

One of the few discounters on the Web is Cendant Corp. (CD), which carries everything from clothes to cameras, and claims it will match any competitor's price. But Cendant's prices--between 10% and 50% below suggested retail--are possible because of the company's mix of paid membership and sales revenue. Cendant's services on the Web and America Online Inc. (AOL) have more than 700,000 members who pay between $40 and $70 in annual subscription fees. Says Scot Melland, senior vice-president of interactive services: ''Because of our scale, we sell a lot of stuff at a pricing advantage that other sites won't have.'' A Caffe Capri Espresso/Cappuccino & Coffee combo by Delonghi was cheaper by nearly $7 at Cendant than at Wal-Mart Online, which lists it for $79.96. But an Oster PowerBlend 10-speed Glass Jar Blender at Wal-Mart Online is $24.96, about $3.50 lower than at Cendant.

Just remember as you click your way from virtual store to virtual store: You may find E-shopping a great time-saver, but it may not be a big money saver.

By Ira Sager, with Heather Green, in New York


Updated June 11, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.
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