BUSINESSWEEK ONLINE : OCTOBER 23, 2000 ISSUE
BUSINESS WEEK E.BIZ -- COVER STORY Building the Perfect E-Tailer E-tailing was supposed to be a revolution. Yet it's beginning to look more like an evolutionary struggle in fast-forward. Indeed, the concept of pure e-tailing seems to be fading for all but a select few. In its place rises the notion of the multichannel seller, one that can deliver products online, from a catalog, or in a store. Here's a model of the multichannel e-tailer of the future. Design an easy-to-use site: Duh! Sure, it's a dead-obvious first step, but too many e-tailers sacrifice function for flash. iQVC found that 50% of customers went directly to the 'search' button to find products. So it revamped to allow users to search by size, color, brand, and price. Now iQVC buyers spend 25% more than their customers who don't use the Net. Craft cheaper customer-acquisition programs: Last year, e-tailers spent an astonishing average of 110% of revenues on marketing. In 2000, that's expected to drop to 44%. Instead of pricey TV ads, e-tailers are turning to e-mails and printed catalogs. Teen clothing e-tailer Alloy.com (ALOY) cut TV ads to send out millions of catalog, dropping its cost to acquire a customer from $30 last year to $20 today. Build expertise in merchandising: E-tailers forgot that choosing the right products to sell is a fine art. Many are shifting to higher-margin offerings. eToys (ETYS) is introducing 600 private-label products with gross profit margins of up to 60%--triple those of brand-name toys. As for the Web's vaunted depth of selection, only the biggest players such as Amazon.com (AMZN) and Buy.com (BUYC) can afford to do that. Leverage the real world: Except for early players like Amazon, single-channel e-tailers likely won't survive because it's too expensive to acquire customers just for online. That's why most need a combination of clicks, bricks, and slicks--a Web site, stores, and catalogs. By promoting its Web site in stores and catalogs, retailer Williams-Sonoma (WSM) spent 11 cents for each dollar sold last Christmas, vs. eToys, which spent 37 cents. Create new revenue streams: Even companies selling low-margin products like CDs can survive by adding extra services or advertising. By building six U.S. distribution centers, Amazon can charge for next-day shipping but only pay its shippers standard ground rates, adding up to three percentage points to its 23.5% gross margin. Build a bulletproof fulfillment system: Online shoppers expect fast, timely delivery, but companies selling online have to bring down fulfillment costs. Sporting-goods retailer REI redesigned its 350,000-square-foot warehouse, slashing shipping time to one day from a week and dropping the price of shipping customers pay by $1 per order. Create a killer data-analysis system: Web sites generate reams of data on shopping behavior. From that, companies can create personalized e-mails and creative promos. Luxury goods e-tailer Ashford.com found that repeat buyers spend double the $300 to $400 that first-time buyers spend, so it's targeting its 600,000 customers to boost repeat sales beyond the current 26%. Hire a dedicated customer-service force: You're not in the game unless you have phone operators, e-mail response, online chat, or easy-to-use online self-help. Lands' End's 2,500 sales reps answer questions live online, so fewer people abandon their online shopping carts. More than half of those who put goods in Lands' End shopping carts end up making purchases, vs. the industry average of just 22%. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS EBIZ Contents for issue dated Oct. 23, 2000 Cliff-Hanger Christmas TABLE: Building the Perfect E-Tailer TABLE: Breakeven or Bust TABLE: E-Tailers vs. Retailers Double Play TABLE: Toys `R' Both of Us Service, Please TABLE: Profile of the Online Shopper ONLINE EXTRA: Q&A with Toysrus.com CEO John Barbour ONLINE EXTRA: Q&A with Amazon CEO Jeffrey Bezos ONLINE EXTRA: Q&A with Toys 'R' Us CEO John Eyler INTERACT E-Mail to Business Week Online

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