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Retailing December 6, 2007, 5:00PM EST

More Clicks at the Bricks

How retail stores are scrambling to catch up with shoppers empowered by the Web

by Nanette Byrnes

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David Butow/Redux

A couple of years ago, Erik B. Nordstrom, store president for his family's retailing empire, noticed something disturbing. Customers were no longer wowed when his staff offered to call other stores and find that out-of-stock size 6 black cocktail dress. Instead, "they looked at us like we were crazy," he says. "'Why don't you just go on your computer and find it?' they'd ask." Suddenly, the department store's vaunted reputation for customer service, nurtured for more than a century, looked dangerously dated. And as far as Erik Nordstrom was concerned, the Web was to blame.

The Internet hasn't destroyed brick-and-mortar retailing, as many once feared. But has it ever changed consumer behavior. Across the U.S., stores are playing catch-up with shoppers habituated not only to the speed and convenience of purchasing online but also to the control it gives them. The Web provides shopping when you like, where you like, with access to gobs of research—from a product's attributes to where it's cheapest. No real-world store can replicate all that.

But increasingly retailers are trying to give customers more control over the shopping experience. That often means bringing Web-style technology into the store. AMR Research estimates retailers will spend $766 million this year, up 14% from 2006, on things like cash registers that locate inventory. Bloom supermarkets, which are owned by Food Lion, have poured money into a sophisticated system that allows shoppers to pick up a scanner and grocery bag at the front of the store, keep track of the bill as they shop, download the scanner at the self-service checkout, and pay. Voilà—the weekly food run with fewer hassles, in Internet time. Retailers know, of course, that gadgetry will take them only so far. So they're trying to replicate the best things about the Web but in a more personal way. That's why Best Buy (BBY) is retraining its sales employees so they know more about their products than their Google-happy customers.

Whatever the approach—high tech or low—retailers know it's crunch time. Services are popping up that allow consumers to use their smartphones to learn what other retailers are charging for a given item, which means competing on price is no longer enough. Meanwhile, industry watchers are citing declining foot traffic as evidence that shopping, the other great American pastime, may be losing ground to Web-based entertainment. "Five years from now," asks Barnes & Noble (BKS)Chairman Leonard Riggio, "to what extent will people see buying a gift at retail as essential?"

FORGET FEDEX

Over the past few years, most big retailers have built thriving online stores. And increasingly they're using them to coax shoppers to their brick-and-mortar outlets. Many now allow online shoppers to pick up purchases at their local store. It's a smart move. Impatient consumers need not wait for the FedEx (FDX) guy. More important, getting people to show up gives retailers an opportunity to sell them more stuff.

Circuit City Stores (CC) has been particularly aggressive on this front. The electronics retailer promises that online purchases will be available for pickup in 24 minutes. If the item isn't ready, shoppers get a $24 gift card. Circuit City reports that 50% of its online orders are now picked up in stores. And staff make a point of pushing accessories: Do you want a carrying case for that camera, sir? Ben Tan, a computer programmer from Brooklyn, N.Y., recently ordered a $40 Sony (SNE) AM/FM radio online for his wife. "She wanted it sooner than later," he says. So he went to the store. In the spring, a similar program at Wal-Mart (WMT) drove a 20% increase in the number of customers who spent an extra $60 during pickup.

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