RETAILING WILL NEVER BE THE SAME
Cathy Burke, a 55-year-old secretary in Kearny, N.J., is one satisfied customer. A few days ago, the mailman delivered a $50 pink pants suit and a $40 Kenneth Jay Lane faux gold-and-seed-pearl necklace that she purchased from home shopping channel QVC. She loves them. Burke has bought about 200 items from the network over the past five years. She shops for herself, her children, and her grandchildren, and keeps a "wish list" of QVC items so her family knows just what to buy her on holidays.
Burke spends an average of $50 each time she orders from QVC Network Inc.--most of it on clothes and gold jewelry. "I don't think I'd buy gold from anywhere else," she says. "I would never dream of going to the jewelry counter in a department store."
Gabe Doppelt, 33, editor-in-chief of Mademoiselle magazine since the March issue, says she has been "obsessed with television shopping for years." An avowed insomniac, she watches television all night. Among her purchases: everything from Ninja Turtle toothbrushes to throw pillows to wrap dresses. Does the editor of a hot fashion magazine actually wear dresses she bought on TV? "Hell, yeah," says Doppelt. "I wear them all the time."
No wonder many industry executives are saying that the business of retailing will never be the same. If you thought that home shopping was just about selling tacky figurines to the more woebegone denizens of trailer parks, guess again. It's already a $2 billion-plus industry and growing fast--about 20% a year. As cable systems upgrade to offer hundreds of channels, and, eventually, digital, interactive, and other media-maniacal technologies, home shopping promises to proliferate in ever more elaborate forms. The ultimate vision: a sort of video mall, where shoppers will browse through channels as through individual stores, ask for information and advice, order, and pay--all without leaving the comforts of home.
To the people who observed and invested in this industry, there was no surer sign of its promise than the arrival of Barry Diller. The Hollywood wunderkind who turned Fox Broadcasting Co. into a powerful fourth network bought a 3% stake in QVC, the second-largest home-shopping channel, last December and took over as chief executive in January (page 58). QVC's stock has shot from around 28 when Diller announced his investment to around 71 today. Its market value has soared from some $1.2 billion to more than $3.4 billion.
And when Diller announced on July 12 that QVC would merge with Home Shopping Network Inc., Wall Street and Seventh Avenue were abuzz over what the new alliance would mean for everyone hoping to make a profit off consumers who shop from home. The merger will create a $2.2 billion home shopping mega-network that will be available to more than 60 million viewers, or two-thirds of all television households. To many observers, it will also form a behemoth with the resources, audience reach, and marketplace clout to finally propel home shopping into its powerful, high-tech future. "If you include catalog and store sales," says Diller, "retailing is close to a $1 trillion business. So we're small in the world of retailing, but we have a lot of room to grow. And that's what we intend to do."
Until recently, there seemed to be just one piece missing from the picture--the big-name stores to occupy the video mall. After all, shopping by cable TV has been around for years: HSN was founded during the late 1970s and QVC in 1986. But most major retailers have resolutely shunned it as a downscale medium whose average viewer was a far cry from the urban and suburban sophisticates that merchants hanker after.
Not anymore. Suddenly, a stampede of department-store chains, specialty outlets, catalog retailers, and mass merchants are re-examining home shopping. Some are planning to sell their wares on the existing channels, such as QVC and Home Shopping Network. In fact, home shopping passed a milestone of sorts this spring, when tony Saks Fifth Avenue went on QVC twice with items from its "Real Clothes" private-label collection. Saks racked up more than $1 million in sales, and CEO Philip Miller was thrilled with the experience. Plenty of others will follow Saks' lead, Diller figures: "You'll see specialty stores, lifestyle, health, videos, recorded music."
Other retailers are hoping to launch their own full-time shopping channels, and still others are laying plans for high-tech interactive services. Then there are those spending big on "infomercials" that air on cable and broadcast TV. All in all, says Alan Millstein, a New York retailing consultant, "retailing has been profoundly changed by the dramatic success of QVC and HSN." What changed so many people's minds about home shopping? Its new image, for one thing. That's partly thanks to Diller. "Our business was growing," says Doug Briggs, QVC's executive vice-president of electronic retailing. "But Diller's arrival really raised the interest."
It also turns out that the home shopper is younger, better educated, more affluent, and more style-conscious than many people thought (table). And home shopping is the right idea at the right time: Shrinking leisure time and the swelling ranks of women in the work force mean fewer people have the time for a nice, long shop. Or the patience: More and more folks just hate the hassles and inconvenience of shopping in malls and department stores. And in the nervous '90s, even upscale shoppers are value-conscious, and value remains part of the aura of home shopping.
Then, too, the beleaguered retail industry has plenty of reasons to look for salvation. The past five years haven't been happy ones for merchants. Bankruptcies, store closings, the recession, and the generation of penny-pinching consumers it spawned sent retailers' sales into a tailspin. Sales growth slowed to 2% in 1990-91, compared with 4% in the mid-'80s. No wonder retailers are desperate for a new growth engine.
And home shopping has them salivating. "Let me tell you the wonderful characteristics of home shopping," says Peter Siris, an analyst at UBS Securities. "It's a low-cost distribution system. You don't need thousands of stores, and you don't need thousands of pieces of inventory in each location."
That also means the home shopping revolution could have some painful side-effects. As Millstein notes: "The three biggest expenses for a retailer are rent, sales help, and advertising." Home shopping could help retailers slash all three. The vacancy rate for U.S. retail space is already a painful 13%, and it's sure to climb if shoppers flock to the video mall. The retailing industry employs 19 million people, a number that has already fallen by 411,000 since 1989. That trend can only accelerate as the TV tube becomes the salesperson.
As for advertising, the powerful, targeted marketing of home shopping could eventually enable retailers to cut their conventional ad budgets sharply. Glossy magazines get much of their advertising from retailers who want to reach a certain kind of reader. And large department-store chains are the advertising mainstay of big-city dailies. "When you sell on TV," says socialite designer Diane von Furstenberg, "you do the selling and the advertising all at once."
CINDYVISION? She knows what she's talking about. Von Furstenberg has already sold more than $1.5 million worth of apparel on QVC and plans to use the channel to launch a new jewelry collection and a line of fragrances and home furnishings called "Surroundings" this fall. Von Furstenberg is a pal of Diller's and takes credit for piquing the Hollywood mogul's interest in QVC last year, when he accompanied her to QVC to watch her sell her "Silk Assets" apparel line. Now, she believes, Diller's challenge is to "bring in a new generation" of viewers.
That's clearly the strategy behind the Fashion Channel, a secondary channel QVC launched in 1991 that now has just 9 million viewers. By the end of the summer, QVC will announce a new format for the cable channel designed to reach a young, affluent audience. Diller won't give details yet, but it's a safe bet that the Fashion Channel will break out of its slightly schlocky mold. Supermodel Cindy Crawford is rumored to be interested in hosting her own lifestyle program on the channel. Executives from Donna Karan have shown interest, and a spread on QVC fashions called "Clothes to Watch" in Mademoiselle's August issue could help get the under-30 set to tune in.
Diller also has designs to take home shopping global. At his shareholders' meeting on June 28, Diller announced he was negotiating to broadcast in Japan and Canada. In early June, QVC announced plans to broadcast to Britain, Ireland, and parts of Europe in an alliance with British Sky Broadcasting, which is 50% owned by Rupert Murdoch's News Corp. QVC will be transmitted live from London starting Oct. 1. And in April, QVC announced a deal with Grupo Televisa to broadcast live in Mexico, Spain, Portugal, and Latin America in Spanish and Portuguese.
Back home, Diller is exploiting his Hollywood connections for all they're worth. For example, the producers of Free Willy, a new Warner Brothers movie about a boy and his whale, are scheduled to come to QVC on July 15 to sell merchandise tie-ins with their movie: T-shirts, baseball caps, and the movie's soundtrack. Susan Lucci, a.k.a. Erica Kane, the glamorous villainess from ABC's All My Children, will come on the show on July 17 to help sell merchandise connected to the soap opera--such as a limited, autographed edition of "Erica's" family portrait. And Joan Rivers has sold more than $60 million worth of jewelry on QVC, and is about to launch a new line of facial products and expensive costume jewelry on the network. Says Brian L. Roberts of Comcast, which together with Diller and Liberty Media will control the combined QVC/Home Shopping Network: "The Hollywood people around Barry will help turn this into more than cubic zirconium."
With or without Diller's friends, a parade of retail executives is giving a lot of thought to the idea of producing infomercials, launching shopping channels, or investing in interactive shopping ventures. R.H. Macy & Co. has announced plans to introduce its own 24-hour shopping channel during the fall of 1994. Richard Thalheimer, CEO and founder of Sharper Image Corp., is negotiating for air time on QVC in August.
Dayton Hudson recently aired a half-hour infomercial promoting a line of pillows and comforters. "We've been very encouraged by the initial results," says Jim Stirratt, Dayton's senior vice-president of merchandising, although he declines to discuss results. "Hopefully, we're positioning ourselves to take advantage of the new technology."
Many infomercial producers are delighted at the HSN-QVC merger. Much of the merchandise sold on infomercials also gets sold through home shopping channels. But until now, products pitched on QVC couldn't be sold on rival HSN--and vice versa. "The first thing I thought was that I just doubled my distribution," says Greg Renker, president of Guthy Renker Corp., which produced infomercials for Victoria Principal's line of cosmetics and Vanna White's Perfect Smile tooth whitener, among other clients.
Plenty of tony retail names you might not have associated with TV shopping are exploring the medium. Nordstrom, Bloomingdale's, and Williams-Sonoma--among others--recently aired their goods on NBC Direct, a one-hour program that featured merchandise from the anchor stores at Minneapolis' Mall of America. J.C. Penney Co., a home shopping veteran whose early efforts bombed, will join in the test of a new, interactive program called TVAnswer, a satellite video service that will allow customers to order merchandise via a remote control device. And Nordstrom Inc. in early 1994 will launch a traditional catalog as a stepping-stone into the science of direct selling, in anticipation of selling merchandise interactively within five to six years.
NIXED MEDIA. Even so, some retailers think television has a ways to go before it becomes an appropriate medium for their message. Says Michael Gould, CEO of Bloomingdales Inc.: "I think you have to be careful. I don't think the environment QVC has today is right for the way Bloomingdale's has to be positioned." Arthur Martinez, CEO of Sears, Roebuck & Co., shares Gould's wait-and-see attitude toward home shopping--even though Sears has been selling its Craftsman tools on QVC for years. "It's not clear what the underlying merchandising strategies are that will be needed to be successful in that environment," says Martinez.
The minds behind QVC/HSN have anticipated such concerns. Ultimately, as channels proliferate and their audiences become more selectively targeted, there should be room for nearly every kind of retailer in the home shopping future. That's why Gerald Hogan, CEO of HSN, isn't worried about the lowbrow image of TV retailing in the past. HSN, he argues, is simply the mass-merchant--the Wal-Mart or Target--at one end of the video mall. "We expect to launch additional channels that serve a number of different customers," he says. "The opportunities to offer the same retailing options in terms of customer segments that are available in the mall are going be available through your television."
Whoa. Does that mean video shopping will simply cannibalize store sales? Retailers, developers, and sociologists think not (page 60). "The shopping-center industry has been addressing the question of home shopping," says Paul F. Kastner, senior vice-president of marketing at the O'Connor Group, which has interests in 22 shopping malls. Kastner believes that retail stores "transcend" shopping by providing entertainment.
And retailers say they see home shopping as a vehicle to expand their reach and accelerate their sales--in other words, a way to increase distribution, not reallocate it. "This will never take away from shopping in stores," predicts Patrick Adkisson, Nordstrom's operations and business development manager. "People like the social experience of shopping. We think they may see something on TV and then go into the store and buy it."
For catalog merchants, the potential for self-pirating seems more ominous. After all, home shoppers in effect use their televisions as noisy, electronic catalogs that provide instant gratification. But like the department-store folks, catalog retailers insist TV will help them rather than hurt. Says Fingerhut Cos. CEO Theodore Deikel: "The catalog will always be the dominant vehicle [for us], and television will augment those sales." In May, Deikel signed a deal with ABC to produce infomercials for three of Capital Cities/ABC's cable channels: Lifetime, ESPN, and Arts & Entertainment. The targeted audiences of these channels make them appealing to marketers. Fingerhut, for example, will sell sports and fitness gear on ESPN and household items on Lifetime, whose audience is mostly women.
Macy's figures it doesn't even need to piggyback on someone else's targeted channel. The retailer, which has been operating under Chapter 11 bankruptcy protection since 1992, has formed an ambitious plan to launch TV Macy's, its own 24-hour shopping channel. Its partners are Cablevision Systems Corp., a cable operator on Long Island; Sixty Minutes Executive Producer Don Hewitt; former CBS Executive Vice-President Tom Leahy; and HSN, whose back offices will take orders and ship products.
Macy's executives have been uncharacteristically reticent about their plans for TV Macy's except to say that they hope eventually to capture 15 million to 20 million subscribers. Says one partner, Charles F. Dolan, chairman of Cablevision: "We're banking heavily on the impact of the Macy's name and the fact that they are wonderful merchants."
TWICE BURNED. A cautionary note, however: One big retailer that launched its own channel early on has already seen it sink. In 1991, Penney pulled the plug on the J.C. Penney Home Shopping Network after 18 months. The channel reached about 15 million homes in 725 markets. Trouble was, some of those markets overlapped with QVC, which offered a wider range of merchandise than Penney. As a result, the channel "never lived up to our expectations," says Al Bell, Penney's catalog director for strategic planning.
Penney also spent $106 million on Telaction, a cable-TV-based home shopping system that offered better-quality merchandise and a larger selection than had traditionally been associated with home shopping. But Telaction folded in April, 1989, after two years, never having expanded beyond the Chicago suburbs in which it started.
But even getting burnt twice hasn't made Penney home shopping shy. In September, the retailer will participate in testing TVAnswer, an interactive video service. Using a black box and remote control, customers will be able to order from Penney catalogs interactively via radio and satellite frequencies.
Seattle-based Nordstrom has even more futuristic visions. The upscale retailer recently produced a 12-minute video depicting a service called "Digital interactive TV" in an effort to present the store's vision of its interactive future. In Nordstrom's notion of the video mall, a well-dressed mother browses through video catalogs and magazines, talks by video telephone with her personal shopper, and watches a video about Nordstrom's black blazers. She freezes the frame on items of interest, orders the merchandise, and charges it to her "Market Center" account. It all looks very easy. Another idea, says Nordstrom's Adkisson, is to combine this interactive shopping experience with movie viewing.
How's that? "Let's say you're watching a Batman movie and Catwoman is wearing a black teddy," says Adkisson. "You could pause the movie and find out where you could buy the same one and order it right then." How close is Nordstrom to making "shopping from the movies" happen? At the moment, not very. Adkisson says the company will participate in three to four trials next year that may involve 10,000 homes at most, but it has not committed any money toward developing its own technology.
It may take retailers years to fine-tune their strategies for the video mall. Even when technology catches up to their visions, and millions of American homes are eventually equipped with the software that turns idiot boxes into smart TVs, merchants face huge marketing hurdles. Hiring the right spokespeople, developing the right spiels, and finding the right time slots to hawk their products will be critical to success in this fast-changing medium. But whatever they do, they can't afford to turn up their noses at home shopping ever again. There are already too many addicts out there crying for more.Laura Zinn in West Chester, Pa., with Gail De George in Miami, Rochelle Shoretz in New York, Dori Jones Yang in Seattle, Stephanie Anderson Forest in Dallas, and bureau reports