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The Virtual Mall Gets Real


Information Technology: THE INTERNET

THE VIRTUAL MALL GETS REAL

Online buying is expected to hit $4.8 billion in '98, and the Net may now be the place retailers have to be

For the past two months, Office Depot Inc. has been using the image of Dilbert, the cartoon character, in its advertising to help sell everything from staples to personal computers. But now, the wisecracking Dilbert is going interactive. On Jan. 16, when Office Depot launches its online store, the cartoon character will double as a sales clerk who helps cybershoppers find what they're looking for and walks them through their first online purchase. Office Depot figures Dilbert may make the experience easier as a new crop of shoppers flocks to the Net this year. "People have voted with their mouse clicks that if you make it more convenient, they will come," says Paul Gaffney, Office Depot's vice-president for systems development. "There is a huge opportunity here."

Indeed, online sales have never been better. In the quarter just ended, cybernauts snapped up everything from airline tickets to tennis rackets, to the tune of nearly $1 billion--twice the volume for the same period a year ago and higher than any previous quarter, according to Forrester Research Inc. Experts now say that 1998 is the year when electronic commerce could finally begin to fulfill its promise as a vast new marketplace. Online sales are projected to reach $4.8 billion this year, double that of 1997. "We're moving people from being window-shoppers to buyers," says Robert W. Pittman, president of America Online Networks, the division that runs the No.1 online service.

So whose virtual cash registers are ringing in the New Year? The early winners are those hawking computers and other high-tech gear--$863 million worth in 1997, a total that's expected to grow 85% this year, to some $1.6 billion. Dell Computer Corp. is the PC king on the Net, selling an average of $3 million a day. But even lesser-knowns are making hay. Computer reseller NECX, based in Peabody, Mass., sold $60 million on the Web in 1997, a fivefold jump over the previous year.

The computer crowd won't hold sway forever. Sales of everything from music CDs to shoes are on the upswing. But the biggest corner of cyberspace activity could be in travel. Web merchants selling airline tickets and booking hotel and car reservations accounted for $654 million in sales last year. Travelocity, Preview Travel, and Microsoft's Expedia, for example, are booking more than $2 million a week, on average. And Travelocity says it has topped $3 million several times in recent months. It could get better yet. By 1999, travel is expected to be the No.1 electronic commerce category, with some $2.8 billion in total sales, according to Forrester.

OPEN WINDOW. Why are online sales taking off? For one, the number of U.S. households dialing into the Web is on an upward path: from 20 million in 1997 to an expected 26 million by the end of 1998, says market researcher Yankee Group Inc. That has prompted a slew of brand-name companies to open shop, including Bloomingdale's, the Gap, Sears, and Clinique--which, in turn, draws more shoppers. "This is a great way to get to a large number of people," says Angela Kapp, vice-president for special markets and new media for Estee Lauder Inc., which owns Clinique. "There is a window of opportunity here now."

Just so. Merchants hopping on the Net say that some of the impetus is seeing the success of early pioneers, such as Amazon.com. The Seattle-based startup was the first to open a mega-bookstore online, offering 2.5 million titles--more than any bricks-and-mortar counterpart. Amazon's huge selection, easy-to-use site, and hacker-free track record helped propel 1997 sales to an expected $131.7 million, up from $15.8 million a year ago, estimates Hambrecht & Quist Inc. Now, Barnes & Noble Inc. is fighting back, investing in its own Internet site, and bookseller Borders Inc. has plans for the Web, too.

The lesson: Getting on the Net early can be a huge advantage, especially for tiny startups. Even big-name retailers can't afford to wait. "I'm constantly pounding the tables, telling the companies whose boards I sit on, "Don't get Amazoned,"' says James F. McCann, president of 1-800-FLOWERS, which has been selling online for three years. Clearly, cybershoppers have signaled they won't wait for the brand names if Net startups can offer a good selection, discounts, convenience, and security. Danielle Battle, a housewife in Bedford, Mass., is a point in case. She has spent about $1,500 over the past couple of years at fledgling online stores, including Amazon. "With the modem and the PC, you have the world before you," she says. "It is a bit of fun and a big convenience."

WISH LIST. It's also getting more customer-friendly by the day. In recent months, many Web-site operators have gotten smarter about how to appeal to buyers. Walt Disney Co.'s site, for example, has made it easy to find shopping online by putting links to its virtual store on the opening page of its site--no more plowing through Web page after Web page. And this week, iQVC, the online division of QVC Inc., launched a separate section on its site called Gemsandjewels.com that offers general information about gold and stone cuttings. QVC also features a new service that lets visitors set up a wish list of items friends or family can look through when searching for a gift.

At the same time, merchants are streamlining the online shopping experience with better technology. They have improved so-called cybershopping carts that let consumers put the products they want in a virtual basket. That way, shoppers can continue browsing the site rather than having to pay for each product before selecting the next one on that site. And merchants, such as Amazon and L.L. Bean, are using passwords to preserve billing and credit-card information so that once shoppers register at a site, they don't have to fill in that data again.

E-merchants also are making headway in figuring out how to grab Web surfers' attention. Many online merchants have begun using the heavily trafficked Net search engine sites as a springboard to their sites. Consumers using No.1 search engine Yahoo!, for example, can click on an icon that links directly to Hallmark Cards Inc.'s Web site, where the greeting-card company offers 17,000 graphics and messages--some for free and others for a fee. And Yahoo!, AOL, Lycos, Infoseek, and Excite! have all introduced or redesigned shopping areas to highlight specific online shops, such as Eddie Bauer, Barnes & Noble, or J.C. Penney. Merchants can pay millions of dollars for top billing on these popular sites. "From a retailer's perspective, you can build a great store, but if the traffic isn't there, it's like a phone number in the white pages," says AOL's Pittman. "You've got to be where the people are."

SECURITY FEARS. Even with the improvements, shopping online isn't always a breeze. Consumers still have to type in order forms at each separate site. And the Web has a ways to go before it delivers on the promise of easy-to-find goods for every taste and price range. In November, Yahoo! and Excite introduced shopping tools that are designed to search according to price or product. Still, they include only a few hundred merchants. Technology that can scour the entire Web and the thousands of shops out there isn't available yet. And it's still hard to judge colors and sizes on Web pages. "I'm waiting for the online avatar that can make suggestions and show me how things look on me," says Harold Wolhandler, director of research at ActivMedia Inc., a technology consultant based in Peterborough, N.H.

Concerns also linger about security, especially among those consumers who are new to the Web. Technology developed by Visa USA Inc. and MasterCard International Inc. that outlines how credit-card transactions are handled by merchants and banks is still in the testing phase. That means that the marketing machines of two of the most trusted credit-card companies haven't begun pushing consumers to buy online--yet.

Still, some experts say the grassroots growth of cybershoppers is almost making the endorsement by credit-card companies a non-issue, especially when giants such as AT&T and IBM are pushing electronic commerce in TV and print ads. That could help put the Internet on any savvy shopper's list of places to shop till they drop.By Heather Green in New York, Gail DeGeorge in Miami, and Amy Barrett in PhiladelphiaReturn to top


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