Mortar Combat

Despite the daunting advantages of their Net-based rivals, conventional retailers have something in store to compete: new technology

With high-powered 3-D glasses covering his boyish face and his right hand gripping a joystick, Raymond R. Burke looks as if he's set to pilot a virtual jet fighter. Actually, he's about to go toy shopping.

The glasses enable Burke to step inside a dazzling virtual toy store in which he can view model cars and toy trains without having to fuss with any child-resistant packaging. If he wants to access reams of information--to find out, say, if a product is in stock--he can press a button and the answer flashes in an electronic box beside the item. And since the virtual showroom offers unlimited space, he can walk around (or feel as though he is) a fully assembled swing set that stands behind a giant slinky.

Burke is just doing his job: mock-shopping in a Cave Automatic Virtual Environment, a $500-million machine that works only with the help of a couple of ponytailed Ph.D.'s. As director of the Customer Interface Lab at Indiana University's Kelley School of Business, the 42-year-old devotes much of his time to developing and testing new ways for brick-and-mortar retailers to steal a few tricks from anxiety-inducing Internet-based newbies. "There are some things that are just better and easier to do on-line," says Burke, "but there are ways to bring those characteristics into the physical store."

That sounds backwards. After all, since on-line shopping started to click earlier in this decade, many critics have ranted about the Net's disadvantage as a shopping environment. According to the once-prevailing argument, Internet retailers were doomed because customers couldn't touch what they were buying--nor could they try it on or take it home. And besides, who on earth would be trusting enough to transmit sacred credit-card data into the unknown atmosphere of cyberspace?

Bargain hunters, that's who, and plenty of them. Last year consumers transacted nearly $8 billion worth of retail business over the Internet, according to Forrester Research. Granted, that's less than 1% of last year's $2.7-trillion total retail bill. But it's growing fast; this year cybershoppers are expected to spend more than $18 billion. But more than the raw numbers, what's truly shaking up the retail establishment--in segments ranging from toys to health supplies to used cars--is the inescapable awareness that ventures like eToys Inc. and E*Trade Securities Inc. represent the speedy emergence of a threatening business model. "An Internet business is a very scary competitor, because it doesn't need to make money right now and it has an extraordinary amount of cash," says Ananth Raman, an associate professor of technology and operations management at the Harvard Business School. "Sure, category killers and membership clubs were bad and you knew they could hit you, but you didn't think it would happen in six months."

Indeed, although Net-based retailers have yet to perfect their business models, they've demonstrated some core efficiencies that look downright unbeatable. And yet even with the power of Amazon.com and its $20-billion market valuation, only 1.9% of all adult books were sold over the Internet in 1998, according to the Book Industry Study Group in New York City. Most uppity "dot coms" are still out to "Amazon" their sluggish brick-and-mortar rivals with such potent weapons as price and selection. "The Internet has struck the fear of God into the typical retailer," notes Raman.

For bigger retailers, egged on by Wall Street, that translates into feverish deal making with new Web partners (Rite Aid recently announced that it will buy about 25% of on-line company Drugstore.com) or spending megasums to orbit their rivals in cyberspace (Toys R Us has invested more than $80 million in its on-line operations).

In the panic the behemoths have apparently overlooked an option that some smart small retailers are already exploring: conventional stores--as expensive to build and maintain as they can be--are not exactly evaporating. By employing a clear strategy, traditional merchants may even convert their earthbound structures into highly effective weapons as they battle against the "dot com" upstarts.

In fact, according to Burke's research, the characteristics that on-line consumers most appreciate about Internet shopping aren't out of reach of the Net's brick-and-mortar counterparts. What consumers crave, reports Burke, is lightning speed at the checkout line, convenient locations, and access to reliable information about the products they want.

In March and April of 1998, Burke surveyed a nationally representative sampling of about 2,400 retail customers. Only about 12% had shopped on-line in the previous three months, but those consumers tended to be more affluent and better educated than their noncyber-savvy counterparts. And, in many instances, the customers who had browsed the Web for bargains tended to shop slightly more frequently than the typical consumer. Of those who shopped in real-world discount stores, only 57% were satisfied with the speed of the shopping experience. And even more demoralizing was the fact that only 44% were content with the amount of product information found in real stores.

Moreover, many typical retail-store customers weren't waiting in line because they feared being on-line. In fact, more than 70% said they believed they would benefit from in-store technologies, such as kiosks or self-scanning machines. For Burke, whose research is bankrolled in part by retailers like Sears, Roebuck and Target, the numbers suggest that retailers can deploy new technologies to serve up the benefits of on-line shopping right from the shopping floor.

But a major part of Burke's expertise is in developing and researching shopping innovations, not studying companies. There are, however, retailers--and yes, they do take up actual space in a physical dimension--that have arrived at similar conclusions simply by watching their customers. They've even begun to act. "There's no sense trying to hide information from people, because there is nothing they can't find on-line," reasons retailer Renny Coe. "So why not show them that we have nothing to hide?"

PRODUCT INFORMATION
Too much is about right

Coe's comment may seem ho-hum until you consider that the business he's in is not exactly renowned for its openness with customers.

But even the car business--Coe serves as general manager for MotorQuest Dodge in Dearborn, Mich.--has been wrenched open by the Internet's information free-for-all. For the plugged-in car buyer, Web-based merchants like Autobytel.com offer smooth routes around the often harrowing trip to the car dealership. Consumers now routinely find sales quotes, compare different models, and scan safety records before they ever sit behind the wheel.

Of course, many retailers and manufacturers trickle out only as much information as serves their ends. But on-line merchants don't attempt the impossible task of restraining consumers from seeking out a slew of data sources. On-line consumers use the Net to scan through any information that might help them to make a product decision. In so doing, shoppers have sent a blaring message: unbiased information is often more valuable than actually having the product itself.

That message reached Joe Ricci, an owner of MotorQuest Automotive Group, the parent company of the car-dealership chain. Since he founded the business, in 1996, Ricci has spent nearly $5 million to refurbish its existing locations in Dearborn, Mich., and Wellesley, Mass., and to add a third location in the Detroit suburb of Southgate. His goal: to create a homey environment where customers can access all the information they could want.