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?"
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.
Walk into one of those dealerships and you can't help noticing that you're suddenly swarmed by...nobody, actually. Gone are the salesmen, clad in their Members Only-brand jackets, waiting to split off from the pack and serve up a suspiciously firm handshake. Instead, there's a carpeted area outfitted with oak desks and ceramic vases. There, in a living-room-like environment, shoppers can jump on one of three computers to access the Internet at the heightened speed of a T1 line, with MotorQuest's own home page as a guide to the Web sites of auto manufacturers, along with other sites that provide information on pricing, loans, and leasing, as well as reviews.
MotorQuest also offers NADA 2000, proprietary software that enables buyers to calculate the value of their current car directly from the National Automobile Dealership Association. NADA sends Coe monthly updates of the information. "The goal is to give the consumer everything on the Net along with all the sources of information that we have at our disposal," he explains.
To be sure, customer computers or kiosks, which shoppers can use to order products not in stock and to get additional product information, can cost tens of thousands of dollars, hog valuable floor space, and serve only one shopper at a time. But Burke and his nine interdisciplinary researchers have designed a "shopping assistant"--a handheld computer with a built-in bar-code scanner--that allows consumers to check prices and snag product descriptions from just about any spot in the store.
It could work like this: Before shopping, buyers would enter a personal profile that includes information about their dietary needs, budgetary constraints, and even a list of current prescriptions. Scan a bottle of olive oil and the computer might report that the salt content is too high, for example, or suggest a less pricey brand. The computer could even be programmed to retrieve recipes from the Martha Stewart Web site, based on the foods the user has stocked up on. "This sort of device can pull information from almost anywhere, including a store's server or a manufacturer's Web site," says Sonny Kirkley, a researcher from Indiana University's School of Education who works with Burke, "so the amount of information a consumer could access in the store is really limitless."
In addition, Burke has also developed an application that would allow shoppers to harvest reviews from like-minded people about which brand really did change their social life for the better. While the device could slow shoppers down (a definite no-no in the Internet age), Burke says his research shows that shoppers are willing to take more time if they believe it will result in a better buying decision on big items. "It takes about 12 seconds for a shopper to buy toothpaste," says Burke, "but something like a sofa is a more thoughtful purchase."
Adding 'searchability' to store aisles
Skirt the periphery of a supermarket--where the staples like milk and eggs always seem to reside--and you can't help wondering whether stores are as user-friendly as they could be. After all, retailers want shoppers to be exposed to as many situations as possible in which their impulse-purchase reflex might kick in, thereby boosting profits. On the Internet, by contrast, a resourceful shopper can locate and purchase products with just a few taps on a keyboard. That process, however, has one obvious limitation: it can take days or even a week to receive a book from, say, Amazon.com.
But what if brick-and-mortar retailers could combine Internet-like speed with the instant gratification of real-world shopping? To that end, Burke and his colleagues have added a product-finder feature to their handheld gizmo. Having trouble locating roofing nails? Scribble the product name into the handheld device, press Enter, and--voilĂ!--a map of the store appears on the screen indicating where the product is located. The device could also save time at the checkout line. If you've scanned your purchases while cruising through the store, a self-serve cash register could read the total from the shopping assistant and then bill a credit-card number that you've stored in the device.
Such technology, of course, won't be available--never mind affordable--for another year or so. Which is why retailers like Mike Largent have sought out simpler methods to speed up the shopping experience. Largent, president and CEO of Stambaugh Hardware Co., a $30-million chain based in Boardman, Ohio, has blatantly disregarded modern merchandising rules in the name of fulfilling consumers' cravings. Since purchasing the 153-year-old chain in 1997, Largent has built six new stores and has plans to open eight more this year. None is bigger than 13,000 square feet--as compared with the company's existing units, which run to 28,000 square feet--and each carries about 18,000 different products, a considerably lighter load than what is typically carried by competitors like Home Depot, which stocks between 40,000 and 50,000 products. "Part of the problem with the big stores is that you have to walk the length of a football field just to find a doorknob," he says.
In addition, each of Largent's 21 stores is equipped with a computer, enabling customers to choose from an additional 54,000 items through the company's Web site. He's currently making deals with large wholesale distributors that will deliver products to either the customer's home or the nearest store. "As a retailer today you just can't afford to forget the Internet," says Largent. "It's impacting everyone's business."
Create a habit-forming shopping experience
It's true that brick-and-mortar stores can't produce the same rich and vibrant interactive experience as their electronic rivals. But that doesn't mean they shouldn't try.
So believes Joshua Wesson, whose wine stores are practically walk-through Web sites. "The type of learning that the Macintosh took advantage of is precisely the sort of thing we take advantage of," says the cofounder of Best Cellars Inc., a two-unit chain based in New York City. "Our stores have a graphical user interface." Shoppers are expected to rely on visual cues, which is why the stores have no aisles.
To speed up the shopping process, Wesson has created a color-coded icon system for his entire inventory, which is priced at under $10 a bottle. Each wine falls into one of eight categories: fizzy, fresh, soft, luscious, juicy, smooth, big, and sweet. For each class, Wesson posts a colored icon along with a brief description. "Fizzy," for example, is "full of bubbles, full of fun." Wesson goes so far as to place icon stickers on the back of each wine bottle so that customers don't have to tote around a copy of Wine for Dummies to remember exactly what it is they've purchased. "We like to call it a point-and-sip environment," he says. Wesson, who employs 75, plans to open two more stores this year--one in Seattle and another in Chicago--as well as launch his own transactional Web site.
Compared with Burke's 3-D glasses, Wesson's real-world ideas seem quaint. Then again, the real world does have its limitations. But with the tools Burke is developing, even retailers with storefronts should be able to replicate enough of what shoppers value about cybershopping to make the trip worthwhile. "If you look at retail stores, they really haven't changed much in 50 years," says Burke. "The Internet is helping to force changes that were too long in coming."
Joshua Macht is a former associate editor at Inc.