In its second-largest acquisition, Amazon buys the company for $970 million.
The message from eTail 2001 was for online merchants to return to the abc’s of retailing.
The new reality in e-retailing was much in evidence at eTail 2001 in San Francisco in February. The stars of the show were the bricks-and-clicks and catalog retailers. And almost every speaker acknowledged that, even though the industry has been through a lot in the last three years, e-retailing is only starting. “We’re taking the first steps on what we think will be a 1,000-mile walk,” Shelley Nandkeolyar, vice president of e-commerce for Williams-Sonoma Inc., said in the opening address.
Indeed, the issues that the conference grappled with were the issues that retailers have dealt with for years-only, now complicated by the web:
- How to identify customers and create a customer relationship.
- How to market to customers.
- How to provide customer service.
- How to build an infrastructure to accommodate all channels of selling.
- How to create a customer-centric operation rather than product-centric.
“The customer experience is as important as the product itself,” Nandkeolyar said. “You must enhance the experience beyond the product.”
The new way of e-retailing is the result of many developments of the past year, Ray Arthur, CFO and senior vice president of ToysRUs.com, told the conference. “There have been many changed perceptions in the last year,” Arthur said. “The first-mover advantage is over-rated; building a brand on the web is costly; it takes more sales than expected to build a first-rate web site; there is a bottom to the capital markets; and bricks-and-clicks are well-suited to succeed on the web.”
ToysRUs is itself a good example of how selling on the web has changed. ToysRUs was the whipping boy of holiday shopping 1999 when it operated its own web site and left many customers disappointed on Christmas. Today, it is one of the leading e-retailing web sites, thanks to its recognition that bricks-and-mortar retailers need help to succeed on the web. Its partnership with Amazon.com has brought advantages that added up to push ToysRUs into the leading online toy retailer last year, even though it was not the first toy retailer to go on the web. The benefits that Amazon brought included a proven fulfillment system, a “world-class web site,” in Arthur’s words, marketing that leveraged campaigns by Amazon as well as ToysRUs, and higher efficiencies, Arthur said. “The whole process was very difficult and very emotional,” Arthur said. “ToysRUs wanted to protect its brand and Amazon wanted an excellent customer experience as well as to protect its brand.”
Hold the pepperoni
Throughout the ToysRUs-Amazon negotiations, both sides had to understand the cultural differences between the two organizations. Those differences were underscored during a late night session when negotiators ordered pizza. “We all got the meat pizza, they all got the veggie pizza,” Arthur said.
Today, ToysRUs provides the buying, merchandising, inventory control and management, marketing and content management while Amazon provides site design and maintenance, content development, fulfillment, customer service and marketing to its customers. Since the two reached agreement, Arthur said, “Our path to profitability has taken a quantum leap.” Traffic to Toysrus.com last year was 3.5 times what it was in 1999.
ToysRUs is also a good example of how an established retailer can leverage its brand to drive web traffic. In November, ToysRUs mailed 60 million Christmas wish books. The company placed a computer icon beside every item available on the web site. It included icons and product reference numbers in each of its newspaper ads. It included signs, posters and shelf signs promoting the web site in all 700 ToysRUs and 100 BabiesRUs stores. It included register displays and the URL on all shopping bags. During the holiday season, 1.8 million store shoppers each day were exposed to the promotions. “We participated in this for very little incremental cost,” Arthur said.
While most bricks-and-clicks and catalogers can leverage their marketing the way ToysRUs has done, they still must adopt other Internet-specific ways of bringing in customers. One of the most commonly used and most successful is e-mail marketing. J.C. Penney, for instance, has 4.2 million opt-in e-mail customers. “We are marketing to customers who are already online, rather than bringing customers online,” Paul Pappajohn, president of JCPenney.com, said. In 2000, JCPenney.com had sales of $294 million, up 188% from the year before and accounting for 9% of all merchandise sales at J.C. Penney. In addition, there is evidence that J.C. Penney’s web site is moving market share: 23% of JCPenney.com customers are new to J.C. Penney.
Spam e-mails, though, are not effective. Egghead.com, for instance, has an e-mail marketing program of 4.7 million e-mail addresses, of which 3.7 million are active customers; 60% of those receive regular e-mails from Egghead, which sells computers, software and computer supplies. “This is not spam,” said Jeffrey Sheahan, president and COO. “It’s providing a service that helps them buy more efficiently.”
Egghead’s marketing starts with analysis of customers’ behavior. “We want to know what they looked at on our site,” he said. “Did they take the questionnaire? What did they look at but not buy?” Each customer is assigned to a customer service rep, who calls the customer to develop a relationship. Egghead puts all the data about customers into a single marketing database.
From there, Egghead develops an e-mail dialogue with the customer. “You want to have many conversations with your customers,” Sheahan said. Egghead uses e-mails to highlight add-ons to purchases to capture high-margin items; cross-sells; new product information; newsletters about issues customers might be interested in; promotions from vendors; and information about recent orders, including updates and status reports. In addition, Egghead allows advertising from vendors, as long as it is relevant and consistent with the Egghead message.
Finally, Egghead has created graphically interesting e-mails. Those e-mails have a click-and-buy ratio of 40%. “We see dramatic increases in customer behavior as a result of this kind of e-mail,” Sheahan said.