November 30, 2004, 12:00 AM

Mass Merchants / Department Stores: Winning by leveraging more of what the web can do

With some of the biggest annual sales figures in retail, traditional mass merchandisers once feared the Internet as competition - but no more. The presence of long-established brick-and-mortar retailers in this year`s Best of the Web Top 50 says that these have done more than make peace with the Internet: they`ve integrated it as a key part of multi-channel strategies.

Internet Retailer`s Best of the Web 2005

Amazon.com
eBay.com
Macys.com
OfficeDepot.com
Overstock.com
Sears.com
ShopNBC.com
SmartBargains.com

With some of the biggest annual sales figures in retail, traditional mass merchandisers once feared the Internet as competition - but no more. The presence of retailers such as Sears in the mass merchandiser category of this year`s Internet Retailer Best of the Web Top 50 says that these long-established brick-and-mortar retailers have done more than make peace with the Internet: they`ve integrated it as a key part of multi-channel strategies. At the same time, pure-play category winners such as Overstock and SmartBargains, Amazon and eBay show that the web did indeed deliver on the original promise of a virtual store with a reach exceeding any in the offline world. They`re using it to create excitement around an efficient marketplace for the liquidation of surplus goods, with some even diversifying into providing the technology initially created for their own purposes to support other online marketers.

Sears acquired Lands` End two years ago and has since tapped into its online expertise to improve Sears.com. It rolled out apparel on its site and also started leveraging the web for cross-channel use. For example, Sears.com now offers exclusively online products previously found in Sears stores, which shoppers can pick up in the store. All of these changes are creating a better integration between Sears.com and Sears stores. "Sears is leveraging what the web does well with what its stores do well," says Geoff Wissman, vice president of consultants Retail Forward Inc. "They are striking a better balance with the web site to drive sales across the entire business."

Overstock.com keeps using the web to push itself into new territory. It`s taken on Amazon over books, claiming prices on a broad assortment that are 15% lower than Amazon`s prices. This year, the online liquidator also launched online p2p auctions, as well as Club O, a loyalty program for consumers, and Club O Gold for the b2b market. SmartBargains.com, meanwhile, keeps dialing up the excitement of bargain-hunting--a key component of its formula--with features such as a "going fast" window that shows best-selling inventory in real time as it runs out, and with new offerings like the deal that makes it the exclusive online distributor for off-price brand Loehmann`s.

For the sixth year in a row, it`s impossible to compile Internet Retailer`s Best of the Web issue without including Amazon.com. It`s not only becoming a virtual Wal-Mart as a general merchandiser, but it`s also developing an effective mix as a direct retailer, a shopping portal and a technology platform provider. The pay-off for Amazon--and testament to what mass merchants with the right mix can accomplish online--is net sales projected to hit nearly $7 billion this year, up about 30% from 2003.


Amazon.com
Big and flexible

The biggest challenge facing Amazon may be its own success and knack for diversifying. "Diversification is good for growth, but you can diversify too much and not have a strong position in the mind of the Internet shopper," says Geoff Wissman, vice president of retail consultants Retail Forward Inc.

But while growing into a virtual Wal-Mart as a general merchandiser, Amazon is developing an effective mix as a direct retailer, a shopping portal and a technology platform provider, Wissman says. "They`re no longer just a retailer, but a shopping portal as much as anything," he says.

The pay-off for Amazon is net sales projected to hit nearly $7 billion this year, up about 30% from 2003, with operating income expected to come in between $415 million and $475 million. In Q3 of this year, net income more than tripled to $54 million.

Amazon continues to build into its revenue new income streams. Retailers like The Bombay Company are re-launching their sites on Amazon`s e-commerce technology platform; a growing number of retailers are operating their own boutiques within Amazon.com, and thousands of web developers are using Amazon`s web services to build new ways for affiliates to link buyers to it.

And yet another revenue stream emerges. Amazon launched this year its A9.com Internet search engine, putting it in a position to compete with Google and Overture for the booming search marketing market. A9.com`s unique features include the ability to search results from Amazon`s "Search Inside the Book" feature and from the IMDB.com movie database. By clicking a book or movie title, a shopper can view pages within the book or see streamers from the movie.

Amazon is still growing its own retail categories, too. It recently launched a Health & Beauty section, and its Electronics and Other General Merchandise category did more than $1 billion in sales in the last year.

With all its growth in different areas, its fundamental shopping features are still on the cutting edge, Wissman says. "They`ve kept their brand strong," he says. "Amazon.com still looks and feels like Amazon."

And so it`s no surprise that this is Amazon`s sixth appearance in Internet Retailer`s Best of the Web, a distinction shared only by Lands` End.

Amazon.com Inc.
1200 12th Ave. So. Suite 1200 Seattle, WA 98144
Date Launched
July 1995
Unique visitors (monthly)
37,488,000*
Annual Web-Based Sales
$7,000,000,000 (est. FY `04)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
In-house, A9.com
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
In-house
Fulfillment
In-house
Affiliate Marketing Management
NA
Search Engine Management
A9.com
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
Vividence, SAS
Content Delivery Network
Speedera

Rich Media
In-house
*comScore Networks report, October 2004


eBay.com
Retail evolution
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