The web drives retail

Merchants beef up their current sites and launch new brands online to make the Internet do more

When American Eagle Outfitters Inc. introduces its fourth major retail brand this fall in time for the holiday shopping season, the launch won’t feature a ribbon cutting ceremony or a spotlight shining on a storefront.

Instead, the launch of 77kids, an apparel brand that will target children ages 2 through 10, will happen where American Eagle Outfitters’ customers spend most of their time: online. “We’re launching 77kids as an e-commerce site first because we can target customers and perfect the marketing and merchandising strategy at a critical time faster than we can with other channels,” says American Eagle Outfitters chief marketing officer Kathy Savitt. “The Internet provides us with the perfect vehicle to reach a key audience of shoppers.”

Chains may have been asleep at the Internet wheel, but the economic potholes of the past year have awakened them to the web’s importance as a sales channel. For chain after chain—including Gap Inc. (No. 24), Office Depot Inc. (No. 3), Staples Inc. (No. 2), The Talbots Inc. (No. 64) and Williams-Sonoma Inc. (No. 21)—the web accounted for a small portion of sales last year, but a huge chunk of growth in total sales (see Internet Retailer, April 2008).

Even American Eagle Outfitters itself (No. 59), which had a good year in which total sales grew 9% and comparable store sales 1%, the web accounted for 21% of overall growth, while generating only 8% of sales. In 2007 American Eagle Outfitters posted web sales of $240 million, up 30% from $184.6 million in 2006.

The retailer, which began selling online a decade ago when it launched AE.com, an apparel and accessories web store for consumers 15 to 25, expects to achieve $500 million in web sales within a few years. “Our customers live on the web so we have to as well,” Savitt says. “We sell across multiple channels, but it’s the Internet that gives us the ability to launch new lines quickly and introduce marketing and merchandising strategies.”

The Internet is the fastest growing channel at American Eagle Outfitters because the retailer is working to keep its e-commerce strategy flexible enough to keep pace with the changing shopping and social behavior of a younger web audience. In 2007, the retailer redesigned its flagship e-commerce site and added features such as advanced product recommendation tools, better zoom and swatch functions and a product locater that uses ZIP codes to help shoppers find a particular item in the color and size they want that’s in stock at a convenient American Eagle Outfitters store. “We have a pretty relentless focus, so when a visitor clicks on AE.com they will land on a destination that’s all about social networking and shopping,” says American Eagle Outfitters executive vice president of e-commerce Fred Grover. “We are constantly adding to the web site in ways that cater to the lifestyle of Internet-savvy young shoppers.”

On AE.com, visitors can shop online, as well as register to vote, download new music each Monday, post videos about their favorite types of jeans and view other original content. American Eagle Outfitters was also an early believer in social networking to drive traffic to its own e-commerce sites and its chain of about 1,000 stores in North America. In August American Eagle Outfitters launched an entertainment series of video content that ran on AE.com, on social networks such as YouTube, Facebook and MySpace, in stores, and on TV.

The videos were a combination of American Eagle Outfitters’ original content as well as contributions by consumers in several genres, including music, comedy, drama and reality programming. American Eagle Outfitters called the entertainment platform 77Entertainment. It debuted with “It’s a Mall World,” a 12-episode series directed by Milo Ventimiglia of NBC TV’s “Heroes.”

The video featured the lives of two record store employees, a greeter at the American Eagle Outfitters’ store across the way, a young woman who works in a lingerie store and a young man from the mall juice bar. “Creating and delivering relevant content is another way for American Eagle Outfitters to maintain a lasting connection with our customers,” says Savitt. “By making content available online, in stores and on television, American Eagle Outfitters is aligned with how our customers live their lives every day.”

Other chain retailers also are adding videos, customer reviews, and features and functions in an effort to make their e-commerce sites more interactive. But what makes American Eagle Outfitters different from other chains and apparel retailers is its willingness to try new e-commerce strategies early and to use the web as the company’s major business development tool, says Jim Okamura, senior partner at retail consulting firm J.C. Williams Group Ltd.

“After a decade of perfecting the model for selling online to a niche audience, now they are leveraging the franchise and looking to do the same in other apparel segments,” Okamura says. “If they are utilizing the web to launch their latest brand instead of stores, that tells me they are using the Internet to drive a big portion of their overall corporate strategy and business development.”

Engaging interactive content and a consistent online shopper experience has helped American Eagle Outfitters build a loyal following. Today slightly over one-half of all web site traffic at AE.com—54%—is generated by repeat shoppers, according to Internet measurement firm Hitwise Inc. Visitors also stay longer at AE.com than at most other youth and teen-oriented online retailing sites, says Hitwise: 10 minutes, 37 seconds, compared with 10 minutes, 2 seconds at dELiAs.com, part of dELiA*s Inc. (No. 101); 9 minutes, 33 seconds at Abercrombie.com, the web site of Abercrombie & Fitch Co. (No. 54); 9 minutes even at JCrew.com, which is owned and operated by J. Crew Group Inc. (No. 50); and 8 minutes, 43 seconds at Aeropostale.com, the Internet arm of Aeropostale Inc (No. 203).

“The competition among apparel retailers for younger online shoppers is fierce,” says Okamura. “This segment has a very short attention span. If young shoppers are staying longer at AE.com than elsewhere, American Eagle Outfitters is doing a good job of targeting its customers.”

Extended franchise

American Eagle Outfitters now operates three web retailing brands and will end 2008 with two new e-commerce sites: 77kids.com and MartinandOsa.com, which launched in March as an online shopping destination for fashion-conscious men and women 28 to 40. The retailer can launch two new major Internet initiatives in the same year because it has the e-commerce infrastructure and business expertise to roll out a new brand quickly.

With the redesign of AE.com, American Eagle Outfitters found new ways to work with video and advanced rich media. On MartinandOsa.com, American Eagle Outfitters used that expertise to build a shop-by-outfit function that includes product videos linked to the shopping cart and another tool that lets a shopper layer an outfit with different looks or accessories in three dimensions and then proceed directly to checkout. “We spend a lot of time developing new technology, but when it’s ready to use we can leverage the applications across all of our sites fairly quickly,” Grover says.

American Eagle Outfitters operates a diverse and wide ranging e-commerce operation. Last year AEO Direct, its wholly owned e-commerce subsidiary, shipped web orders to customers in 41 countries. American Eagle Outfitters also is using the Internet as a component of its stores. The retailer has equipped about 500 American Eagle Outfitters stores with updated web-enabled point-of-sale terminals and will roll out new terminals to the rest of the chain by the end of the year.

The web-enabled terminals are now fully integrated with American Eagle Outfitters’ back-end systems and e-commerce platform. If a store customer can’t find a particular item, American Eagle Outfitters has trained sales associates to use the web-enabled POS terminals to locate the merchandise online and have the item sent to the customer’s home. American Eagle Outfitters pays for free delivery and return shipping.

Easy store shopping

The new POS terminals can complete the order in a single transaction and eliminates phone calls to a customer service center. “We use the Internet to make shopping in the store as easy as possible,” Grover says. “Even if they are at the mall in one of our stores, we always want them to have an Internet option.”

American Eagle Outfitters plans to open 77kids stores in the U.S. in 2010. But to build up the brand during the holiday shopping season and gain momentum into 2009, American Eagle Outfitters is also counting on its Internet channel to make 77kids an international brand. “The online launch of 77 kids will enable us to gather broad information on styling and sizing while establishing an immediate global presence,” Savitt says. “We are leveraging our e-commerce operation first, with bricks-and-mortar following next. We know what it takes to create a compelling online shopping experience for customers. With our e-commerce expertise, we are going after new opportunities.”

mark@verticalwebmedia.com

Web success for traditional cataloger comes from a new way of thinking

By Bill Briggs

A common requirement for catalogers who make the successful shift to the Internet is changing their way of thinking. That hasn’t been easy for retailers who mastered the ins and outs of direct mail but failed to keep up with their customers’ shift to the Internet. But for some catalogers the transition has been very rewarding.

Fingerhut Direct Marketing Inc. is one of them. The cataloger, which traces its history to 1948, has grown e-commerce sales by leaps and bounds from $52 million in 2005 to $82 million in 2006 and $144 million in 2007. It has steadily honed its merchandising strategy on product pages and upgraded its web site’s technology, features and functions, all of which contributed to sales growth last year.

But it has been a growing understanding that driving more business to Fingerhut.com, its e-commerce site, required a change of thinking that was responsible for achieving 75.6% growth last year, says Brad Smith, vice president, e-commerce and digital marketing.

“We wanted to think like and become more of a web marketer, knowing it’s an interactive medium,” Smith says. “We invested a lot of time and energy optimizing all of our online marketing activities including paid search, e-mail marketing, and the affiliate program. Each returned triple-digit growth in 2007 and fueled a lot of the online sales. ”

Remembering the basics

But Fingerhut also didn’t want to lose sight of the fact that, as e-commerce marketers, management still needed to think like direct marketers. “The web is, at its heart, a direct marketing medium and I don’t think enough web retailers think about it with the same kind of discipline that those of us in the catalog business have long thought about it,” Smith says. “So that means things like a lot more advanced and more frequent testing. At any given time we’ll be testing two, three or four things, whether different home page concepts, different treatments of the add-to-cart button, or different ways to present warranty offers. It’s all part of our daily DNA to make sure the site is as effective and usable as it can possibly be.”

Fingerhut’s 2007 web sales were enough to catapult the company into the Top 100—No. 96—in the 2008 Internet Retailer Top 500 Guide. The company’s growth was second-highest among Catalog/Call center retailers and the 23rd highest among this year’s Top 500 e-retailers.

Rebuilding process

Not bad for a company that was on the scrap heap in 2001.

After operating independently for 52 years, Fingerhut was bought in 2000 by Federated Department Stores hoping to gain some direct marketing insight. Fingerhut was shut down less than two years later after turning in low sales numbers. Buyers were waiting in the wings, however, and acquired the rights to the Fingerhut name from Federated in 2002.

Fingerhut has rebuilt itself as a direct marketer and consumer credit business and its growth is based on applying new technology to electronic marketing, warehousing and other operations that have streamlined product ordering and shipping.

Its web business targets a core base: price-conscious shoppers with average household income. In 2007, Fingerhut restructured Fingerhut.com with better site taxonomy and more streamlined shopping categories. The company reclassified its inventory of more than 25,000 SKUs, tripled the number of names in its e-mail marketing database to about 1 million and hired more digital marketing specialists.

Finding specific products on the web site was a chore for shoppers before 2007. “We had products in eight or 10 different places on the site,” Smith says. “We had products anywhere someone would want to find them. Our navigation was not filtering because everything was everywhere. It was very difficult to follow.”

Smith and other Fingerhut executives had come to a fundamental conclusion about e-commerce marketing. “We finally understood that people use search for specifics,” he says. “They don’t search the site to see what’s in electronics, they search for a DVD player.”

In addition to rethinking its web marketing approach, Fingerhut executives reviewed the site’s features and functions. For example, they rethought how to position add-on warranty offers and after some testing gave it a separate page. The result was an immediate double-digit increase in warranty sales.

The company also tested and implemented a new add-to-cart button that streamlined buying. Offermatica, now part of Omniture, conducted page and cart testing and assisted in establishing a master plan for ongoing testing of site features and functions, Smith says.

Annual redesign

Site redesign has become an annual event for Fingerhut, with the 2006 version devoted to the credit-based buying options the e-commerce site offers. 2007 focused on the shopping experience and growth reflects Fingerhut’s continuing shift of sales to the web, Smith says. E-commerce made up almost 33% of $440 million in total sales for 2007. That mix likely will shift upward for 2008, Smith says.

2008 initiatives include current plans to implement a new site search tool from Mercado. “It was the best fit for helping us build merchandising around search results,” Smith says. Go-live is planned for late summer.

Fingerhut also is contemplating customer ratings and reviews. “We’re not committed, but we’re doing some research,” Smith says. Testing new functions and ideas will dominate 2008 and future years. “We will invest more money in online marketing, such as behavioral initiatives retargeting those who have abandoned the site,” he says. The company performed some behavioral testing in 2007 with the help of Dotomi Inc., an online advertising services company.

To Fingerhut’s way of thinking, 2008 will bring more of the same pattern that it has followed for the past two years, with the web accounting for about 22% of total sales in 2006 and one-third in 2007. “In 2008 we will continue to invest in online media and convert more catalog customers to the web,” Smith says.

billb@verticalwebmedia.com

Online baby supplies retailer is growing up with its customers

By Bill Briggs

Start-up web-only retailers typically must crawl before they can walk, in terms of sales. For Diapers.com, the process has been compressed into a progression more like crawl-sprint-fly since its founding in 2005.

The company, which began as an online diapers, wipes and formula specialty retailer, relies on web analytics to meet its goal of delivering competitively priced products and great customer service as it caters to busy parents. Diapers.com’s first web site was designed to make purchasing simple and site upgrades have followed that pattern. “We deliver products at reasonable prices but with spectacular service,” says Vinit Bharara, chief operating officer.

In 2007, Diapers.com customers in any of the top 50 metropolitan markets received shipments in two days or less from either East or West Coast warehouses. And orders of $50 or more shipped free, Bharara says.

Satisfied customers keep coming back and that’s one of the key reasons Diapers.com is No. 231 in the 2008 Internet Retailer Top 500 Guide, up from No. 396 in last year’s guide. 2007 web sales were $36 million, a 227.3% increase compared with 2006 web sales of $11 million.

Diapers.com was the fastest-growing retailer in the web-only category and was second-fastest among all Top 500 retailers in 2007. The company also grew 340% in 2006, from $2.5 million in 2005 revenue.

Battling frustration

The business, founded by Marc Lore, CEO, and Bharara, was the result of their combined diapers needs as parents and the discovery that there were no web-based diaper retailers. They, like many parents, found shopping for diapers that came in many sizes and prices frustrating and the prospect of running out was even worse. The process was ripe for a new approach. In-depth planning and market analysis led the founders to launch Diapers.com and continues to characterize its strategic moves, says Bharara.

“We are very analytical in terms of who to go after and crunching numbers,” he says. Core marketing initiatives, with the exception of its referral program, are “pretty standard but our execution is probably superior because of all the analysis,” Bharara adds. Market analysis dictates how to create print advertisements, for example, and whom to target. Diapers.com does most of its web analytics in-house.

The company attributes much of its 2007 growth to continuing efforts to improve customer service, Bharara says. 2007 marked two milestones for the company: first was the hiring of its first employees and second, it brought customer service and fulfillment in-house and established its own warehouses to speed shipping.

Serving new moms, in particular, and new parents today means saving them time and providing a good price. It’s working for Diapers.com because news of reliable service travels fast. “A large part of our growth has been word-of-mouth,” Bharara says. “To the extent we can provide stellar service there is a ripple effect: Moms tell their friends and the business grows.”

Triple budget

To buttress sales growth the company tripled its marketing budget last year along with bringing customer service and fulfillment in-house. Marketing efforts include online paid search, affiliate marketing and print ads. Perhaps the most unique of Diapers.com’s marketing initiatives is its customer referral program.

The program enables customers to earn cash credits by bringing new customers to the site. Customers get a personalized code and when they refer others to the site, those newcomers earn $5 off their initial purchase by listing their sponsor’s code. Every time that newcomer makes a purchase, the sponsor receives a $1 credit.

“It’s a connection between friends and the referring customer gets notification that a friend has placed an order,” Bharara says. The credits—and sales—can continue for years, he says.

The credits also can continue beyond the diaper years, because Diapers.com is adding products for older children. New offerings include baby skin care, home cleaning, potty training and home safety products.

“We’re moving into age-based products beyond baby consumables,” Bharara says. “If the baby is 5 months old, we show returning customers information on solid foods. When the child reaches 11 months and is starting to walk we’ll show products that focus on baby safety.”

Diapers.com had about 850 SKUs in May and plans to double that number by year’s end. The expansion is part of a plan to personalize product offerings to customers based on what the company knows about their needs. New merchandising technology from Mercado this year will help personalize the site and show specific products and search.

Keep it simple

Also new in 2008 is an application from Coremetrics Inc. that enables web analytics by product. That will enable Diapers.com to analyze specific metrics by SKU, Bharara says.

A site redesign also is under way as Diapers.com continues to make the site as “simple, professional and easy to use as possible,” Bharara says. The new version will enable the company to add products easily as well. Early fall is the relaunch target.

Also new for 2008 is the opening of a third warehouse in the Midwest planned for this summer. “That will enable us to ship orders placed before 6:00 p.m. to be received within two days, and to reach most major metro area customers in one day,” Bharara says.

Diapers.com has come a long way from its first full year on the Internet. “In 2006, we had a very basic site, products were not well organized and there was no search function,” Bharara says. Since then, the company has focused on making sure operations are delivering sales growth.

billb@verticalwebmedia.com

Simple approach to going global

By Mark Brohan

Doing more with less is how American Apparel Inc. conducts business online, but that’s perfectly fine with web director Raz Schionning.

Using home-made applications that run on a Yahoo Stores platform, American Apparel, one of the largest U.S. manufacturers of T-shirts and related apparel, is on an e-commerce roll. In 2007, the company grew its web sales by 121% to $29.3 million from $13.3 million in 2006.

The web accounted for 8% of total sales while generating 16% of the total growth. “We think we can keep on growing our online sales at a very aggressive rate for several more years,” Schionning says. “There’s a growing demand for our products and we are using the Internet and e-commerce to build a global brand.”

Industry analysts and others have criticized consumer brand manufacturers as the laggards of online retailing. But someone apparently forgot to tell American Apparel, which in just over five years has grown a small Internet start-up operation into an established web business that draws more than 1.5 million web visits each month and carries an online inventory of 20,500 SKUs.

Surprise

Within a few months, American Apparel (No. 262) expects monthly web traffic to exceed 2 million visits. “We launched the site as a business-to-consumer experiment and we were very surprised by the level of growth at first,” says Schionning. “Now we see an opportunity to build up our online business into a very significant channel.”

American Apparel, which also owns and operates 187 stores in 15 countries, keeps its e-commerce infrastructure internal and simple to maximize efficiency and make design changes quickly and easily, Schionning says. The company designs its own pages, creates its own content and images and builds its own applications, including a forthcoming content management system and advanced rich media. All transactions are still processed on American Apparel’s original Yahoo Stores platform.

“Yahoo may have some shortcomings, but it has proved to be undeniably stable and efficient and it has also handled our rapid growth,” Schionning says. “We’ve extended the platform well beyond anything that was ever intended such as adding multi-lingual and multi-currency support. Yet with all this tinkering we’ve done, it never misses a beat.”

In 2007, the company also internally designed and then launched a new order management system that’s reduced by about 50% the time it takes American Apparel to post new products online and ship orders. “The online store was previously just an order taking system that tossed orders over the wall to the warehouse,” Schionning says. “Last year we merged our e-commerce operation with the fulfillment side of the business and built a very integrated and advanced order management system. We redesigned and optimized each touch point from the order update e-mails to packaging.”

Clear, clean, simple

American Apparel, which makes all clothing at its 800,000-square-foot facility in Los Angles and at other knitting, dyeing and finishing sites in Southern California, sees itself as a niche apparel retailer. The e-commerce site targets an audience of young urban shoppers ages 20 to 36 with garments that are simple, straightforward and priced under $100. “The web site is intended to deliver an online shopping experience that is clear, clean and simple to use,” Schionning says.

As an online retailer American Apparel also takes advantage of its manufacturing operation to react quickly to changes in shopper behavior and introduce complete new product lines, sometimes in as few as 90 days. “Our products are made in Los Angeles in the same building where the entire web development and web marketing staff is located,” Schionning says. “I can eat my lunch alongside the same men and women who made the product.”

American Apparel’s approach to e-commerce is using available resources to foster growth, he says. By sticking with its own internally designed technology and leveraging its expertise as a wholesaler, manufacturer and chain retailer, American Apparel expects web sales to keep on accelerating. “The biggest challenge we have is keeping up with the growth,” Schionning says. “Our online store is an important part of bringing our products to the world.”