IRCE 2007: Report from the Conference
GENERAL SESSIONS
JUNE 5, 2007
Innovation online
Day 1 Keynote Address:
The Web: Powering the Reinvention of Retailing
Jim McCann, chairman and CEO, 1-800-Flowers.com Inc.
Although 1-800-Flowers.com Inc. is approaching $1 billion in sales with a widely recognized brand, it never stops searching for innovative ways to reach and serve customers—such as through social networking and mobile commerce—founder, chairman and CEO Jim McCann said in the Day 1 Keynote Address at the Internet Retailer 2007 Conference & Exhibition in San Jose, Calif.
1-800-Flowers, which started selling online through CompuServe in 1992 and became the first online merchant on AOL two years later, does about 80% of its business online, the rest through telephone sales and a few stores. Over the years, the retailer has absorbed additional product lines to go beyond flowers and its brands now include The Popcorn Factory, baked goods retailer Cheryl and Co., household goods merchant Plow & Hearth, Fannie May candies and the Winetasting Network. A new brand in the works is 1-800-Baskets.com to cover the gift baskets market separately.
As the company continues to grow, McCann said, it will continue to brainstorm how to take advantage of new technology to build stronger online relationships with customers. "We`re trying to embrace technology to create the same kind of relationships we had with the 25 customers who came into our flower shop in our first year in Manhattan," he told an audience of about 3,000. "Today we have the challenge to be more personal with 25 million people on the web."
The future web
How eBay Will Continue Re-Shaping
the E-Retailing Industry
Gary Briggs, chief marketing officer, eBay Inc.
Warning that annual growth in retail e-commerce sales could slow over the next several years, Gary Briggs, chief marketing officer at eBay Inc., told attendees at IRCE 2007 that online retailers need to take advantage of high-speed bandwidth to provide innovative shopping experiences. "We underestimate the impact that bandwidth has on the way customers shop," Briggs said. "I don`t think we`re innovating enough."
Briggs said too many online retailers try to copy one another`s best and most popular features such as free shipping. "But sameness doesn`t generate consumer demand," he said. "We`re at risk of letting sameness make our industry mature more quickly." EBay is trying to reverse this trend by engaging customers to get their direct input on how they like to shop, Briggs said. Under one program, 500 eBay employees regularly receive e-mail messages from customers about what they think is working or not working on eBay.com.
To cater to a growing interest in mobile commerce, eBay customers can use mobile devices to visit a wireless-capable shopping site, select a product, then pay with a PayPal account. PayPal is an online payment services unit of eBay.
Innovation is the best way to keep growth strong in retail e-commerce, Briggs said. "We can change the growth rates in this industry, and see the industry grow faster than we`re estimating it to grow today."
Winning customers
What E-Retailers Must Know
About How Shoppers Use Their Sites
Ken Burke, founder, MarketLive Inc.
Venky Shankar, professor of marketing,
Texas A&M University
Visitor-to-sales conversion rates, though a common measurement of web site performance, overlook more useful data that can show e-retailers how to increase sales, according to a report based on a new e-retailer performance index from MarketLive Inc. released at IRCE 2007. The index is based on the web site activity of MarketLive`s customer base of nearly 200 client retailers, whose annual revenue ranges from $2 million to $200 million.
"Conversion rates are too ambiguous," Ken Burke, founder of MarketLive, said during his presentation. Rather than just looking at conversion rates, he added, retailers should look more closely at the clickstream data and web pages that lead to conversions and page abandonment.
Burke noted how some retailers have addressed such issues. Footwear brand Keds, for example, figured out that many customers like to shop by size. A new "shop by size" feature on Keds.com is the most-clicked feature on product pages, Burke said.
"The key is getting the consumer to trust the web site," said Venky Shankar, professor of marketing, Texas A&M University, who preceded Burke.
Shankar advised retailers to look at their customers` shopping behavior outside of the retailers` own shopping environment--such as through surveys or consumer panels--to get a comprehensive look at customer interests." If you don`t do that, you may never learn what your customers are thinking," he said. "Look for metrics that capture a 360-degree view of your customers."
Tackling channel conflict
Consumer Goods Manufacturers:
How the Web Is Changing their Business Model
David Schofman, CEO, Callaway Golf Interactive
Manufacturers want a direct relationship with the buyers of their brand--but that customer relationship has been closely guarded by retailers. David Schofman shared Callaway`s approach to strengthening the direct ties between Callaway and its customers in a way that also benefits retailers.
Consumers who want to buy online at Shop.CallawayGolf.com, the flagship store for its core brand, buy on the site, but the order is actually fulfilled by the authorized retailer with the desired product in stock closest to the customer`s location, he said. Dealers log onto the system to see what`s been ordered, registering any matches they have in stock. The system then assigns the order to the nearest matching retailer for fulfillment.
Schofman said the model addresses channel conflict issues by awarding all orders that come in to the site to retailers. A second program to sell new clubs, called Trade In, Trade Up, allows consumers to purchase new Callaway clubs at Shop.CallawayGolf.com, send in clubs they already own for trade, and receive a credit for the old clubs against the price of the new clubs they have just purchased. The traded-in clubs also can be credited against the purchase of certified pre-owned clubs at CallawayGolfpreowned.com.
Schofman calls the data Callaway posts online on pre-owned club trade-in values the "Blue Book" of the industry. "Retailers take no inventory risk," he said. "It`s all off our `Blue Book.` Our back end allows us to pay higher trade-in dollars, and the trade-in business feeds the pre-owned business."
Schofman encouraged retailers to work with manufacturers to develop programs that leverage each other`s strengths.
A bigger Wal-Mart
Wal-Mart: The Giant Uses the Web
to Extend its Market Reach
Brian Osborn, vice president of marketing, Walmart.com
Brian Osborn noted that while Walmart.com customers are slightly more affluent and younger than the core customers who shop Wal-Mart`s stores only, web shoppers also shop its stores. Osborn shared three initiatives recently launched online by the retailer geared toward helping both online and offline customers shop Wal-Mart more easily.
The first is a redesigned Walmart.com, which went up last October. Conceding that some consumers found the former site difficult to use, Osborn says the new site offers a better-organized home page, with streamlined left-hand navigation. Category tabs across the top are limited to a single row and key categories are identified as customers--not Wal-Mart`s merchandisers--view them. The same structure follows on inside category pages.
In a second initiative, Wal-Mart, which has been testing the order online/pick up in store concept since 2004 in some stores, expected to roll that option out to all U.S. stores by July, Osborn said. "Half the customers who pick up a site-to-store purchase buy $60 more when they are in the store," he notes. A third program, online visibility into in-store availability of products, started in April with 600 consumer electronics SKUs. Early results have been "positive," Osborn said.
"We will continue the drive to make shopping easier," Osborn added. "We believe the Internet is just scratching the surface in driving sales online and offline."
A closed case on the open Internet?
The Face-Off over Internet Regulation
David McClure, U.S. Internet Industry Association
Tod Cohen, vice president, global governance affairs, eBay Inc.
David McClure, president and CEO of a trade group representing telecommunications companies and others that provide Internet services and equipment, and Tod Cohen, vice president of global government affairs at one of the web`s largest retail organizations, shared opposing views on the future of and need for Internet regulation.
McClure dismissed as a "dying issue" concerns over the protection of "network neutrality"--basically, a non-tiered Internet service environment in which content owners such as retailers don`t have to pay telcos for faster content delivery. Though telcos are looking for revenue to support infrastructure building costs, setting up an Internetwide system of usage fees is impractical, McClure has said previously--one reason telcos say federal regulation of this aspect of Internet service isn`t necessary. A larger threat to e-commerce, McClure argued, is Internet taxation and state and local governments.
But in the absence of regulation limiting telcos from pursuing a tiered payment system for service, retail organizations remain concerned, and many, like eBay, are lining up on the side of establishing such regulation to protect network neutrality for the future. A tiered system, argues Cohen, would stifle innovation, as shoppers and their dollars would gravitate toward the "fast lane," that is, speedier Internet connections dominated by the wealthiest companies and web sites able to pay for it.
"Content from some sources can`t get preferred or exclusive treatment from an Internet network operator," Cohen says. "Data can`t cut in line ahead of data from other content sources. We support an `open` Internet."
GENERAL SESSIONS
JUNE 6, 2007
Small retailers, big growth
The Stars of the Top 500 Guide
Kurt Peters, editor-in-chief, Internet Retailer
The 100 smallest retailers in the Internet Retailer 2007 Top 500 Guide outperformed the Top 100 in web sales increases, growing by 23% and 19% respectively. The industry average growth rate remained at 25%, compared to growth for all Top 500 companies at 21.3%.
Sales growth among the smallest e-retailers indicates that the web continues to be fertile soil that creates a national market for niche players, said Kurt Peters, editor-in-chief of Internet Retailer magazine, said at IR2007.
Further evidence that the Internet enables the meek to compete with the mighty: the Top 25 retailers grew their combined 2006 sales to $52.9 billion, up 18% from $44.8 billion in 2005. By contrast, younger companies--those in business since 2004--grew by 55%, from $319 million in 2005 to $494 million in 2006.
The largest retailers still racked up imposing numbers and the ranks of billion-dollar retailers rose to 17 from 14 in 2006, Peters said. And total sales for the bottom 300 retailers were equal to Amazon.com`s sales growth in 2006 of $2.2 billion.
Among the largest online retailers, familiar names held down the top spots: Amazon.com was No. 1 as it was last year, followed by Staples and Office Depot--who flipped positions from the 2006 rankings. However, keeping up with or exceeding the industry`s 25% growth rate was accomplished only by Amazon, at 26%, and Staples, 29%.
Netflix continues to innovate
Day 2 Keynote Address:
The Transformation of the Movie Rental Industry
Reed Hastings, CEO, Netflix Inc.
Netflix is leading the pack in online DVD rental, but Reed Hastings knows that lead won`t last forever. To stave off decline, e-retailers like Netflix need to innovate at the speed of the Internet, he says.
Hastings, founder, chairman and CEO of Netflix Inc., was one of two keynote speakers at the Internet Retailer 2007 Conference & Exhibition in San Jose, Calif. Although his movie rental business has 6.8 million members and 80,000 titles, and ships 1.6 million DVDs per day, computer-based movies and TV shows are the latest and greatest things for Netflix.
Netflix competes with companies that offer mail-order movie rentals and/or PC-based film downloads and streaming movies. "We`re bundling them to get an advantage over those who do one or the other," Hastings said.
The new Instant Movie program enables Netflix members to watch movies in real time on a PC. The basic program costs $4.99 for five hours of viewing time, usually two movies.
Rather than present movies as a lengthy download experience, Netflix wanted to differentiate the product by offering virtually instant viewing, after a 15-second buffering period. Movie service customers can stop a movie at any time, leave the site and resume viewing later at the stopping point and skip around various points of a film.
Netflix has 2,000 titles available in the new program so far and video quality meets or exceeds existing DVD technology, Hastings added.
Niche e-retailers innovate
The Scotch Boutique: The Web Is Made for Niches
Fred Lerner, CEO, Ritz Interactive
Doug Nielsen, president and CEO, NetShops.com
Niche e-retailers take different routes to their specialties. NetShops.com started with one web site and built up to 150. Ritz Interactive was formed by a former Kodak film processing lab executive as the photo industry was shifting to digital.
The Internet created an opening for niche marketing and e-retailers like NetShops.com were quick through the door, said Doug Nielsen, president and CEO. NetShops has 150 specialty stores including BarStools.com and Dartboards.com. "The NetShops model is to own and operate stores where we can add value. We try to approach each market with a new view and make it easy to buy those products," Nielsen said at IR2007.
Fred Lerner, CEO of Ritz Interactive, took a more perilous route to niche retailing, surviving the steep decline of the photography industry in the 1990s as photo equipment and processing went digital. Formerly president and CEO of Kodak Processing Labs, a position he took after selling Lerner Processing Labs to Kodak, Lerner in 1999 co-founded Ritz Interactive, a specialty e-retailer that offers branded lifestyle products. Products are loosely linked, their origins driven more by research than kinship, Lerner said.
In addition to RitzCamera.com, WolfCamera.com and PhotoAlley.com, the company owns and operates BoatersWorld.com and eAngler.com, for fishing enthusiasts.
Niche marketing requires equal parts of foresight and nerve. After identifying the web as a new channel for selling digital cameras, Lerner said, "We acquired exclusive rights and licenses to RitzCamera.com. At the time, the business was non-existent."
Sometimes video is better than ads
Blending Video and E-Commerce
Tom Dickson, CEO, Blendtec
There is no comparison between online video and old school methods for getting the word out like print advertising, said Tom Dickson, CEO of blender manufacturer Blendtec, at IRCE 2007. And he should know.
Blendtec created humorous videos showing how its home blender product was so powerful it could blend anything from golfballs to garden rakes to iPods. It uploaded the videos to YouTube and created a site to showcase the videos, WillItBlend.com. The result: Millions of views and online sales that have increased by a factor of five since November, when the campaign began. "We met the goal of our brand awareness campaign," Dickson told conference attendees.
For the cost of a web domain (infrastructure and technology already were in place for the e-commerce site), a few hours of employees` time and the cost of an offbeat selection of items to blend, Blendtec boosted brand awareness, e-commerce site traffic and sales.
For retailers considering online video, particularly when used for viral marketing campaigns, Dickson said such videos must be entertaining and worth watching and allow for interactivity and questions from shoppers. "And you must be honest in every campaign," he added, "which has the potential to be seen worldwide."
Dickson had the chance to prove to conference attendees that the blending he does in the videos is real: He blended a rake onstage. The popular videos also have made Dickson a celebrity. One attendee retrieved the remains of the rake handle that hadn`t made it through the blender and got Dickson`s autograph on it.
Strong integration, strong stores
Why Retail Stores Can`t Put Up Web Stores and Forget Them
Brad Brown, vice president of e-commerce
and web strategy, REI
Integrating sales channels has been a key to the success of sporting goods retail chain Recreational Equipment Inc. The company`s executive team concluded that simply having an online store is not enough--a merchant must intertwine it with all aspects of shopping so shoppers know they have different methods and choices.
One way it relied on its web store to bolster business was to open an outlet business online only but market it well in its other channels.
"We have common inventory and merchandising methods for our channels. This allows us to test ideas much easier," explained Brad Brown, vice president of e-commerce and web strategy at REI and one of the Featured Speakers at IRCE 2007. "We looked hard at the outlet concept and how it would affect our stores and brand. So we tested it online, which was a lot easier than allotting store space and figuring out which products would be displayed. It turned out to be very profitable online and strengthened our relationships with our suppliers." Overall, retailers must take chances like this, but not shots in the dark, Brown added.
"For REI, tomorrow is not just placing bets after you figure out what the risks are. Multi-channel retailing is tough--you have to have overarching goals and execute well," he said. "Now we`re exploring social networking and mobile commerce. These are not a matter of if, but when. And that means carefully figuring out when our customers will be ready."
Going small could be big
M-Commerce is Happening--and Retailers Better
Get Ready
Levi Shapiro, director, Telephia Inc.
Jason Jhonson, vice president of product,
American Greetings Interactive
Though mobile commerce as a sales channel still is nascent, retailers should be considering how best to position their business in m-commerce today, said Levi Shapiro, director at Telephia Inc., at IRCE 2007. "Text messaging is here now. About 64% of mobile subscribers are texting today. And in the first quarter of this year, 74 million mobile subscribers accessed the Internet via their mobile devices," Shapiro said. "These represent enormous opportunities that e-retailers can use today to at minimum promote their brands. Using anything that people already are comfortable with, like SMS text messaging, can heighten brand awareness."
This is precisely what American Greetings Interactive has been doing for some time. The greeting cards giant saw mobile commerce as a way of breaking down barriers for male customers who wait to the last minute for special occasions and "fear getting in trouble," said Jason Jhonson, vice president of product.
"We supply a list of dates and reminders for customers--triggers, whether via the web or mobile devices--and then a quick and easy way for them to get what they need," Jhonson explained.
For retailers skeptical of m-commerce because of smaller screen size, Jhonson advised, "What you lose in form factor you gain in immediacy."
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