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

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.

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

Like a huge snowball rolling through the retail industry, eBay.com Inc. continues to build the critical mass that sets it apart as a unique marketplace. EBay shows no signs of slowing down, even though its numbers are already impressive--41 million users last year driving $24 billion in gross merchandise sales, up 60% over the prior year, and more than $30 billion in GMS for the first three quarters of 2004.

A haven for hundreds of thousands of online stores, eBay is also becoming more recognized as a marketplace by major retail brands like Best Buy, which has found it a strong selling market for new, end-of-lifecycle computers. EBay is also emerging as a major force in automobile sales; eBay Motors has become the web`s most frequently visited car site with nearly 11 million monthly visitors.

And though eBay is not a direct retailer, but a selling platform for other merchants, it has emerged as a major brand in the retail industry. A study by Hitwise this fall found eBay to be the web`s most searched-for brand, beating out names like Wal-Mart and Amazon.

And now an entire new market for eBay is just beginning. Until now, its growth has been built on buyers and sellers in the online world. But with hundreds of independent third-party eBay drop-off stores cropping up around the U.S., eBay is entering the multi-channel world without even trying. It stands to pick up a new source of sellers who prefer to drop off goods to be sold at a physical location rather than deal with the complexities of selling online.

"The genius of eBay is that it has thousands of sellers working for it that it doesn`t have to pay," says Neil Stern, senior partner with retail consultants McMillan/Doolittle. "With the drop-off stores, it will have hundreds of brick-and-mortar sites without having to pay rent."

Over the past 100 years, he adds, the evolution of retail has been about how to bring the costs out of selling and be more efficient in distribution. "Discount stores were more efficient than department stores, and wholesale clubs were more efficient than discount stores," Stern says. "It seemed impossible to get below the operating costs of Wal-Mart or Costco. Then eBay comes along and says, `I don`t have to do any of that.`"

eBay Inc.
2145 Hamilton Ave. San Jose, CA 95125
Date Launched
1995
Unique visitors (monthly)
60,327,000*
Annual Web-Based Sales
$34,000,000,000**
Vendor Relationships
Site Design
In-house
Site Search
In-house
Content Management
Idiom
Payment Processor
PayPal, others

Fulfillment
NA
Affiliate Marketing Management
Commission Junction
Search Engine Management
In-house
E-Mail Marketing
Kana
Web Analytics
Omniture

Content Delivery Network
Akamai Technologies
*comScore Networks report, October 2004
**Internet Retailer est.of gross merchandise sales for 2004

In many instances, the easiest way for a retailer to succeed online is to find its niche and pursue it. But that`s what makes Macys.com special. It has been successful while appealing to a broad range of customers with an enormous array of products.

Macy`s doesn`t even try to be a niche player. Like its brick-and-mortar store customers, Macy`s online shoppers span a range of incomes as the site attempts to appeal to clearance shoppers as well as fashion-conscious shoppers.

Furthermore, Macy`s is selling a broad range of products from ready-to-wear and cosmetics to toys and area rugs. "We`ve doubled the number of items on the site this year over last year and we think our site is reflective of the best Macy`s has to offer," says Kent Anderson, CEO of Macys.com.

In growing its assortment, Macy`s has greatly expanded the choices in giftware and men`s and women`s wear, with significant expansions in categories like plus-size clothing. It added several categories this year, including area rugs, and is considering furniture and mattresses for 2005 or 2006.

But while some retailers focus on creating an image for their online sites, Macy`s concentrates on selling goods. "This is a site that is heavy into promotion and uses a lot of merchandising tools to get consumers to buy," says Lauren Freedman, president of The E-Tailing Group Inc. "It does a nice job with its bridal registry which is an important part of its business and its site search function has been designed to really get customers to the items they are likely to buy."

But with so much attention on direct selling, Macys.com isn`t all business. "We like to let customers have fun at our site. We have a web page where customers can watch our TV commercials," Anderson says.

Additionally, the site offers My Macy`s, which allows consumers to get personalized information about special events and sales at stores near them.

To get customers to its site, Macy`s relies not only on search engines, but also on a successful affiliate program. For example, it works with diet web sites to link customers to Macy`s plus-size clothing. It is also working with churches and schools that refer families to Macys.com, where the organizations get commissions on purchases.

Macys.com/Federated Department Stores Inc.
170 O`Farrell St. San Francisco, CA 94102
Date Launched
November 1998
Unique visitors (monthly)
7,000,000
Annual Web-Based Sales
$100,000,000+**
Vendor Relationships
Site Design
In-house
E-Commerce Platform
IBM Websphere
Web Hosting
NA
Site Search
Mercado Software

Content Management
In-house
Order Management
In-house
Payment Processor
Fifth Third
Fulfillment
In-house
Affiliate Marketing Management
LinkShare

Search Engine Management
In-house
E-Mail Marketing
YesMail
CRM
In-house
Web Analytics
Datanautics
Content Delivery Network
Akamai Technologies
Rich Media
Scene7

**Internet Retailer Top 300 Guide est., 2003

Office Depot Inc.`s OfficeDepot.com is one of those retail sites that consistently and quietly delivers, year after year. This is its fourth appearance in the Internet Retailer Top 50, a record exceeded only by the six appearances by Amazon and Lands` End. "Their web site shows that they really understand their audience," says Heather Dougherty, senior analyst with researchers Nielsen/NetRatings.

With sales in 2003 of $2.6 billion, Office Depot is No. 3 in Internet Retailer`s Top 300 Guide to online retailers. But the success of OfficeDepot.com is measured in more than sales--it`s also measured in how it has changed the relationship with the customer, says Monica Luechtefeld, executive vice president of e-commerce. For instance, 15% of communications with large customers has moved from phone to e-mail as has 30% with small customers. "That`s a huge behavior shift," she says.

That in itself raises other challenges that Office Depot is addressing, such as hiring the right contact center staff to handle written communications and finding ways to make sure that answers are prompt and thorough.

IRCE 2008 Conference Multi-Media CD-ROM

In content, Office Depot has beefed up its site in the past year with improved search functionality--"Search will always be big; we will continue to invest in search," Luechtefeld says--and has improved customers` ability to serve themselves. For one thing, it has developed in-house technology to help customers configure computers online. And it has taken that capability to the stores with web-enabled kiosks. As a result, Office Depot`s customer-configured PC sales both online and in stores have tripled.

It also has developed a search technology that helps customers narrow down their choices from hundreds to a few. "If a customer enters a generic word like `printers,` it`s not helpful to give them hundreds of results," Luechtefeld says. "So you ask them some simple questions like What do you print? Do you use a lot of color? Do you want high volume or low volume? and so on. By asking relevant questions in a language they understand, you narrow their search." The goal: provide four to eight options in the customer`s price range.

"They know who their customers are and they provide them with the tools to make decisions," Dougherty says.

Office Depot Inc.
2200 Old Germantwon Road Delray Beach, FL 33445
Date Launched
January 1998
Unique visitors (monthly)
3,425,000*
Annual Web-Based Sales
$3,000,000,000 (2004 est.)
Vendor Relationships
Site Design
Verso, In-house
E-Commerce Platform
NA
Web Hosting
NA
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Midwest Payment Systems, CCS, American Express
Fulfillment
WMS
Affiliate Marketing Management
LinkShare

E-Mail Marketing
XactMail
Web Analytics
Coremetrics, WebTrends, Keynote


Rich Media
Scene7

*comScore Networks report, October 2004

What began as a means to liquidate merchandise from bankrupt e-commerce companies during the Internet bust has evolved into not only a strong online vehicle for selling surplus goods, but also a new player in the online sales of books and CDs and in the online auction business.

This fall, during its first month in the auction business, Overstock.com managed 25,000 auctions and moved into the number-three spot in the online auction business. That is in addition to its discount retail business that sells more than 50,000 products.

Meanwhile, Overstock is pursuing Amazon and other top online book companies by offering a full line of book titles at what the company claims is 15% below the price of Amazon.com.

"We are pushing price and customer service," says Patrick Byrne, president. "We make it easy for shoppers to call us with questions and our prices are typically a lot lower than Amazon."

The attention to customer service is paying off. In a recent American Customer Satisfaction Index rating, Overstock got the highest first-time score ever, putting it among the top five online retailers and put it ahead of every brick-and-mortar retailer surveyed.

Besides getting into new businesses, Overstock is also hot on new services. It recently launched Club O, a loyalty program in which shoppers pay $29 per year and get 5% discounts on purchases and free shipping. It also has Club O Gold, for the b2b market in which companies pay $99 per year and get discounts between 25% and 30%.

The low prices and aggressive marketing are what many believe sets Overstock apart. "This company has clearly done a good job growing revenue, in bringing people to the site and in moving merchandise," says Derek Brown, analyst with San Francisco-based Pacific Growth Equities.

It remains to be seen whether that success in selling discounted merchandise will translate into success in the new ventures. "There will be some hits and some misses," says Brown.

To get consumers to its site, Overstock relies on both online ads and mass-media marketing. "About 75% of our advertising is done online and we`re not afraid to pay for performance," Byrne says.

Overstock.com Inc.
6322 S. 30000 East Suite 100 Salt Lake City, UT 64121
Date Launched
June 1999
Unique visitors (monthly)
10,000 000
Annual Web-Based Sales
$294,000,000 (2003)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
Vcommerce

Web Hosting
In-house
Site Search
Endeca Technologies
Content Management
In-house
Order Management
In-house
Payment Processor\
Cybersource, PayPal, Bill Me Later

Fulfillment
HighJump, In-house
Affiliate Marketing Management
LinkShare

Search Engine Management
In-house
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
In-house
Content Delivery Network
In-house/Akamai Technologies

Sears, Roebuck and Co. was hoping to learn something about online retailing from the new member of its family, Lands` End, which it acquired two years ago. It learned--and then some. This fall, Sears rolled out apparel sales on its web site, complete with the virtual model technology that Lands` End pioneered. But it went Lands` End--and every other user of virtual model technology--one better by allowing multiple brands to be tried on at the same time. And it incorporated the virtual model idea into a virtual room. Shoppers can see how comforters, wall hangings, tables and lamps look on a bed in a virtual room.

Now Sears is adding a few twists of its own to an online strategy. Chief among them is offering exclusively online products previously found in Sears stores, such as sporting goods, computers and DVDs. Visitors can also purchase large items, such as snow blowers, and pick them up at the store. The offering is a hit with online shoppers, 40% of whom pick up their purchases in 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 for consultants Retail Forward Inc. "They are striking a better balance with the web site to drive sales across the entire business."

Sears worked on the concept of web-only merchandise for a year before rolling it out late this year, according to Bill Bass, vice president and general manager of Sears Direct, who also oversees LandsEnd.com. "We have 870 stores and they don`t have the space to accommodate all the products we can offer online, even though customers want them," Bass says. "If we were to offer them in-store, it would mean shoe-horning them in, which is not good merchandising."

Sears is further refining its multi-channel strategy by using the web to test consumer acceptance of new products. The retailer initially offered a digital music player through its web site, until sales proved strong enough to warrant rolling it out in stores.

"Leveraging what Sears has learned from Land`s End has improved the site," says Wissman. "They have a bright future."

Sears, Roebuck and Co.
3333 Beverly Road Hoffman Estates, IL 60179
Date Launched
1999
Unique visitors (monthly)
9,000,000
Annual Web-Based Sales
$1,200,000,000**
Vendor Relationships
Site Design
In-house
E-Commerce Platform
BroadVision
Web Hosting
In-house
Site Search
Mercado Software

Content Management
In-house
Order Management
In-house
Payment Processor
NA
Fulfillment
In-house
Affiliate Marketing Management
Performics
Search Engine Management
Digital Edge
E-Mail Marketing
CheetahMail
CRM
In-house
Web Analytics
Omniture

Rich Media
In-house, Scene7
**Internet Retailer Top 300 Guide est., 2003

After years of playing second fiddle to the TV channel, ShopNBC.com is finally getting a chance to move to the forefront of parent Value Vision Media`s multi-channel retailing strategy. Eager to create a strong brand connection between ShopNBC.com and the ShopNBC cable television channel, management ordered the site to be rebuilt from the ground up this year.

The revamped site, which launched in the fall of 2004, features several new enhancements, including a live link to the ShopNBC channel, a more precise search engine, and graphic downloads in less than one second. In addition, richer product descriptions and easier navigation tools are intended to position the web site as a shopping destination and create a better overall shopping experience for the customer that will drive traffic between the web site and the TV channel, and vice versa.

"ShopNBC has made a lot of changes and is certainly heading in the right direction," says Robert Glenn Routh, managing director, equity research for Jefferies & Co. "The challenge now is to more closely market and link the online and television channels." Industry experts say ShopNBC is certainly capable of pulling off the feat.

Customer service will play a key role in ShopNBC.com`s effort to reinvent itself. A more advanced account management section has been added to the site that allows customers to check on the status of their orders by linking directly to Federal Express. "Customers told us they wanted that feature and now that it has been added, that complaint is gone," says Kevin Abramson, director of Internet marketing for ShopNBC.com.

Plans for further enhancements are also in the works, such as shopping guides that tell consumers how to set up a computer and how carat, clarity, color, and cut determine the quality and price of a diamond. "Our aim is to be a shopping resource that delivers the price points people want," says Abramson.

There is no question ShopNBC.com has made the right moves to reposition its site and become more than just an icon on consumers` computer systems. "The opportunities are certainly there to tie into the TV channel," says Routh. "Now they must show they can do it."

ShopNBC.com/ValueVision Media Inc.
6740 Shady Oak Road Eden Prairie, MN 55344
Date Launched
1998
Unique visitors (monthly)
780,000
Annual Web-Based Sales
$111,000,000 (2003)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house on .NET
Web Hosting
NA
Site Search
Google
Content Management
In-house
Order Management
In-house
Payment Processor
Paymentech
Fulfillment
In-house, CommerceHub
Affiliate Marketing Management
Commission Junction
Search Engine Management
In-house
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
Coremetrics

Rich Media
Real Networks

Take significantly discounted brand name merchandise, make it easy for shoppers to buy, then make it clear the deals are time-sensitive and in limited supply. Hordes of bargain-loving shoppers will beat a path to your door--or, in the case of discount retailer SmartBargains.com, your site. It`s no secret the combination of name brands and value appeals to consumers, but what sets SmartBargains apart is how it`s been able to mix in a third element, a sense of urgency, to drive sales. Or as CEO Carl Rosendorf likes to put it, "You snooze, you lose."

As it`s prepared this year for an upcoming IPO, SmartBargains hasn`t tampered with the formula. Instead, it`s worked to make the execution even more robust, with enhancements to the consumer experience, the merchandise offering, and back-end customer support. For example, it`s added the ability to sort by product attribute to help customers plow through more SKUs more quickly, and it`s reduced checkout from five steps to three. A new "Bill me Later" option adds a credit capability.

SmartBargains has also gone deeper into its existing categories and added new ones. A new co-branded relationship, Loehmann`s at SmartBargains.com, makes SmartBargains the exclusive online distributor for the high-end off-price retail chain. Overall, SmartBargains has more than tripled the items on its site at any given time from 3,000 to 10,000.

As it`s scaled up the business on the front end, SmartBargains has scaled up on the back end as well. This year it moved into a new 250,000-square-foot warehouse in Kentucky that`s operated by UPS Supply Chain Services, and it built a new order management system to speed up processing.

But it`s the ability to capitalize on consumers` love of snagging a deal before someone else does that remains one of SmartBargains` most important assets. "It`s a critical part of who we are," says Rosendorf. To underscore the point, the site this year launched a "going fast" feature on the home page that provides real time information on best-seller inventory as it runs down. "There are hundreds of products that sell out and hundreds that we launch every day," Rosendorf says. "So the sense of urgency is key to keeping consumers coming back."

SmartBargains.com LP
10 Milk St. Boston , MA 02108
Date Launched
November 2000
Unique visitors (monthly)
3,328,000*
Annual Web-Based Sales
$93,000,000 (2004)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
NA
Site Search
EasyAsk

Content Management
In-house
Order Management
In-house
Payment Processor
Paymentech
Fulfillment
UPS Supply Chain Solutions
Affiliate Marketing Management
Commission Junction
Search Engine Management
iProspect, Quigo
E-Mail Marketing
e-Dialogue
CRM
In-house
Web Analytics
Fireclick
Content Delivery Network
Akamai Technologies
*comScore Networks report, October 2004