Mass Merchants/Department Stores
Boosting the scope of the web as a selling channel

Internet Retailer Best of the Web 2006

Amazon.com
eBay.com
JCPenney.com
Office Depot.com
Staples.com

Some of the biggest retail chains and online pure-plays are proving they have what it takes to turn consumers into loyal customers. As any traditional Main Street or mall retailer knows, merchandising that speaks newness, high-value and usefulness will turn consumers into shoppers, and offering great service and ease of shopping will keep them coming back as buyers. Build the store’s brand, give people a reason to come inside, and capture them with quality and service. It works in physical stores, and the biggest online players are making it work on the web as well.

Big retailers are also leveraging the uniqueness of the Internet channel to continue offering consumers more reasons to shop online, whether or not they also frequent physical stores.

Take J. C. Penney Co. Inc. It sets an example for national merchants by making its web site as useful and friendly as a favorite department store, as its web sales rose 35% year-over-year in the first half of 2005. In addition to offering shoppers a broad merchandise selection, JCPenney.com simplifies the shopping experience. “The home page presents a clean design with clear product categories and features that make it easier for shoppers to locate and browse for items,” says retail consultant Manivone Phommahaxy of Molecular Inc. “The category landing pages provide additional filtered views—shop by brand, shop by special size—to allow shoppers to quickly zero in on specific items that match their criteria.”

But J.C. Penney and other large merchants in this year’s Best of the Web Top 50 don’t rest on their laurels. They constantly improve the online shopping experience. Office Depot Inc., ranked third in Internet Retailer’s Top 400 Guide to Retail Web Sites, with $3.1 billion in 2004 sales—making it the Guide’s top-ranked brick-and-mortar retailer—continues to find new ways to please shoppers. “It’s about focusing on the basics and a ruthless commitment to exceeding the expectations of customers,” says Noah Maffitt, director of e-commerce and customer experience. Among OfficeDepot.com’s latest upgrades: the deployment of new analytics and site search technology that lets shoppers find more quickly what they need.

Staples Inc., ranked fourth in the Guide with $3 billion in 2004 sales, actively involves its customers in improving Staples.com’s shopping features. Earlier this year, thousands of customers participated in a usability project that resulted in a streamlined home page. Staples has made other shopping improvements after visiting customers and watching how they order products online.

The experiences of the web’s largest mass merchants, Amazon.com Inc. and eBay Inc., indicate that a single online brand has no limit to the sales volume it can generate. EBay, with $34 billion in 2004 gross merchandise sales, serves as a selling channel for 724,000 retailers selling anything and everything under the sun, and it has egged on Amazon to act as more of a mass merchant.

And Amazon, with about $8 billion in retail sales this year, continues to innovate ways for people to shop. Having evolved from an online direct merchant of books into a true mass merchant, Amazon’s innovative technology has even retouched its roots by letting shoppers buy digital sections of literature at 49 cents each.

Even after more than 10 years, Amazon.com still has a knack for pushing the envelope. Over the past year, it has introduced innovations that only add to its image as a cutting-edge retailer. In one instance—a deal with CoinStar Inc., provider of electronic cash-processing machines in grocery stores—Amazon found a way to make cash a payment option for online purchases. Under the agreement, consumers trade their spare change and dollars in for certificates redeemable on Amazon.com.

It also launched a program—Amazon Shorts—that allows customers to sample the work of new authors through exclusive short-form literature for 49 cents. Customers have three options for reading the pieces—on the web site, via a PDF file or by e-mail. And Amazon.com just last month announced that it is developing two programs that will enable customers to purchase online access to any page, section, or chapter of a book, or an entire book. The programs build on Amazon’s 2-year-old Search Inside the Book technology, which allows customers to search the complete interior text of hundreds of thousands of books.

One of every two books sold in the U.S. by Amazon are in the Search Inside the Book program, Amazon said. Based on those results, Amazon recently launched the program in the United Kingdom, Germany, France, Canada and Japan.

In another program, Amazon.com enables customers to create custom diamond rings in the Amazon.com Jewelry & Watches store. Customers can select from loose diamonds of various shapes and sizes and virtually set the stone into one of more than 200 setting styles.

Amazon.com is skilled at finding features that boost sales while creating value for customers, says Patti Freeman Evans, retail analyst at Jupiter Research. For example, before the holidays, Amazon.com tells customers how long they have to purchase an item if they wanted it delivered by Christmas. “There is certainly a business strategy behind that to create a sense of urgency to get people to buy,” she says. “But it’s also useful information for me when I’m planning.”

These innovations have paid off for the retailer. Net sales are expected to be between $8.4 billion and $8.7 billion this year, with operating income projected to range between $403 million and $478 million.

When eBay launched in the late 1990s, no one ever thought the online marketplace would continually change the definition of online retailing, but that is exactly what it has done. From bicycles and cameras, to furs and vintage guns, whatever consumers are looking to buy, chances are they will find someone selling it on eBay.

More than 724,000 retailers use eBay as an exclusive, primary or secondary sales channel making eBay the “It” place to shop, eBay’s tagline in its current television ad campaign. “There is just no arguing about the eBay phenomenon when it comes to online shopping,” says Geoff Wissman, vice president with consultants Retail Forward. “It has driven so many changes in the way other online retailers approach the channel.”

Wissman specifically points to Amazon.com’s attempts to reinvent itself by becoming more of a marketplace, rather than just a seller of books. “EBay has become a place people think of when shopping for a specific item, because they are likely to find a retailer selling it,” adds Wissman.

With a 168 million registered users, more than 50,000 categories and more than 900 million items listed, it is easy to see why retailers of all sizes have flocked to the site to hawk their goods. Since adding eBay stores in 2001, the site has attracted 336,000 store fronts. In addition, fixed price sales accounted for 32% of total sales during the third quarter of 2005.

Still, the backbone of eBay’s success are the mom & pop retailers with fewer than five employees, which account for the majority of sellers on the site. It is these sellers who benefit the most from eBay’s content pages, which include guides on buying vintage clothing, cosmetics, and Star Wars memorabilia, the type of items they are likely to be selling. It is this kind of dedication to connecting buyers with sellers that enable small online retailers to compete with the big boys.

“When we launched, conventional wisdom was that big retailers would dominate online retailing,” says an eBay spokesperson. “That hasn’t been the case, because the Internet provides tremendous leveling in the retail environment that allows the little guys to compete.”

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Which is what makes eBay the “It” place to shop.

Since its launch in 1994, JCPenney.com has played an increasingly larger role in generating sales for the middle market retailer. Internet sales increased 35% in the first half of this year, far outstripping the 3.5% growth in comparable department store sales. And online sales accounted for about 34% of total direct sales in the second quarter, up from 27% a year earlier.

That’s not surprising for a site loaded with features to make online shopping easy. “The home page presents a clean design with clear product categories and features that make it easier for shoppers to locate and browse for items,” says Manivone Phommahaxay, consultant for user experience at Molecular Inc. For example, shoppers can look for items using tabs, site search or item number.

The landing pages offer further means of narrowing a search. “The category landing pages provide additional filtered views—shop by brand, shop by special sizes—to allow shoppers to quickly zero in on specific items that match their criteria,” Phommahaxay says. “On many product pages, multiple product images, color swatches, and alternate or larger views are available.”

JCPenney.com also makes good use of cross-selling, listing relevant related items on the product page, Phommahaxay says. For example, on the page for a bedroom set, the site pitched a bookshelf table lamp and a pair of tealight holder sconces.

The site clearly posts on the product page notices about shipping and additional charges, with links to more detailed information. And the user remains on the product page after an item is added to the shopping cart, encouraging the user to continue shopping, she says. Catalog shoppers also will find something to like on JCPenney.com—a shop-able online catalog. Shoppers can flip through the pages by dragging cursors across the page or by clicking “back” or “next” buttons on the page.

Those uncomfortable with using the online version can fill out a form on the same page to have a paper catalog mailed to them. Shoppers can also print out online ad circulars of items on sale in J.C. Penney stores in their area. In addition to shopping, visitors to the site can also check their account information, track orders and view past purchases.

It’s great to be among the top three online retailers and do more than $3 billion in yearly web sales, but continuing to find new ways to please customers is a formidable challenge. “It’s about focusing on the basics and a ruthless commitment to exceeding the expectations of customers,” says Noah Maffitt, director of e-commerce strategy and customer experience at Office Depot Inc.

Office Depot continues to take steps to maintain its success online. In the past year, it has implemented web analytics from Coremetrics Inc., for instance, to get a better look at how customers use OfficeDepot.com, and it deployed site search and navigation technology from Endeca Technologies Inc. to provide more productive and personalized shopping experiences. “We continue finding ways to provide an experience that improves customers’ perception of Office Depot,” Maffitt says.

One of Office Depot’s challenges is serving the product and information needs of the corporate buyer as well as of the small business owner and general consumer. To build customer relationships and generate traffic, it presents online seminars on business topics unrelated to its products, such as compliance with the federal Sarbanes-Oxley law on maintaining business records; it offers an online space-planning design tool for office managers looking to buy equipment and furniture; and it’s working with Hewlett-Packard Co. to provide a rich-media showcase of computer products that appeal to all shoppers.

Office Depot has also improved customer service and fulfillment across selling channels. It recently launched a system that automatically alerts customers through e-mail or phone messages whenever delivery will be later than expected, and it has integrated its store and web site distribution centers, providing for more efficient deliveries.

It has also integrated its web site into its stores, helping to drive more sales. “Office Depot continues to enhance its long-term multi-channel integration strategy by offering customers and employees access to OfficeDepot.com through web-enabled kiosks, which helps drive sales across channels,” says Sunita Gupta, vice president of retail consultants LakeWest Group.

The multi-faceted approach to continuous improvement has pushed historically high conversion rates ever higher in the past year, Maffitt says.

When a web site has a director of usability, it’s a fair bet that it’s focused on making it easy for customers to shop online. No one takes the subject more seriously than Staples.com, which established a site usability group soon after it launched in the late 1990s.

The group’s full-time job is to test how well Staples.com responds to customers’ shopping needs, and to find out what those needs are in the first place. To get the job done right, it often goes directly to the source—the customers themselves, in visits to their homes and offices, and in focus groups at Staples facilities. “We think of customers as co-developers of the site,” says Colin Hynes, director of usability and a founding member of the usability group.

As part of a site redesign earlier this year, for instance, Staples involved thousands of customers in an online project that determined the categories in which shoppers most often expect to find products. The project resulted in reducing its number of office supplies categories to 17 from 24 and its number of technology categories to 17 from 25. “So now we can get all categories above the fold on the home page, and they’re more intuitive,” Hynes says. “We’ve found that less is better.”

Instead of asking multiple segments of customers how they order products online, the usability group watches how they place orders in focus groups. “We find out what works for them,” Hynes says. Staples realized, for example, that many shoppers needed reminders to order accessories like cables and ink cartridges when purchasing multi-function machines that print, copy, scan and fax; those machines are now displayed in shopping carts with suggestions for the appropriate accessories.

The re-design has won over industry observers as well as customers. “Staples’ redesign to update its search and navigation features based on different customer types makes shopping faster and easier,” says Sunita Gupta, executive vice president of retail consultants LakeWest Group.

When the site rides on its “Easy” marketing campaign, Staples can back up its promises knowing it has done its homework, Hynes says, noting that conversion rates and profit margins are both up since the redesign. “Staples is really going to stand for ‘easy’,” he says.