H&Q Analyst: The Bricks Strike Back

In e-retailing, brick-and-mortar stores are finally getting their due. That's the word from the Chase Hambrecht& Quist 28th annual technology conference, which concluded yesterday in San Francisco. "What we're seeing now is that there is tremendous value inherent in some of the old-economy assets, which are expensive and hard to build,'' says Bonnie Tonneson, senior analyst with Chase Hambrecht& Quist. "The stronger a brand, the better known it is, and therefore the less a company has to spend to drive traffic to a site or to get people to patronize a particular brand. So these old-economy assets, which many of the dot-com businesses took for granted, are taking on new value.''

     According to Tonneson, Williams-Sonoma is reaping the benefits from its merchandising strategy. "They did nearly $10 million in sales in the first three months that the site was up. Beyond merchandising strength comes vendor relationships, and with that comes buying power. Then finally, particularly if you're a catalogue operator, it helps to have some customer remote ordering database and fulfillment component. All of the above helped Williams- Sonoma move online.''

     Of course the rise of bricks-and-clicks retailing hasn't proved trouble free. www.toysrus.comToys 'R' Us, for instance, has experienced a hefty share of fulfillment and site availability problems. "They had the brand, in fact they have all the old-economy assets," says Tonneson, "but they couldn't support the business. What that tells you is: you'd better be sure you've made an adequate technology investment, an equally adequate direct-to-consumer fulfillment investment, and that you've figured out the picking and packing operations.''

     Tonneson especially likes PETsMART: "The advantage PETsMART.com has is being able to tap into the tremendous buying power of its parent company," she explains. "In terms of vendor relationships, it's about clout to negotiate better merchandise margins so that you can then in turn have a better operating model.''