Mass Merchants/Department Stores

Guide to E-Commerce Technology

Internet Retailer Best of the Web 2007

Amazon.com
Buy.com
Costco.com
JCP.com
SmartBargains.com

Plain and simple, the Top 50 online mass merchants are very good at what they do. In the age of web retailing specialization, the trend is toward finding a niche and sticking with it. To be almost all things to all shoppers yet still deliver a superior customer experience, online mass merchants must constantly innovate.

This year’s top 50 mass merchandise sites are no exception. Amazon.com continues to set the trend for what a mass merchandise site should be. For instance, tagging, an online activity that arose with consumer-generated media, is getting official recognition from Amazon.com. The retailer has borrowed from the concept to create a new Search Suggestions feature aimed at helping shoppers find on Amazon.com what they are looking for. The program gives users a means of submitting recommendations for connecting a product to specific keywords, along with an explanation of why the connection is relevant. Once approved by Amazon, the product and the relevancy explanation appear in search results the next time a user searches Amazon.com under those keywords.

Buy.com, a pioneer in marrying social networking and e-commerce, is now among the first merchants to introduce video product reviews. J.C. Penney has become a $1 billion web retailer in part by constantly developing new digital innovations such as its interactive window treatment center that enables customers to mix, match and layer window treatments and preview how different styles and colors will look in their homes.

The Top 50 mass merchandise retailers know who their customers are and what they want. Costco.com, which expects to generate $1 billion in online sales in 2007, recently expanded its sporting goods, housewares, baby, and gourmet food categories and launched a new business products program with thousands of items. Smart Bargains relaunched its site in September with a new logo, a new tagline—“Your personal bargain hunter”—and a new site experience.

When it comes to succeeding in this category, Smart Bargains vice president of marketing Mark McWeeny puts it well: “We want to exceed customer expectations every time.”

In a nutshell, Amazon.com just keeps getting bigger and better.

Having originally honed its science and art on books, music and movies, Amazon.com has branched out so far that it defies categorization. A department store? Maybe, but one that has its own video show, “Amazon Fishbowl with Bill Maher,” and gives floor space to a travel agent, Sidestep.com, and a financial services advisor, Fidelity Investments. What Minnesota’s Mall of America did years ago to the United States is what Amazon.com is doing today: it’s the Mall of the Known Universe. It is providing the operational underpinnings for a never-ending stream of partner stores, as well as making its own forays into groceries, movie downloads, jewelry and, to put it mildly, more.

Not only does the whole site function like clockwork, but the abundant features, which could be cluttered and distracting in lesser hands, work together to enhance the customer experience. In fact, the site does very well at letting the customers do the selling. There’s Listmania, where customers post their “Best of ...” lists, for example. And of course there’s Amazon’s longstanding product review feature, which has set the industry standard.

Whatever a customer buys, whenever they buy it, Amazon remembers and is right there with in-kind recommendations whenever a customer drops in. If they wander off-target over time—if, say, a customer’s juvenile reader has moved on to Harry Potter and no longer needs those “I Can Read” titles—the customer can visit “Improve Your Recommendations” to set things straight.

The company’s tremendous cross-selling capabilities boost its sales. Seeing what else was purchased by fellow customers for a given item can lead a shopper far afield from his original quest to things he didn’t even know he wanted.

In a newer feature, Amazon connects readers and authors through Plogs, or personal collections of blogs, where customers can read blog entries from, for example, authors whose books they’ve purchased. After all, who better to sell a Stephen King book than Stephen King?

In a fast-changing environment like the Internet, one of the most difficult challenges is deciding when to go with new technologies and retailing strategies and when to hold back and wait for others to forge ahead. Making the wrong choice can result in over-spending on new-fangled things without a ready customer base—or missing out on profitable new opportunities before losing ground to competitors.

Buy.com, a general merchandise pure-play e-retailer, is forging ahead on the leading edge in areas such as social networking and Internet TV and, at the same time, improving its income levels.

BuyTV, its new interactive online video program, features consumer products, online games, music and movies, plus interviews with Hollywood celebrities. “We believed that if consumers were increasingly seeking their entertainment online, that e-commerce needed to take the next step in its advancement as well,” says CEO Neel Grover.

Buy also makes it easy to choose particular segments in the videos and click to buy one of the featured products, says Keven Wilder, owner of Chicago-based retail consultants Wilder Inc. “Coupling an infomercial with an opportunity to buy the featured products online is a formidable combination,” she says.

In addition, the appearance of Buy founder and chairman Scott Blum pitching products in the videos helps to personalize the shopping experience, Wilder says. Throughout other sections of Buy.com, the retailer also provides a split-screen checkout process that shows a shopping cart’s ingredients on one side with offers for extended warranties and a private label credit card on the other.

Buy also has partnered with Grouper Networks Inc. to offer a video-sharing service that lets online visitors create, upload and share videos of themselves reviewing products sold on Buy.com.

Buy’s strategy has paid off in a 33% year-over-year rise in first-half 2006 revenue to $201.7 million, as gross profit rose 54% to $24.2 million and net loss narrowed to $5.8 million from $6.3 million. But it’s just beginning to reap the benefits of its leading-edge strategy. In the first week following the debut of its BuyTV, Grover says, “we’ve recognized a 300%+ increase in the sales of products that we feature on it.”

Costco.com could be just an online version of the company’s massive discount warehouse clubs, but it’s actually more like an upscale department store.

There’s a little overlap with the bricks-and-mortar locations, says Ginnie Roeglin, senior vice president of electronic commerce and publishing. “Some large, bulky items are in both places so that we can help get them home. Or if you buy a piece of furniture at the warehouse, there might be complementary pieces online. But we have our own buying team, and we offer merchandise that’s more high-end.” In other words, Costco warehouses might have a good mid-range digital camera, but for a professional model with interchangeable lenses, Costco.com is the place to go.

Costco has found that its online customers have money to spend and don’t mind doing so, and they’re more likely than the average warehouse customer to have researched a big-ticket purchase before they arrive. “We’ve done a number of tests on the site over the years and if we offer, say, a mid-level treadmill next to an upscale version that’s much more expensive, it’s the expensive one that sells,” Roeglin says.

“Costco’s online channel plays a very strategic role where they’re looking to establish new categories or category extensions,” says retail consultant Jim Okamura, senior partner at J.C. Williams Group. “Their online channel is rapidly growing, even if it’s just a tiny fraction of the company’s business. I really admire what Costco is doing, integrating the online channel into their core business and making sure it’s consistent with the brand promise, yet using it strategically.”

Costco revamped the site’s overall look and feel this year, along with the navigation and all of the categories and subcategories, to make it easier to use, Roeglin says. “This year we’ll take it down to the item level.” For FY 2006 Costco had e-commerce sales of $880 million compared with $542 million in FY 2005.

Big department store chains have struggled in recent years to maintain their position in retailing as growth among successful specialty stores has coincided with the decreasing popularity of department store-anchored shopping malls.

Further, department stores in general have been late to profitably leverage the web—many of them launched a retail web site as a completely separate and lowly valued channel. But J.C. Penney Co. Inc. is one department store chain that placed a high value on its web channel in the early days of Internet retailing, positioning it as part of a multi-channel strategy back in 1995. It has continued over the years to develop and improve its multi-channel strategy, reaching $1 billion in online sales last year and pushing its retail web site to new heights this year as a re-branded JCP.com.

And there’s plenty of growth ahead, says John Irvin, president of JCPDirect, J.C. Penney’s e-commerce and catalog division, projecting $2 billion in web sales within the next several years.

JCP.com has taken bold steps this year, investing in such technologies as state-of-the-art interactivity and imaging. In the spring it blended online video and TV advertising when it ran its Oscar awards TV commercials on the web, with the extra attraction of letting viewers click into the videos to purchase the apparel worn by models. It also has improved more basic shopping functions. A new interactive shopping tool, for instance, lets shoppers mix and match 142,000 combinations of window treatments in visual room settings to preview how a particular choice might look at home.

“J.C. Penney has some great content within its site to help shoppers select the right product,” says Colleen Coleman, an affiliate with retail consultants McMillan/Doolittle. JCP.com also makes it easy to shop apparel by letting shoppers navigate by size or brand, she says, adding, however, that the site should play up such features on its home page.

J.C. Penney also is positioning itself for growth by bringing JCP.com into its stores, where it’s starting to let store shoppers see at POS terminals additional inventory available via the web store. With that kind of multi-channel integration, $2 billion may be closer than expected.

While all shoppers like a smart bargain, SmartBargains.com zeroes in on women 35 to 55. Whether it’s a search engine that finds all the brown boots in a size 9W, a Smart Shoppers Club that gives members the first and sometimes only shot at the best merchandise, or a Buyer’s Choice section that tags some merchandise as the best of the best, SmartBargains.com is not so much about economy shopping as it is about the unbelievable find.

SmartBargains.com focuses on women’s clothing, shoes and accessories, but has a selection of menswear, home items and toys—all the while recognizing that mom is probably the one doing the shopping. Within the confines of the virtual store, SmartBargains.com seeks to recreate the same sense of urgency that once led to bruised ribs at Filene’s Basement, the company says. “SmartBargains has used real-time inventory capabilities to bring some merchandising tools to life online that have worked well in an offline world,” says retail consultant Jim Okamura, senior partner at J.C. Williams Group, Chicago.

The “almost gone” notice on items that are running low appeals to those who want to snatch the very last one—no matter what it is. Particularly rigorous bargain hunters can sort their selections so that those with the “greatest percentage off” float to the top. A new jewelry section recognizes that even the rich like a good deal: the Vault Collection showcases deals like an 18-K diamond and gemstone bracelet for a mere $29,999.99 (64% off the $85,000 retail price).

There are enough major designer names—Kate Spade, Prada, Dolce & Gabbana—to give SmartBargains.com credibility among choosy shoppers and big enough discounts—usually 40% or more—to make the purchases more than worthwhile.

Last year SmartBargains.com introduced the Smart Shoppers Club, where for an annual fee of $9.95 members can get substantially discounted shipping, a special customer service phone line, and 48 hours of exclusive access to new items and new markdowns before they’re available on the general site. While the company won’t share membership numbers, vice president of marketing Mark McWeeny says the club is growing faster than expected and is an “important part of our business.”

“We want to exceed customer expectations every time,” he adds.