Internet Retailer 2005: Report from the Conference

Guide to E-Commerce Technology

A common theme among the more than 50 speakers in 33 sessions at Internet Retailer 2005 Conference & Exhibition was: Internet retailing has come of age and retailers who are to succeed online better get their processes and procedures in place before their competitors do. Internet Retailer 2005 hosted a sellout crowd of more than 1,100 attendees and 45 exhibitors at the Hyatt Regency Chicago June 6-8. The conference was aptly summed up by keynote speaker Tom Beckwith of Amazon, when he said: "This is not the retail we used to know." Following is complete coverage of the conference.

General Sessions
June 7

Day 1 Keynote: The future is collaboration
Unleashing the Retailing Power of the Web, Keynote Address
Tom Beckwith, vice president, Amazon Services Inc.

27% of units sold on Amazon`s platform last year were from other retailers, making third-party sales a key part of Amazon`s business. "Amazon`s best opportunity to grow is in working with our retail partners," said Tom Beckwith, vice president of Amazon Services Inc. and keynote speaker Day One of Internet Retailer 2005. In fact, retailer partnerships are such a fast-growing part of its business that Amazon separated its services business into a wholly-owned subsidiary this year, Beckwith noted.

The notion of two stores with competitive overlap existing side by side on one online platform owned by one of them is just one example of how the Internet is changing retailing, Beckwith said. "This is not the retail we used to know," he said.

Bombay.com operates on Amazon`s platform and maintains a presence in Amazon`s home store under the Merchants at Amazon program. Stacey Gross, director of Internet operations for The Bombay Co., joined Beckwith on stage and reported that the ability to access advanced functionality from the specialized technology developers with which Amazon has partnerships was key in Bombay`s decision to relaunch on Amazon`s platform last year.

When weighing the build or buy option for its most recent major site upgrade, Gross said Bombay looked from a technology and business perspective at hardware and software costs and other needs. "We got the plusses we were looking for and none of the negatives from Amazon," she said.

Both Gross and Beckwith addressed an audience question about whether Bombay had competitive concerns about operating its own store on Amazon as well as being part of the Merchants at Amazon program. Gross said Bombay receives "substantially more" traffic directly from the web than it does through Merchants at Amazon. "We`re not intimidated by any comparison portal," she said, adding that Merchants at Amazon participation is a good source of customer feedback.

Beckwith noted that building on success will require retailers to invest in capacities where they are strong and to augment weaknesses through partnerships with best of breed providers. "Both are attained through collaboration," he observed. "With that, we can unleash the retail power of the web."

The changing landscape of retailing
State of the Online Market: Where We Are, Where We`re Going
Dan Hess, senior vice president, comScore Networks Inc.
Mary Brett Whitfield, senior VP, Retail Forward Inc.

Online retailing is large, healthy and fast-growing. fueled by the emergence of a precision shopping machine--the multi-channel consumer, Dan Hess, senior vice president of comScore Networks, told the conference. "Last year, online retail totaled over $65 billion, up 26% over the prior year," Hess said. "That doesn`t include auctions and travel, which take the number well over $100 billion."

A trend contributing to the increase in online spending is the spread of broadband, Hess said. "While growth in the U.S. Internet population is slowing, there is continued rapid growth in broadband," he said. "More than 50% of users have broadband at home, and that is making it easier than ever to shop online, cross-shop online, find the best deal, the best product and the best retailer to deliver it."

Also contributing are a 66% increase in traffic to comparison shopping sites over the past two years and heavier consumer use of search engines, Hess said.

But online sales still represent less than 5% of total retail sales, said Mary Brett Whitfield, senior vice president of Retail Forward Inc. Many retailers now are looking to their web sites not just to generate revenues but to contribute to their companies` entire sales, Whitfield said. "Even though there`s a lot of action online, a lot of it is not about transactions," she said.

It`s hard to imagine any other development in recent history with more potential to change the retail landscape than the online retailing environment, Whitfield said. "Customers today have more access to information about products, prices and availability and quality than ever before, so it`s really revolutionized how they approach shopping," she said.

Why catalogers didn`t launch Amazon
Can the Web Expand the Market for Catalog Merchants?
Martin McClanan, president, Flax Art & Design

Catalogers must grasp the complexities of web-selling if they are to capitalize on their experience as direct merchants, Martin McClanan, president of Flax Art & Design, told attendees at the Internet Retailer Conference. "Why didn`t someone from the direct marketing world create Amazon?" asked McClanan, former CEO of RedEnvelope and consultant to Williams-Sonoma and other retailers. "It`s because of the way they run their business."

McClanan noted that many catalogers have successful web presences and multi-channel sales and have used the web to broaden their product offerings, increase sales and expand their customer bases. Using the web has also tripled the number of requests for catalogs and opened lucrative new markets such as corporate gift-giving programs, he added.

But many catalogers have missed out on the full potential that the web can bring to their operations. "Some web sites are just a replica of the catalog," McClanan said.

One reason some catalogers have not pushed ahead with web technology and innovative online shopping experiences is their traditional focus on circulation analysis, "instead of web analytics and all the ins and outs of the web," McClanan said. Catalogers need to take on new web technology and test how it affects customer activity, he added.

Flax, he said, has been working with design firm Groove Eleven to develop a rich media feature that will let children and their parents use a computer mouse to manipulate images of colored paper, scissors and other materials to create a virtual paper crown. Once they complete the crown, they`ll be able to order the materials online to replicate the project in real life--an activity not available in a catalog.

The Echo boom
The Long-Term Market: The Impact of the Echo Generation
Doug Akin, managing director, Mr. Youth Inc.
David Liu, CEO, The Knot Inc.

Online retailers will need new marketing strategies to appeal to Echo Boomers, the Baby Boomers` 60 million offspring born between 1982 and 2002, two youth marketers say.

Echo Boomers are "an extremely powerful" force, representing 35% of the U.S. population and $180 billion in annual spending, said Doug Akin, managing partner of Mr. Youth, a marketing company that specializes in youth marketing.

The typical Echo Boomer is 18 years old and spends 14.8 hours per week on the web, doing everything from downloading music to chatting with friends to looking for deals, he said. "Online is where this consumer grew up," Akin said. "While many of you may have grown up riding bikes in the suburbs, these consumers are surfing the web. They`re growing up quicker, they`re much more marketing savvy."

The Echo Boomers` exposure to various media has grown exponentially, said David Liu, CEO of The Knot. "This provides an information base that has never been seen before," he says. "They have access to research, to get data points on just about anything almost instantaneously."

That means that as Echo Boomers age, get married and have children, they will face the same tasks and purchase needs as older generations, but will approach them from a different perspective. "We all need to adjust our thinking in terms of how we market and what we do with our brands to remain relevant," Liu said.

Echo Boomers are important because they are "really the precursors of what the mass audience will be doing soon," Liu adds. "They`re being raised in an environment with expectations that are really unfamiliar, uncharted territories for all of us."

Merchandise and communicate
Web Site Designs that Sell
Ken Burke, president, MarketLive Inc.
David Fry, president, Fry Inc.

Paired together for the first time, web design experts Ken Burke, president of MarketLive, and David Fry, president of Fry, told attendees at the Internet Retailer Conference that e-merchants looking to spark sales need to fashion web sites that emphasize their brands in appealing displays and provide helpful information to make shopping easier.

"E-commerce is in a rut," Burke said, warning that many retail sites are too similar in appearance and function. "Merchants need to find ways to differentiate themselves."

Burke led off the dual-presenter session with a high-energy presentation that prompted Fry when he took the stage to comment, "I feel like Steven Wright following Robin Williams."

Burke noted that some retailers are overly relying on frequent e-mail to attract customers with irrelevant messages. Some are also pushing cross-selling displays without providing enough information to help customers decide what to buy, he and Fry added. "Conversion rates and average order values are going down with cross- selling," Burke said.

Fry added that retailers should provide product-comparison data and make it easy to find supplementary information like care and maintenance requirements. "More information builds confidence and helps complete the sale," he said.

Fry also warned that retailers miss critical techniques like emphasizing their brands, providing relevant site search results and offering store locators. "The store locator is the most likely feature that customers will use, but a lot of retailers overlook it," he said.

Burke added that many e-retailers also overlook the opportunity to sell merchandise through spreads, such as collections of home furnishings displayed in room settings and apparel displayed in complete outfits with alternate pieces.

Retailers should spend more time on A/B testing of merchandise displays to determine what`s most effective at building customer loyalty. "It`s all about relevance to shoppers," Burke said.

Auctions: All grown up
What Retailers Need to Know About Selling on eBay
Scot Wingo, president & CEO, Channel Advisor Corp.
David Southworth, direct marketing manager, hardlines, Sears Holding Corp.

Online auctions, which once focused on cost recovery for end-of-life products, still excel at that task. But they can do more, according to Scot Wingo and David Southworth, who spoke on how retailers are using eBay.

Wingo, CEO of Channel Advisor, noted, "Online auctions have grown up." Forrester Research estimates that online auctions will represent 26% of online sales by 2007, and eBay, with $40 billion in annual sales, is the largest player, he said. Sales are growing on eBay in part because retailers are using the channel in new ways.

While the bargain-hunting focus of the typical eBay shopper makes the venue well-suited to liquidation sales, marketers also are finding it a fit for activities such as introducing products, Wingo added, citing a recent charity auction on eBay in which the marketer of a cell phone used bidder response to gauge reaction to different product colors.

"Retailers have been adept at selling in-season merchandise," added Southworth, direct marketing manager for hardlines at Sears. "We see a huge opportunity to innovate on the back end, with products that are less appealing." Sears now has three stores on eBay, all accessible through an auction tab on Sears.com, representing three concepts, Southworth said. Sears Auctions features new overstock or in-box returned merchandise, Sears Wheels offers fixed-price deals on overstocked tires, and the Sears Liquidation Center has auctions on open-box, returned goods. The liquidation center runs 300 to 1,000 auctions a day.

Southworth said auctions are an effective alternative to liquidating merchandise by selling it to a salvager. "There`s a huge market for the value-oriented customers," he said. "Sears` multi-channel strategy and brand power bring credibility to the channel."

Creating the Ideal Web Shopping Experience

Using analytics the right way
Harnessing Analytics to Create a Better Shopping Experience
Eric Peterson, senior analyst, Jupiter Research
Steve Hawco, vice president, Lego Shop at Home

Most online retailers don`t use analytics data effectively because the information isn`t circulated often enough among different departments, Eric Peterson, senior analyst with Jupiter Research, told the conference. "If you`re not communicating this data, if people aren`t integrating this against their databases, it just falls off top of mind," he said.

That means retailers can`t deal effectively when web site problems crop up. "If you`re not watching, you`re not going to notice," he says.

Peterson cited a Jupiter survey that found only 29% of senior executives and 41% of all executives review the data on a regular basis. "Once a week, you need to push the data out so everybody thinks about it," Peterson says.

Jupiter also found that companies that don`t dedicate staff to web analytics are least likely to use the data effectively. Many companies assign the IT person or a marketing manager to keep an eye on analytic data, "somebody who occasionally pops in and out of the system, and figures out `are we doing okay?`" Peterson says. "That`s simply not enough."

Online retailers also should bundle web analytics data with other customer information to help them identify problems and give them clearer insights into customers, said Steve Hawco, vice president of Lego Shop at Home.

Web analytics data also must be presented in an easy-to-understand format so management can zero in on problems, Hawco said. "You want to get your KPI (key performance indicators) to look like the front page of the Wall Street Journal--something you can glance at on a daily basis and understand the pulse of your business," he said.

Staying alive
Being Ever Vigilant: Don`t Become an Online Horror Story
Carol Carpenter, senior director of product management, Keynote Systems
David Jilk, president and CEO, Xaffire

Broken links, slow response times and browser incompatibility all can drive an online retailer`s customers to a competitor`s site. That`s why e-merchants need to closely monitor their web site`s performance.

Problems that can affect site performance include application bugs, content errors, browser incompatibility, and bad internal and external links, said David J. Jilk, CEO, Xaffire. And retailers should not underestimate the damage those problems can inflict on their sales and reputations, Jilk says. For example, a site requiring a log-in to purchase but doesn`t provide a link or instructions on how to create an account when a log-in fails makes it hard for customers to buy, he says.

One approach to avoiding web site problems is by taking a holistic approach, said Carol Carpenter, senior director of marketing for Keynote Systems. "It`s taking the end-to-end view," she said.

Leading web sites know that each portion of the infrastructure and application of a site affect the users` experiences, Carpenter said. They judge performance from the users` perspective, add technology to improve that performance, and build good communication between business teams and IT to ensure a positive user experience, she said.

That approach has enabled leading sites, such as Office Depot, J.C. Penney and Eddie Bauer, to have consistent transaction speeds, giving consumers a better shopping experience, Carpenter said. Their home pages load in less than 1.5 seconds, perform log-in/authentication in less than 2 seconds and execute complex back-end queries in less than 3 seconds.

Making the most of site search
Site Search: The Underutilized Super Tool
Nate Miller, director of e-commerce, Northern Tool and Equipment
Geoffrey Smith, president of e-commerce and new business development, Personal Creations

Retailers who overlook the importance of site search are missing out on increased profitability, Nate Miller, director of e-commerce at Northern Tool and Equipment, told the conference. Northern Tool redesigned its site search in June 2004 after discovering that only 25% of the products it returned were valid. Consumers also found it to difficult to navigate because it returned large result sets and offered no way to refine the search, he said.

The redesign of Northern Tool`s site search had an immediate impact on conversion rates and order size, Miller said, with conversion rates up 18%. In addition, ease of use increased by 17% based on customer feedback, he said.

After six months, the site search conversion rate was twice the overall average and 54% of sales were driven by site search, he said. In addition, there was a 72% increase in natural search sales, Miller reported. "We paid off our three-year investment in three months," he said.

What`s more, carefully constructed site search can give retailers more knowledge about what customers want. At Personal Creations, a review of search analytics produced an idea for a new product, said Geoffrey Smith, president of e-commerce and new business development.

To come up with the best site search, retailers need to know how shoppers use their sites; understanding, for example, whether they mostly search or whether they browse, Smith said. Retailers also need to test any changes to the site for value, he said.

What shoppers want
Personalization Plus: Right Content, Right Shopper, Right Time
Joe Devine, CTO, Safeway.com
Lauren Freedman, president, The E-Tailing Group

Personalization technology is changing how grocery chain Safeway Inc. builds relationships with customers, Joe Devine, CTO of Safeway.com, said at the Internet Retailer Conference.

Because all online orders are fulfilled through Safeway`s stores, the company processes all sales through its in-store POS system, making multi- channel customer shopping data available for marketing and personalization, Devine said. "We see total shopping behavior, offline and online, as a single integrated view," he said.

So when a shopper comes to Safeway.com, the grocer presents her with offers for products she`s purchased in the past. The offers, on personalized web pages as well as in e-mail messages, may also include discounts for products the customer has not purchased.

Store shoppers new to the web receive a favorites list of their store purchases, making it easier for them to shop online for the first time, Devine said.

Few retailers, however, are personalizing web sites based on customers` shopping behavior, said Lauren Freedman, president of The E-Tailing Group Inc. Only 7% of retailers are dynamically presenting products based on past purchases, and 58% have not integrated personalization techniques into their web sites or e-mail marketing programs, according to an E-Tailing Group survey of 250 e-commerce executives.

The survey found, however, that 76% of retailers are using some degree of customer segmentation for marketing, with the most popular means of segmentation being transaction data, product categories and demographics.

"Personalized shopping experiences on the web are still a long way from reality for most of the merchants surveyed," Freedman said. "This is the ultimate promise of the web and must be part of any strategy."

Where rich media = happier customers
Making the Shopping Visit Compelling with Rich Media
Ranjana Sharma, e-commerce manager, Anthropologie

Rich media at Anthropologie.com entices shoppers to stay longer and spend more, Ranjana Sharma, head of e-commerce at Anthropologie, retailer of women`s apparel and home furnishings, told the Internet Retailer Conference. "We cater to the shopper`s curiosity," Sharma said. "The more time she spends on our site, the more she`ll spend with us."

To illustrate the power of rich media, Sharma logged on to Anthropologie.com, projected onto a screen, clicked on an image of the same purse she carried into the conference and zoomed in on the image`s details. She noted how the zoomed web site image could focus on the embedded jewels in the handbag, making it easier to see details than if a shopper were looking at the actual bag from a short distance.

All products on Anthropologie.com can be clicked on to create a rich-media pop-up. The pop-up allows the shopper to zoom in or out, see front and back views, change colors, and, on some products, see the product on a model or in a room setting. Products appearing on models can also be clicked to change the product`s color. Models often are shown in a complementary setting, such as a country or city scene.

The multiple rich media options from Scene7 are designed to provide customized interactions that suit the multiple interests of shoppers, Sharma said. "We want to let the shopper build a relationship with us on her terms," she said. "We want to give her the control to interact with us."

Marketing for Success

Searching for customers
Search Engine Marketing: Managing Search for ROI
Ray Allen, president, American Meadows
Pinny Gniwisch, executive vice president, Ice.com

Managing search for ROI means getting results for what`s spent on search marketing. And getting better results than competitors doesn`t require spending more money than they do, said Ray Allen, president of American Meadows, and Pinny Gniwisch, executive vice president of Ice.com. The two mapped their two paths to search marketing success and both demonstrated that developing a deep knowledge of the language that sells as well as marketing tactics beyond the obvious are worth the effort.

Allen, whose early career was as copywriter and advertising agency owner, said too much written web content is "sloppy copy." Interfering with getting the most out of search at the lowest possible price are marketers` obsession with page rank and content that`s not current. "Writing copy that sells," he said, "is hard, unglamorous work. There`s no button to push."

Allen cited a number of ways to boost search-driven sales that don`t involve higher bids on keywords. "Competitive copy costs no more," he said. For example, he suggested reading competitors` listings before submitting to a search engine, then writing a listing that improves on them. Allen also suggested rewriting with wording that avoids the truncated effect of listings that may cut a too-long product description mid-sentence by switching from bold type.

Gniwisch cited the importance of expanding keyword buys. "It`s the quickest, most effective way of increasing traffic," he said. But before buying keywords, marketers should calculate ROI, with knowledge of margins, marketing costs, shipping costs and the cost of fraud and returns. "Monitor ROI for each keyword and compare cost versus sales. Then decide if it`s worth it," he said.

Keeping company with the right people
Affiliate Marketing: Playing to Your Strengths
Laurie Barkman, mgr. of marketing, American Eagle Outfitters

American Eagle Outfitters faced a challenge: it wanted tight control of its brand, incremental sales without increasing markdown, and new online customers without having to leverage its stores to get them. The answer was an online affiliate program that`s attracted a customer audience of which 40% are new to the brand, Laurie Barkman, manager of marketing, told the conference.

AE.com is the online arm of youth-focused apparel retailer American Eagle, which operates 1,000 stores in the U.S. and Canada. AE.com is the retailer`s largest store and the number one marketing face of the company, Barkman said. "Our success has been driven by the structure of the program," said Barkman. The program is outsourced, a time-saver for the retailer`s small marketing staff. To maintain brand control, the program is closed, meaning affiliates join by invitation only. American Eagle approves every affiliate and affiliates must agree to terms, such as a prohibition on bidding on search engines on American Eagle trademarks. Other keys to the winning affiliate program include: establishing metrics and monitoring for success; including affiliates in marketing plans and budgets; and focusing the bulk of attention on the 20% of affiliates that produce 80% of affiliate sales.

By design, the affiliate program remains small, yet Barkman said the company is pleased with returns. In addition to the 30% of customers that come to the site through affiliate links that are new to American Eagle, affiliate program buyers show a strong conversion rate and have a low incidence of coupon use.

Now what?
How to Build an e-Mail List--and What to Do With It
Heather Blank, director, e-commerce marketing and business development, Petco Animal Supplies Inc.

What works for training dogs also works for building and using a customer e-mail list, said Heather Blank, director, e-commerce marketing and business development, Petco. "Reward them with treats and they`re yours forever," Blank told the conference. In other words, provide online shoppers with incentives to opt into e-mail marketing lists.

An effective program, however, doesn`t simply dangle goodies, Blank said; marketers need to explain the value and benefits of signing up for e-mail at registration. At Petco, they include receiving pet care tips by e-mail, advance looks at new merchandise, and advance notification of sales. Added incentives such as a discount off the first order after opting in sweeten the deal.

Another rule of building and using an e-mail list that parallels dog training is the need to keep dogs--and customers--interested so they don`t stray. What holds different types of customers varies by audience. Blank said online visitors who don`t already shop Petco stores, for example, require different incentives to sign up for e-mail than those already familiar with Petco.

Treat a dog right and he stays loyal; and it`s the same with customers, Blank added. "That means building trust. Link to your privacy policy, and don`t ever sell your e-mail lists to anyone," she said. The right combination of offers and communication leads to what Blank terms "the seducible moment." "At Petco that`s the emotional bond between you and your pet," she said. That`s why customers receive e-mail reminders of the pet`s upcoming birthday or adoption date, along with an offer.

Be seen
Media Advertising: Making the Big Splash
Stormy Simon, chief of staff, Overstock.com

They said it couldn`t be done: a national television ad campaign, with impact, for under $10 million. How Overstock.com accomplished that in a program that boosted its unaided name recognition to 47% from 12%, and at less cost, can be a lesson to other online marketers: Overstock wrote and produced the ads internally.

Stormy Simon, Overstock chief of staff, who created and cast Overstock`s TV ads, said the first hurdle was in understanding the value TV could potentially deliver. "We had convinced ourselves that the people who like to shop online already were online," she said. After deciding to proceed, Overstock ended up rejecting the efforts of three ad agencies as too slapstick, too full of what Simon termed "jiggle," and not sufficiently appealing to Overstock`s 67%-female audience.

Simon`s team then took on the task, but later nixed their own first efforts. Deciding to go in a different direction, Simon eventually came up with a campaign that wrung extra mileage out of what Overstock spent on air time with the consumer buzz that surrounded the ads.

Each online marketer must judge which media and which approach best support its own ad efforts, Simon concluded, but she offered tips on evaluating the television opportunity. "The power of TV advertising can only take you so far. If you don`t have a business that is desired by the public, it won`t work," she said.

Simon added that in developing a TV campaign, marketers should "find what catches consumers` attention and highlight what makes you different." And finally, she advised online marketers that since the TV medium is so expensive, "It should be a way to augment your advertising, not the main thrust."

What`s new
Way New Marketing: Harnessing Blogs and Social Networking
Dana VanDen Heuvel, president, BlogSavant

Originally and still primarily personal online diaries, blogs are attracting attention as a marketing tool, and Dana VanDen Heuvel, president of web log consultants BlogSavant, expects that trend to grow. "In the future, blogs will be a tool to be implemented like e-mail or any other tactic," he said, and they`ll employ similar success metrics.

One indicator of increasing interest in blogs is the rapid growth of the blog universe. VanDen Heuvel said the "blogosphere" is doubling every five months, and that 10 million Americans have blogs. An estimated 92% of blogs are created by individuals under 30, but they aren`t the only voice represented--Pew Internet Research estimates that corporate blogs now number 5,000.

Organizations use blogs for thought leadership, crisis management, establishing community around a brand and internal community relations.

Some online retailers have been using blogs to boost sales. Gourmet gift site GourmetStation.com had two goals in creating a blog: as another way to communicate with its narrow target audience and to add content to boost its search engine rankings. Since launching the food-focused blog, which is written by a fictitious character--a fact GourmetStation states upfront--GourmetStation has seen an uptick in sales, with about 10% of sales now coming off the blog, VanDen Heuvel said.

In blogs` short history of commercial application, best practices have already emerged. Among them, said VanDen Heuvel, are an authentic voice for the blog and full disclosure about the purpose of the blog. "Content is king and creative writing is key," he added.

Comparing comparison sites
Shopping Comparison Sites: What Every Retailer Needs to Know
Chuck Davis, CEO, Shopzilla
Iggy Fanlo, pres., worldwide field operations, Shopping.com

The day before Internet Retailer 2005 started, Shopzilla announced it had been acquired by media conglomerate The E.W. Scripps Co. for $525 million. The big announcement didn`t keep Shopzilla CEO Chuck Davis from attending the conference, where he was scheduled to speak on comparison-shopping sites with Iggy Fanlo, president, worldwide field operations for competitor Shopping.com, which had itself been acquired only a week earlier by eBay Inc. for $620 million.

While neither Davis nor Fanlo could discuss details of the acquisitions, they were quite willing to discuss the market and why there`s so much interest in comparison-shopping sites. Davis noted that the majority of consumers are online and have bought something, yet only 25% have ever used a comparison site. With new muscle behind such sites and the prospect of a higher profile, comparison-shopping sites promise to become major online destinations. "We are entering the vortex of growth," Davis said.

Fanlo noted that four comparison-shopping sites are among the top visited web sites and that shows their appeal and staying power. "Comparison shopping is not just a fad," he said. "It`s about taking the power of information and letting people do something with it." He added that consolidation of comparison-shopping sites with other web properties is beneficial to consumers. "Consolidation gives consumers a more complete and comprehensive experience," he said.

While the prices for Shopzilla and Shopping.com may seem high--17.5 times Shopzilla`s 2004 EBITDA and 50 times Shopping.com`s 2004 earnings--Fanlo said the multiples were not high, given the potential of comparison-shopping sites.

General Sessions
June 7

Winning on the web
The 2005 Internet Retailer Top 400
Kurt Peters, editor-in-chief, Internet Retailer
Larry Freed, president, ForeSee Results

Underscoring the importance of the web to the retail industry, the Internet Retailer Top 400 Guide to Retail Web Sites reveals the scope of the channel`s size and growth: 1.1 billion visitors per month to the Top 400, annual growth rates of more than 100% for many individual sites, and the web`s 28% market share of total sales in the categories of mass merchants and consumer electronics. The results were presented at the Internet Retailer Conference & Exhibition by Kurt Peters, editor-in-chief of Internet Retailer.

The Guide also notes the substantial increases in web sales, 2004 over 2003, among individual retailers--for example, $1.6 billion at Amazon.com Inc., $600 million at Staples Inc. and $500 million at Newegg.com. And it gives the year-over-year growth at leading sites like Zappos.com, 163%; West Marine Inc., 124%; Northern Tool & Equipment Co., 110% and Overstock.com Inc., 107%.

To help retailers better prepare for continued growth, the Guide this year includes a performance analysis by ForeSee Results and FGI Research of the Top 40 e-retailers regarding their ability to provide customer satisfaction. Larry Freed, president and CEO of ForeSee Results, joined Peters to share insight on how online retailers can build growth by providing a satisfactory shopping experience to browsers as well as customers.

Using methodology developed by the University of Michigan, ForeSee and FGI assessed web browser satisfaction related to such areas as product information, navigation and overall site performance.

Browsers, or those who may be just window shopping or comparison shopping, represent 95% of site visitors and offer the greatest opportunity for increasing sales, Freed said.

Store meets web
Day Two Keynote: Bringing the Internet into the Store
Fiona Dias, president, Circuit City Direct

When you have a strong web site and a well-known national chain of stores, you have all the ingredients to cook up one of the most lucrative prizes of retailing: the multi-channel shopper. The trick is to get the right recipe--and to keep trying until you get it just right, Fiona Dias, senior vice president of marketing of Circuit City Stores Inc. and president of Circuit City Direct, said in the day two keynote address at Internet Retailer 2005.

Dias told how Circuit City, which also sells through a call center and catalogs, forged ahead several years ago to pioneer multi-channel strategies like in-store pick-up of online orders. The bold move paid off. "Multi-channel customers are by far our best customers, five to six times more valuable than single-channel customers, largely due to in-store pick-up," Dias said.

The program is designed to make products ordered online available for pick-up at a store within 15 minutes. But even with a technology system in place, Circuit City realized it also needed to implement a method of training and motivating store employees. "It`s all about people," Dias said. "If they can`t do it or won`t do it, it just won`t happen."

Circuit City has developed a system of granting credit for store pick-up sales to both web and store employees, who receive either a sales commission or credit for meeting sales goals. It has also developed an internal "The Web is Your Friend" campaign to get store employees to think of how online orders help the entire company.

To help stores better leverage the web, Circuit City is also working on a program that lets in-store shoppers order additional products online for home delivery. It`s still working out some kinks in the program, however.

But Dias said it`s worth the trouble to work out the intricacies of multi-channel programs. "It`s not easy to get the right recipe," she said. "But hang in there. It can be a real plus when it does work and customers reward us with their dollars."

The small web wonders
The Small Retailer Experience: Success Stories from Scratch
Donald Cohen, managing partner, Tool King
Ron Henderson, CEO, Auntie`s Beads
Jeff Binder, president and CEO, Saffron Rouge

If there`s one thing that Auntie`s Beads, Saffron Rouge and Tool King have in common, it`s an entrepreneurial spirit fueled by a passion for retailing on the web. "Anyone can test an idea on the web, and if it works, scale up quickly," said Ron Henderson, co-founder and CEO of Auntie`s Beads, a retailer of jewelry-making supplies that emerged on the web four years ago out of Henderson`s garage.

Henderson helped his wife build a web presence for her budding beads business, and quickly realized they had a growth business. With a second site called Puzzlements.com for entertainment products, Auntie`s Beads did about $6 million in sales last year. "Listen to your customers, and do what they tell you," Henderson said at the conference.

By analyzing web site activity to determine customer demand in particular geographic areas, Auntie`s Beads has opened four stores and expects to launch more.

At Tool King, managing partner Don Cohen has taken the opposite route. Having started with several stores, Tool King has cut back to a single store while building a web site that did $15 million in sales in its third year. "The Internet can be a great equalizer," he said, adding that on the web he can compete with major national chains.

Tool King has kept operating costs to a minimum, relying on drop-shipping for much of its fulfillment, and has expanded into international sales without expending much on marketing, Cohen says.

Jeff Binder, CEO of beauty products retailer Saffron Rouge, which operates a single store and SaffronRouge.com, showed you don`t have to be big to be successfully multi-channel. He uses an e-commerce platform from NetSuite to track shoppers in each channel. "We can market to people who bought certain SKUs in a particular channel," he said.

The fashion-forward web
Dressing Up the Web: Soft Goods Get New Respect Online
Kent Anderson, president, Macys.com

Apparel will sell on the web--if Internet retailers market and merchandise clothing and accessories that cater to customers` changing lifestyles, Kent Anderson, president of Macys.com, told attendees at the Internet Retailer Conference.

Macys.com has increased its average order value to about $125 and the web store now attracts record visitors each year in part because Macy`s has implemented and executed a lifestyle-based apparel merchandising plan, Anderson said. "We sell in a way that corresponds with the way our shoppers see their lifestyles," he said.

Early in the Internet retailing experience many shoppers shunned buying clothes online because they couldn`t touch, feel or put on the merchandise. Customers also worried about ordering the wrong size and about the hassle of returning merchandise.

But Anderson said Macys.com has overcome those obstacles by developing a merchandising strategy of offering the right assortments of merchandise, improving the online shopping experience, using fashion education as a marketing tool and simplifying pricing.

Macys.com`s web designers and marketing managers also pay particular attention to using text and images that emphasize the latest colors and fashions--and to portraying shoppers in an elegant or appropriate environment that emphasizes their lifestyle. "We create a voice for the brand," Anderson said. "We take an educational approach that keeps shoppers aware of current trends and how they can create the latest `must have` looks."

Anderson added that detailed sizing charts are helping reduce returns in some categories by as much as 50%. At Macys.com customers can also shop for merchandise by size, brand and other criteria and purchase online, but return merchandise to stores. "Using multiple channels and paying attention to little things help," he said.

Revving up web sales
Why Detroit is Driving to the Web
Steve St. Andre, president and COO, FordDirect

Ford and Lincoln Mercury dealers who once saw the Internet as a threat now see it as an effective retailing channel. But auto dealers and manufacturers still must do a better job of identifying customers and their buying preferences online, Steve St. Andre, president and COO, FordDirect, told the Internet Retailer Conference.

When FordDirect was formed, many dealers saw the organization as a means for Ford to bypass the dealer and sell direct to the public. But today FordDirect has more than 3,900 dealers in the joint-venture marketing cooperative.

St. Andre said Ford considered a direct online sales channel but abandoned the concept because of the complexity of new car sales. In addition, he said, the wrong people were in charge of the site. "The original content databases came from engineering specifications," St. Andre said. Today, FordDirect, dealers and other original equipment manufacturers and third-party sites have done a good job in building web sites that give online shoppers copious amounts of information.

The industry is also shifting more marketing and advertising dollars from newspaper listings and circulars to digital programs. The web lowers the industry average of $577 to acquire a sales lead to about $100, he said.

While the web is becoming a more effective sales channel for Ford, the industry needs to do a better job of using it to understand customer behavior and acquisition, St. Andre said. A priority at FordDirect is aggregating sales and customer contact data from more than 19 sources, including Ford Internet sites and call centers, into one web data repository. "We will become smarter about how we collect and analyze lead generation information," St. Andre said.

Walking into new channels
Selling at the Online Malls
Scott Savitz, president and CEO, Shoebuy.com

Selling through online malls has helped Shoebuy.com Inc. realize average monthly growth of 14% since its launch in 2000, bringing sales last year to more than $45 million.

But success in online malls shouldn`t be taken for granted, Shoebuy founder and CEO Scott Savitz told the Internet Retailer Conference. "Are all online malls good for all people? No," he said.

Mall participation can attract new customers, but it requires careful review and management of how a retailer`s position and brand are presented and how well a mall can meet a retailer`s goals, he said.

An online mall should provide the capacity and flexibility to let a retailer scale up with content and transactions to accommodate growth and it should properly represent a retailer`s brand and organize its products in suitable categories. "We don`t want shoes next to ski pants," Savitz said.

A retailer should clarify terms such as whether the mall or the merchant has precedence for re-marketing to new customers and whether the merchant is expected to buy mall banner ads that may not suit its marketing plans, Savitz said.

But a retailer also needs to look inside its own operations to see how they`re being impacted by a mall presence, he said, posing the question "Are mall customers buying higher-margin products, or buying more or less?"

It`s also crucial for a retailer to have its own site offering a good shopping and fulfillment experience before hooking up with an online mall, where customers may be getting their first impression of the retailer`s product offerings and level of service, Savitz said. "If you haven`t perfected things at home, you`re not ready for an online mall," he said.

Waterford`s window to growth
Brand Name Manufacturers: New Opportunities on the Web
Jennifer Korch, director, Internet Marketing, Waterford Wedgwood U.S.A.

Since 1783, Waterford Crystal has gone a long way toward building a brand known worldwide for crystal glass products. By the mid-1980s, it had expanded beyond crystal through its merger with ceramics maker Wedgwood, becoming Dublin-based Waterford Wedgwood plc.

But even with a greatly expanded product line, now including tableware, writing instruments, clocks and bed linens, Waterford Wedgwood realized it needed to take a bold leap in 2002 to sell direct to consumers on the web as well as through retailers.

Broad changes in the retail industry had forced its hand, says Jennifer Korch, director of Internet marketing for Waterford Wedgwood U.S.A. Inc. The company`s traditional customer base was aging, and new generations of consumers were emerging with different tastes and means of shopping.

"Younger consumers were not seeing the brand as relevant to them," Korch said at the Internet Retailer conference. "The web helps us market and build relationships with them."

Waterford Wedgwood has since developed several effective techniques to build more sales on the web while catering to retail channel partners. A bridal registry reaches out to modern brides; search marketing introduces consumers to lesser known Waterford Wedgwood lines like lighting products; and an "e-mail a friend" feature displayed with each product increases market exposure.

To protect its retail partners, Waterford Wedgwood features them in an online store locator with links to Mapquest.com for instant directions. And it always charges full retail prices on its web site, Korch said.

But the web also increases customer service; for example, by making available hard-to-find products not usually shipped to stores. "The web is a small percentage of our sales, but it`s our most profitable business," Korch said.

How the Web Improves the Store Experience

Let the store do it
Cross-Selling in the Store
Paula Tompkins, president, ChannelNet

The Internet`s role as in-store cross-selling tool was hinted at by a Yankelovich study as early as 1985, predicting customers would use technology to take control of the shopping process, Paula Tompkins, president, ChannelNet, told the conference. "That shift has been accelerated by the Internet," she said.

Tompkins noted that an in-store online presence can help salespeople keep up with product information that changes rapidly.

Regularly updating and storing information online and making it available online in the store is an answer to that challenge, but retailers must take care in how they implement cross-selling online from within stores. Tompkins cited the example of an online point-of-sale program created by Ford Motor Co. for use at Ford dealerships that did not succeed.

"The way corporate thinks dealers should sell the product is different from the realities of the dealership," she said. The effort got off on the wrong foot by including no dealer salespeople on the development committee, which was composed entirely of IT personnel. "They built a stack of specs and expected the customers and the salesperson to use that system," she said. "You can`t let IT drive a project that is about the dynamics at the point of sale."

Tompkins offered other pointers for retail operations looking to import the web into the store to boost sales. "Organize and roll it out in bite-sized pieces," to secure buy-in on the associate side, she said. "And don`t put the entire web site into the store: it has a lot of clutter."

Back and forth
Bringing the Store to the Web and the Web to the Store
Sam Taylor, senior VP, Best Buy Co. Inc.

"The big win is leveraging the strength of one channel across another. So how do we get our store-only customers to buy across both channels?" said Sam Taylor, senior vice president, Best Buy. One key is the right organizational structure. Taylor said Best Buy recently changed its system to allocate credit for web sales across stores. "That will drive the store associates to use the store kiosks more aggressively," he said.

In Best Buy`s efforts to bring the advantages of stores to the web, Taylor noted that the company`s 90,000 trained associates represent a powerful knowledge and experience base. Best Buy translates that online with an approach that provides solutions and not just products. Instead of just a list of product features, for example, there`s a shop by lifestyle guide to digital cameras. An online shopping assistant helps shoppers prioritize among feature options on complex products. There are now a dozen online shopping assistants, and they`ve lifted conversion rates by 15% to 75% for products on which they are offered, Taylor said.

In efforts to use the web in support of stores, Best Buy promotes in-store only events online and has boosted messaging about in-store pick up for online orders. It`s worked to cut to 30 minutes the acknowledgement time that an item is available, which has doubled the use of in-store pick up among web customers, Taylor said.

Taylor added that internal changes at Best Buy are also helping to support integrated multi-channel sales and marketing. Best Buy`s e-commerce unit used to report to IT, he said. "Now, e-commerce reports to the head of retail."

The range of possibilities
Web-based Kiosks: More Options, More Inventory, More Sales
Noah Maffitt, director, e-commerce, Office Depot Inc.

Office Depot is taking the web into its stores in a big way, installing eight web-enabled kiosks in each of its 900 stores. The program is a build on an earlier kiosk deployment in which the average five kiosks in each store each had a dedicated function. The new multi-function kiosks allow in-store shoppers to order products for home or office delivery from OfficeDepot.com, check loyalty points or see what they`ve purchased previously, and in what Noah Maffitt, director, e-commerce, says has been one of the kiosk`s most successful applications so far-order custom-configured computers.

Maffitt said a second, much different application also has found success: the Ink Depot, which helps shoppers find the right printer cartridge. Though focused on different types of products, the two kiosk applications share a common approach: they walk users through a process that solves a problem. "Having a specific, task-oriented process has proven to be much more effective," Maffitt said.

Office Depot is still working to zero in on what, from the customer`s perspective, will be the best uses for web-enabled kiosks. But Maffitt notes that kiosks in stores are a trend to watch, citing a retailer where kiosks print out products in a gift registry and a map of the store and kiosks in Starbucks that expand the cafe`s offerings by letting shoppers buy music CDs.

The 3-phase multi-channel approach
Coordinating the Web Experience and the Store Experience
Mark Duff, director, Multi-Channel Programs, REI

Consumer cooperative and retailer REI launched REI.com in 1996, and has striven since to stay a step ahead of fast-evolving consumer expectations in its web execution. Today, that means tightening up multi-channel integration. "It`s not a game you get to choose to play," said Duff. "This is the new retail baseline."

Duff said REI has yet to completely nail the cross-channel experience, noting that it`s a moving target. However, it`s broken the effort into three phases. Phase one is consistency among channels in pricing, product information, brand presentation and customer service policies. "When you can`t be completely consistent, let the customers know why," he said.

Phase two is leveraging channel-specific strengths across other channels. "Each channel brings something different to the game," he said. Leveraging the advantages of each for the other channels at REI includes initiatives such as web-enabling contact center phone agents, expanding live help on the web and giving each store its own web page under REI.com`s store locator feature. Soon, added Duff, each store will post its own content to its page.

Phase three is blending different capacities of channels to create packaged experiences. In such a scenario, for example, a customer interested in snowshoeing might read an article about it on the site, call an REI agent to discuss equipment, learn from the agent that the local REI store is sponsoring a snowshoeing clinic, then go back to the web site to register for the clinic. After attending the clinic, the customer could get a one-day coupon for purchases online or in the store. Such packaged experiences represent "the next level of elegance in multi-channel retailing," Duff said.

Operations: Fulfillment, e-Payments and Customer Service

The fraud fighters
Taking Charge of Online Chargebacks
Maurice Nicholson, director, payment management, Columbia House
Jeff Foster, executive vice president, Retail Decisions
Mike Yakel, vice president, emerging products, Visa USA

How well an online retailer manages chargebacks and fraud can aid customer retention and help build profits, Jeff Foster, executive vice president at Retail Decisions, told the conference. "There are a lot of things in common between customer service and customer care and the transactions that you determine you`re going to accept or deny," Foster said. "And there`s a lot of customer care involved in how you manage chargebacks."

For instance, online retailers must use different procedures in reviewing international transactions from what they use with U.S. transactions, said Mike Yakel, vice president of Visa USA. "There is a different risk metric with non-U.S. transactions," in part because some of the risk tools aren`t available outside the U.S., he said.

But going overboard with anti-fraud measures on international transactions can mean missed sales, Foster said. "If you`re turning away 15% of your international business and we know that only 2% or 3% in a worst case is actual fraud, that`s an opportunity to increase your business simply by changing the way you attempt to prevent fraud," he said.

Automating chargeback resolution and fraud prevention also can generate more profits for a retailer, said Maurice Nicholson, director of payment management at Columbia House. When he joined Columbia House in December 2003, the company was paying card company fines of $20,000 a month for excessive chargebacks, Nicholson said.

But once it automated fraud review, chargeback rates dropped. "We fundamentally changed the economics of our credit card customers," making them more profitable, Nicholson said.

Finding fulfillment
Two Approaches to Outsourcing Fulfillment
Steve Craig, CTO, ShopNBC.com
Anne Kelly, president, Junonia

Outsourcing fulfillment can help an online retailer cut costs but it also can lead to customer-service and quality control problems. "With drop shipping, you gain a great deal of capital freedom," said Steve Craig, CTO of ShopNBC.com. "If you don`t sell anything, you have no sunken costs." ShopNBC, a subsidiary of ValueVision, drop ships about 20% of its goods.

Outsourcing fulfillment also enables retailers to focus on marketing rather than operations, said Anne Kelly, president of Junonia, online retailer of plus size women`s apparel. Junonia began outsourcing fulfillment in 2001. "We create products and we market them to our customers," she said. "For us, it was really important to focus on what we did well."

But outsourcing also has a downside. "The difficulty is how to maintain quality at a distance," Kelly said. Retailers can test quality control by performing test orders, Craig said. They also need to question fulfillment centers upfront about their ability to ship different size items, for example, treadmills or mattresses, he said.

Retailers also shouldn`t underestimate the costs of moving to third party fulfillment. "You can assume that every time you make a change to your fulfillment, it`s going to get messed up," Kelly said. "You should count on losing at least half a month`s revenue."

What`s more, outsourcing fulfillment can lead to a lesser margin. "If you`re not willing to take inventory risk on a large buy, you`re not going to derive as high a margin as you would if you took receipt of those goods," Craig said.

Selecting a delivery service
Delivery Options: Finding the Most Expedient Order Delivery Service
Beth Enslow, VP, enterprise research, Aberdeen Group
Alison Castle, vice president, operations, eToys

Offering the right delivery options can play a crucial role in an online retailer`s profitability, Beth Enslow, vice president of enterprise research, Aberdeen Group, told the conference. A recent study found that abandonment rates during the selection of a delivery option can cut sales 35% to 52%, Enslow said. And customer dissatisfaction with delivery options can lead to as much as a 25% drop in sales. "Bad shipping affects if customers buy, and if they buy from you again," she said.

When looking for shipping companies, retailers need to keep in mind that customers are looking for a choice of shipping costs and services, Enslow said. Retailers also must consider their own needs to avoid unexpected shipping charges and for a simplified shipping process, she said.

At eToys Direct, carrier rates and service levels head the list of important considerations, said Alison Castle, vice president of operations. But the online toy retailer also seeks information on monthly volume discounts, residential delivery charges, trackability of parcels for customers, holiday cut-off dates and international import and export capabilities. It also seeks carriers that can handle a high volume of shipments. "On a peak day, we may ship 35,000 parcels," Castle said. EToys Direct offers three service levels, with 95% of parcels shipped via standard delivery.

Retailers also must be prepared to raise rates or change shippers if rates increase, Enslow said. "You have to be sure you`re still making money on your goods and decide whether you need to update pricing," she said.

Listen up
Outsourced Customer Service: The New Eyes and Ears of e-Retailers
David Himes, senior vice president, NewRoads
Michael Arking, president, FrenchToast.com

Outsourcing customer service isn`t always the right choice for an online retailer, David Himes, senior vice president, NewRoads, told the conference. "A company with $5 million in sales is going to have a hard time making the outsource model work because the transaction volumes may be insufficient," he said.

When it is the right choice, it can work well--with the right approach. "It`s really about a good relationship between you and your partner and how they can manage your business and represent your brand properly," said Michael Arking, president of school uniform retailer FrenchToast.com.

Retailers have varied reasons for hiring an outside company for customer service. In the case of FrenchToast.com, the decision to outsource to NewRoads arose from the seasonality of its business, Arking said. "Our Christmas happens in July and August," he said. "70% of our business is done in those months. It`s difficult to get that kind of staff trained and ready to handle customer service calls."

FrenchToast speaks with NewRoads weekly, Arking said. "We have meetings where we talk about what`s appropriate for our customers. We get a lot of feedback about things that are happening with our clients."