TV? Internet? Both

When most people hear the words Home Shopping Network, the Internet doesn’t usually come to mind. More common are images of flashy television presentations with lengthy descriptions of product attributes.

But as HSN matures and broadens its product range, the Internet is expected to take on a more important role within that company.

No one knows that better than Marty Nealon, an experienced retailer and merchandising manager, who took over as U.S. president in January of TV and web operations at HSN, a unit of IAC/InterActive Corp. In her new capacity, Nealon, who had been HSN’s executive vice president of merchandising, found an Internet-based business that had a lot of potential, but was still in its infancy in terms of what it could do for the company that helped pioneer the sale of merchandise on TV.

The next level

“We’ve done well with our Internet operations thus far, but we really need to take it to the next level,” says Nealon. “I want to raise the bar on the content and the variety of all the merchandise that we offer. The dot-com operations are high on my list.”

As Nealon and her team look to beef up the Internet operations, one thing appears clear: The Internet will play an important role in a broader strategy for HSN to incorporate more classic products into a merchandise offering that today is best known for such things as glitzy jewelry, beauty creams and novelty appliances.

Thus far, much of HSN’s use of the Internet has been to support its TV sales operations. In the future, it will need to do more to generate its own sales. “HSN has made great use of the Internet to drive sales back to TV,” says Patti Freeman Evans, analyst with New York-based Jupiter Research Inc. “It uses things like broadband telecasts to get Internet visitors excited about what it is selling on TV. But what HSN has done so far is use the Internet to drive TV sales, not vice versa.”

Nealon is well aware that there is a lot more that can be done with the Internet as a sales and distribution channel. Although Internet-based sales were up 34% in the past year, Nealon’s not satisfied with that success. Internet sales still only accounted for about 15% of HSN’s sales in 2003—up from 12% in 2002. That percentage is in line with the proportion of sales that occur on the web at other TV-based retailers. ShopNBC.com, for instance, accounts for 17.5% of sales at ValueVision Inc.’s ShopNBC. Nealon believes that the web can account for a much higher share of HSN’s sales, although she declines to identify a specific goal.

Cut to the chase

Many think she is just the person who can lead that effort. While HSN is known for being innovative in the direct marketing industry, Nealon herself brings a reputation as a smart retailer and top executive to her new position, says Barbara Tulipane, president and CEO of trade group the Electronic Retail Association, which represents TV marketers and of which HSN is a member. “The word on the street is that she has great leadership skills and can cut to the chase to get things done,” Tulipane says.

And there may be a lot that needs to be done on the Internet side at HSN. The need to grow the Internet business became most evident to Nealon last November when HSN unveiled a new web site. The site was highly touted for its snappy graphics, expanded product line and strong support for its sister television operations. Among the new features was the ability for browsers to view live HSN TV telecasts through their Internet connections. But as Nealon explains, “It only took us about 5 seconds after the site debuted to come up with a new list of features that we wanted.”

The live telecasts may be state-of-the-art for now, but Nealon is looking to the future already. Currently, web site visitors can view streaming video 24 hours a day, but they can only view what is showing on TV at that moment. In the future, Nealon would like to give customers the ability to call up mini-clips that are customized for the Internet. Then, the viewers would control which products they want to see at any time. Nealon is also interested in giving web browsers the ability to call up multiple items on the same screen for comparison-shopping.

Other technology is also under consideration. An earlier trial of live chat, for example, proved valuable in letting customers discuss products with sales reps and personalities. She notes that some personalities who held chat sessions had large followings that justified the cost of setting up live chats, but others did not. Future chat sessions will be limited toward those personalities who appear to have a large following. Nealon says she is disposed toward bringing chat back, but on a smaller scale.

She is leaving much of the technical and operational details, however, to the technicians and Internet specialists. In April 2003, HSN hired a leadership team for HSN.com. That included the appointment of Frank Han as executive vice president and general manager of HSN.com. Among his previous ventures, Han co-founded etoys.com, and more recently served as e-commerce manager for a chain of casino hotels. Nealon says she is looking to Han’s team to come up with the strategies to enhance the HSN customer’s Internet experience. “We’ve been growing our Internet team and bringing in a lot of new talent,” she says.

By allowing Han and his team to figure out the technical and operational details, Nealon can focus on what she knows best—developing a merchandising strategy that takes advantages of the Internet’s assets.

Converging profile

“Our customer profiles of those who buy directly from TV and those who buy over the Internet are consistent, so we believe many of our Internet customers are people who are simultaneously viewing the merchandise on TV or are making purchases subsequent to the TV viewing,” Nealon says.

But while the customers themselves may be the same or similar in their backgrounds, Nealon sees key differences in what those customers are buying. And she wants to build upon that difference in developing a broader merchandising strategy. For example, Nealon believes that HSN’s Internet sales will consist of more “classic products” than what are being sold on TV. While there will be some identical offerings between the two channels, the Internet mix will include more basics.

“On TV, we have to show products that can be made to look and sound exciting and that are visually interesting,” she says. “If a product is too much of a commodity, it won’t look very interesting on TV and it will be hard for us to generate excitement about it and ultimately we won’t build sales.”

Still, a lot of basic commodities are products that consumers want to buy—and that HSN wants to sell. Nealon believes the place to sell such merchandise is on the Internet. Within all of HSN’s popular categories—jewelry, fitness equipment, beauty and health care, electronics and apparel—there are products that sell better on the Internet, she notes.

For example, within the jewelry category, plain gold necklaces and earrings are popular with consumers, but they don’t show well on TV. The Internet is a good medium in which to sell these simpler designs, leaving the flashier jewelry for TV, Nealon says.

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Similarly, HSN sells basic jeans and sweaters on the Internet, while keeping the TV channel free for more trendy fashions. Some basic vitamin products and beauty creams also sell better on the Internet than on TV, Nealon says. “There are a lot of classic products that consumers want and need, but the products themselves don’t generate the excitement required to be included in our television rotation,” she says.

The TV flash

In addition to classic products, HSN views merchandise that is ancillary or complementary to the products sold on TV as doing well on the Internet. Nealon uses the example of a quilt. Consumers who purchase a quilt shown on TV are encouraged to check out the Internet later to purchase matching pillows, curtains and sheets.

Using the Internet to broaden its product scope, however, is consistent with HSN’s commitment to serve a broad-based clientele. “HSN appeals to a broad spectrum of consumers,” says ERA’s Tulipane. “It offers a wide variety of price options that is not limited to a particular income segment.”

HSN is also looking at how it can utilize the Internet better to move merchandise. For example, the merchant has had a lot of success with its online apparel fitting sessions, based on My Virtual Model Inc. technology. Nealon says HSN has had 300,000 customers use this service since its introduction, creating 2 million different fitting sessions.

HSN is also a big user of e-mails to communicate to its loyal customers. It sends 180,000 daily e-mails informing customers about upcoming sales and special offers available through both TV and the Internet. In addition, HSN sends out about 1.5 million monthly newsletters to customers containing promotional information.

A novel approach

But with Internet sales, Nealon and her team may need more novel approaches than what has been used with TV. “HSN uses romance to promote its products,” says Jupiter’s Evans. “But the Internet is less emotional and it’s hard to appeal to romance. Also, it’s harder to show the product features than with TV.”

But Nealon has some ideas on how to harness the Internet better. One way is to develop features that allow customers to call up multiple products on the screen at the same time for comparison-shopping. This would hold a big advantage over TV shopping, Nealon admits. “TV retailing is linear—you can only view one product at a time,” she says. “I’d love to give our customers the ability to call up several items at a time and be able to really look at them up close for comparison purposes.”

If Nealon appears focused primarily on the merchandising side of the retail business, that’s because that’s where she has spent most of her career. “She is very merchandise-driven and has a strong background in negotiating with suppliers,” says Jupiter’s Evans. “She also has a strong sense of fashion that will be helpful in developing product line.”

In her early years, Nealon moved up the sales and management ranks of department store giants Macy’s and Bloomingdale’s. “At Macy’s, I learned about the importance of value in selecting merchandise; at Bloomingdale’s, we emphasized fashion,” Nealon says.

Learning the fundamentals of retailing prepared her for future corporate assignments. From the department stores she went on to run Afterthoughts, a chain of fashion accessories marketed primarily to teenage girls. That chain was then sold to Claire’s, which has 2,500 stores nationally. Nealon remained president and chief operating officer of Claire’s. That assignment also advanced her understanding of merchandising.

“When you are selling to teenagers, you learn that you need to change your merchandise constantly,” she says. “Styles get old real fast. That’s something I’ve always kept with me.”

Also while at Claire’s, Nealon got her first exposure to the Internet as that chain launched a web-based operation. However, Nealon concedes that in the early days of online shopping, her target market wasn’t quite ready. “The Internet had just begun and 14-year-old girls were not big Internet shoppers yet, so our offering was pretty basic,” she says.

From Claire’s, Nealon moved on to Kenneth Cole Co., manufacturer and retailer of high-end apparel, where she was executive consultant for the firm’s consumer direct division.

It was at Kenneth Cole that Nealon got her first significant exposure to the Internet and how it fit with the firm’s catalog and direct retail operations. Today, Kenneth Cole makes its entire catalog available on its web pages as well as sends web users to Kenneth Cole direct stores as well as to department stores that carry its merchandise.

E-aggressive

Also at Kenneth Cole Nealon started to recognize that different sales strategies were needed for the Internet than in the stores. “With the Internet, we looked at a broader customer base than what we were seeing in our stores,” Nealon says. “We were serving customers from all areas of the country, not just in those regions where we had stores. As a result, we found our Internet customers wanted a broader range of products to choose from—not just the latest thing. Also, in the stores, you want products that are going to move off the shelves quickly. But with the Internet, you can offer a lot more classic and less trendy things.”

But whatever experience Nealon has had with the Internet, in the past, it is likely to pale by comparison to where she wants to take HSN. “We intend to be very aggressive in the Internet space,” she says. “Any growth we’ve seen we’ve seen in Internet sales thus far will be deemed modest compared to the long-term potential it represents to us.”

Lauri Giesen is a Libertyville, IL-based freelance business writer.