Even Malls Need A Niche

Guide to E-Commerce Technology

In the hard-knocks school of Web retailing, securing a merchant account is a 101 course, the key to accepting credit card payments online. And Internet newcomer Amanda Werchan was failing.

After dozens of phone calls, Werchan still hadn’t succeeded in finding a bank that would open an account for her Web store, which features children’s toys, books, and clothing produced by parent-owned companies. In fact, Werchan had made so many calls that at first she didn’t recognize the name of the woman who offered the deal that finally put her business online.

The caller, a sales rep from Card Services International, told Werchan that if she set up her store at iMall, an online shopping hub, Card Services would give her a merchant account as part of a package deal. Today, customers can find Werchan’s company, Sweetpeas Unlimited, under “Family and Home” at iMall.com.

IMall is among hundreds of Web sites that hoist virtual roofs over groups of online retailers to create a mall experience for shoppers. Most list stores by name and category, providing links that consumers can easily navigate. But what sets iMall apart is just what lured Werchan. Along with making it easy to get a merchant account, iMall helped her set up Web pages and product descriptions. The firm equips its clients with store-building software, then hosts their shops on its server. And Werchan’s rent is a fledgling retailer’s dream: only $59 a month.

IMall has built and hosted Web stores since its launch in 1994, but the company continues to add perks for retailers and shoppers. And like iMall, other online shopping centers are shifting their strategies, looking for new ways to make selling online simpler. Some offer help with shipping, customer service and direct marketing. Others attract customers with universal shopping carts and coupons that can be used at one or more stores within the mall.

All this shows that online malls have to work hard to stay relevant, analysts say. Who needs to shop at online malls, the argument goes, when search engines and Internet portals can help consumers find the stores they’re seeking? Merchants are skeptical, too. Some have found little value—such as slow traffic and pitiable sales—in Internet malls.

Free parking

But others see only potential. The number of transactions filtered through Internet malls is increasing and will continue to grow, says Rob Janes, a researcher at eMarketer, a New York-based market research firm. By 2002, his company forecasts, 40% of online sales will pass through such shopping hubs, including portals like Yahoo! “Malls bring everything together,” Janes says. “It’s one-stop shopping. The Net is huge and vast, and malls make it easier for people to navigate.”

Malls also help small e-stores get noticed. “There are more than 400 booksellers on the Web, but everyone goes to Barnes & Noble, Amazon.com and Borders,” says Alexis Deplanque, program director at the Meta Group, a consulting firm based in Stamford, Conn. “Smaller stores need a portal to bring them together with shoppers who might be interested in what they’re selling, hence the Internet mall.”

Internet malls have been around for as long as people have been shopping online. The simplest setup registers a group of retailers and lists their businesses in categories, such as sporting goods, clothing, or gifts. These electronic hubs generate revenue by charging fees for what amounts to advertising space or by collecting a percentage of sales made through the link.

The concept is based on traditional shopping habits in which people park their cars and go into a mall to shop for everything they need. The problem is, that isn’t necessary online, says Paul Marshall, president of Thirteenth Floor Internet Services in San Rafael, Calif. “On the Internet, you don’t need to find a parking place.”

Because the Internet is a new channel with dynamics all its own, online malls often are viewed as putting too much of the traditional world on the Web. “A lot of companies try to make you think you’re standing in a mall at their Web site, but the real value proposition on the Internet is that you’re not standing in a mall,” says Melissa Bane, director of Internet strategy at the Yankee Group, a market research firm in Boston. “Every store is just a few clicks away, so it’s very convenient to shop at many different stores—and you don’t have to build the mall to do it.”

Several malls, however, are evolving into much more than aggregators of independent stores linked together under one roof. They’re providing much of the back-end support and front-end marketing that retailers—especially small ones—need to be successful online.

Back room bonus

Until earlier this year, BuyItOnline ran a links-only Web mall. In a makeover, the mall morphed itself into a business that provides a full range of services for building and maintaining Web stores. The mall already has drawn 200 retailers and aims to have 800 by year’s end. “We provide a huge umbrella over the shopping experience,” says CEO Michael Clebnick. “Consumers shop with one shopping basket and fill out one checkout form. They have a 30-day money back guarantee. If they’re unhappy, they can return the product at no cost.”

Following its May debut, the remodeled site took in about $200,000 in sales over the next three months. The mall markets itself and its retailers to online communities and interest groups, taking 15% off the top of every sale coming through the mall. Because customers who click through may not come back to its stores, BuyItOnline won’t accept ads from retailers not featured in the mall. “We make money from transactions,” says Clebnick, “so it matters whether our merchants are selling $1,000 a month or $10,000 a month because we’re in collaboration with them.”

That’s what appealed to Brian Levine, president of Parabolics, a Montreal-based manufacturer and wholesaler of inline skate wheels. BuyItOnline handles everything from taking orders to shipping them for Levine’s e-store. “We bought into the concept that all we needed to be were experts in our product,” he says. “Everything else is paperless, highly automated and taken care of.”

Parabolics already had a Web site when the company signed on with BuyItOnline, but the site was informational. Levine wanted to test e-commerce elsewhere. He liked BuyItOnline because it looked professional, had quality retailers and offered a full range of services.

BuyItOnline provided shopping cart software and secure ordering behind the Parabolics Web store. The mall also handles customer support. “The whole thing is so efficient,” Levine says. “We can run reports, look at site statistics and print packing lists. And not a day goes by that I don’t get an order.”

Since then Levine linked his company’s informational Web site to BuyItOnline’s e-commerce services. Still, about 80% of his online orders come through the mall. In fact, Levine is so pleased with the response that he branched out with a second BuyItOnline store, Wackyprices, which sells discounted goods of all kinds.

Though iMall takes a different tack—charging a monthly fee for maintaining Web sites and selling ads to outside retailers—the company also has beefed up its merchant services. “It is possible now to log onto our service, build a store and within hours be taking orders,” says Daniel S. Odette, senior vice president of product marketing.

Marketing expertise

IMall now includes more than 2,000 retailers, and consumers can use a global shopping cart that travels with them from store to store. Under development is a feature that will allow shoppers to review their account histories—seeing what they’ve bought from different merchants—and create wish lists that family and friends can browse.

IMall, recently acquired by Excite@Home, finished 1998 with revenues of $1.6 million. The company is headed toward becoming its parent’s e-commerce division, says Odette, who expects more attention and traffic to come from the merger. “The idea behind iMall.com was that small to medium-size businesses, along with having a Web site, needed a way to promote themselves and drive traffic to their sites,” Odette says. “We launched an aggregation portal so that we could put any Web store we built into the mall.”

Marketing potential is one of the most promising aspects of online malls, consultants and retailers say. Malls spend a lot of time and money drawing consumers to their sites through advertising, coupons and target marketing to specific online communities. Even a few larger retailers have begun advertising within Web malls as a way to build traffic to their sites.

One Internet mall, Spree.com, takes marketing a step further. The company has developed a plan to draw shoppers, learn as much about them as possible while they shop, and then share that information with retailers, who can use it for direct, personalized sales pitches.

Spree, another mall that has overhauled its strategy and relaunched its site, previously operated its own Web stores. But executives realized that what customers liked most about Spree was a program that allows them to earn cash back on their purchases. The company made the cash-back program its focus and sought out partnerships with other retailers to create a larger online mall.

So far Spree has attracted 10 merchants in various categories. To earn cash back on their purchases, shoppers must register at the mall. That information, along with purchasing data, fills the mall’s database, which is then tapped to help retailers target specific demographics for special promotions. “Say a lot of people have been buying the new Bruce Springsteen album,” says Colin Murphy, vice president of brand services. “We can say to a retailer, ‘Why don’t we send a promotion and suggest they buy a book from you about Bruce Springsteen?’”

Draws like that make online malls a strong component of a smaller retailer’s marketing plan, says Bryan Murphy, chief operating officer at Wrenchhead.com, a Spree merchant that sells car parts and accessories. Wrenchhead will pull repeat business on name recall alone, he says, but a storefront inside Spree takes the company even further. “It is good to get in front of consumers in more than one way,” Murphy says. “Selecting good mall partners can only enhance our business.”

Even small companies like Sweetpeas have to diversify with their own marketing. At iMall, Werchan logs about 2,000 hits weekly—only half the number who visit the separate Sweetpeas site she launched after getting her start at the online shopping center. What’s more, customers who find her at iMall don’t see her URL, so she’s missing an opportunity to build her brand with repeat customers who would normally point their browsers directly to her store.

Werchan boosts her revenue prospects by advertising in national parenting magazines and listing her Web site with search engines. “If you have a Main Street store in a little town and hang a shingle outside, that’s a tremendous way for local people to know you are there,” she says. “On the Internet, you can be there for months and no one even knows it.”

MargaretAnn Cross is a business writer in Allentown, Pa.

Browsing the Internet malls