December 26, 2000, 9:55 AM

Chain Reaction

(Page 2 of 3)

Unlike Sears, many big retailers are still trying to figure out where electronic commerce fits in their overall corporate structure. But unless it’s separately funded and staffed, it’s easy for a small Web store operation to get overlooked in the structure of a large national chain. And that’s precisely the reason Federated turned its first electronic commerce venture,, into a stand-alone company.

Originally, was designed only to be an on-line extension of Macy’s West. But today, is an independent Federated company complete with its own five-year business and marketing plan. And being a separate unit is helping focus on its main strategy: becoming a high-end Web retailer.

“Making us separate lets us concentrate on building up Macy’s business and brand on the Web and helps Federated learn lessons that can be applied to other subsidiaries,” Anderson says. “Electronic commerce is just too important to get lost in the shuffle.”

Once a retailer establishes its separate online division, the next step is to determine what is most likely to sell on the Internet. Just as they’ve done in the real world, large merchants are offering an incredible depth of merchandise over the Web. Their strategy: using their merchandising clout to grab more Web business by offering the Internet shopping public anything and everything it wants.

A case in point is Wal-Mart. A typical Wal-Mart store stocks between 40,000 and 230,000 items. Yet when it comes to the Internet, Wal-Mart is betting that bigger is better. At, consumers can click on several categories and shop for about 250,000 products.

Bigger is better

Wal-Mart built itself into the world’s biggest retail chain by providing more merchandise at lower prices than the competition. The same strategy holds true for the Internet. With robust systems and automated ordering and fulfillment links to 51 national distribution centers, Wal-Mart is diversifying its Web store offerings.

In 1997, Wal-Mart moved into online food and began offering Internet shoppers one-day delivery on fresh seafood products.

More recently, impressed with the success of Dell Computer Co., which is pulling in millions of dollars in Internet orders each day, Wal-Mart began selling custom-made computers.

Through an arrangement with ACI Micro Systems Inc., a small Colorado Springs, Colo., computer manufacturer and distributor, shoppers can click on, fill out an electronic order form and purchase a custom-made personal computer for as little as $622.

“Our customers have come to equate shopping at Wal-Mart stores with excellent service, quality products, and low prices,” says Glenn L. Habern, Wal-Mart senior vice president, new business development. “Our goal is to make those same retailing qualities available to all the Wal-Mart online shoppers.”

Big chains have another advantage they can leverage: their catalog operations. Many have long experience selling direct to customers and that experience can be useful in setting up a Web operation. And it gains the big retailers an advantage over smaller or start-up competitors because catalog operations and sophisticated order intake and fulfillment systems can be put to work almost immediately on the Web.

For now, department stores will continue to mail their books. But as electronic commerce catches on, more chains want their best customers clicking through their electronic catalogs and ordering online. In November, Sears expanded its Internet store to include thousands of selections from its venerable Wish Book.

Penney has added more than 3,500 catalog items to its Web store and introduced an electronic form that allows customers to enter an item from the paper catalog and order it electronically over the Internet.

Penney recently linked the Web store to its six national fulfillment centers and featured in holiday television commercials. And with more advertising and completely integrated systems, Penney is launching its most ambitious project yet: putting its entire Big Book catalog of 5,000 items online by June.

“When we got into this, Internet shoppers were mostly male and the selling categories were limited,” says Richard E. Last, executive vice president, JC Penney international catalog division, Plano, Texas. “Now we know Web selling is shifting. People want more than books and computers. They’re looking for electronics and home furnishings.”

A lot to lose

Over time, Penney has refined its merchandising strategy, especially in apparel, to concentrate on private label brands, including Stafford For Men, St. John’s Bay, Hunt Club and Arizona Jean Co. And when its Big Book catalog goes live on the Internet, Last believes the private label brands will help differentiate Penney from other online catalogers. “We have a lot to risk losing if our customers can’t find the items they want when they want them on our Web site,” Last says.

But Penney isn’t the only department store chain expanding its online catalog. Nordstrom’s Web store debuted in October with limited electronic catalog features. Nordstrom customers could click on the Place-a-Catalog-Order page and view men’s and women’s apparel. It took Nordstrom years to diversify from chain stores into paper cataloging. Yet in only a matter of months, Nordstrom is expanding its Internet business and putting its direct sales catalogs online. In January, began featuring all items carried in Nordstrom, The Catalog and in February it launched an interactive version of Nordstrom 2nd Nature, a women’s apparel book. Last fall only about one-third of the chain’s catalog items were available electronically, but now that total has risen to 61,500 products.

“The Internet one day soon is going to supersede catalogs as a sales channel and we must begin to understand that,” says Dan Nordstrom. “They will be looking at slow motion videos of merchandise and using their computers to complete the buying process.”

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