March 31, 2003, 12:00 AM

Internet retailing and the smart store

We have focused a good deal of our editorial coverage on how retail chains are integrating the Internet into all aspects of their merchandising operations, including, most importantly, their stores.

Regular readers of this magazine aren’t surprised that we devote this month’s cover story to the Internet strategy of the world’s largest owner of retail stores. Since our first issue, when we profiled Macy’s web site, we have focused a good deal of our editorial coverage on how retail chains are integrating the Internet into all aspects of their merchandising operations, including, most importantly, their stores. As such, we have featured on our covers leading chains such as Office Depot, Sears, Kmart and now Wal-Mart, the largest of all.

We believe a continuing examination of Wal-Mart’s Internet strategy is particularly instructive. Wal-Mart owes much of its hegemony in retailing to its mastery of pre-Internet retail systems, and it would be nearsighted if it did not extend its data magic to the web. Just as Wal-Mart showed others how to use proprietary networks to make stores more efficient merchandising platforms, its continued leadership in retailing will rest squarely on how well it uses the Internet to take multi-channel retailing to a higher level.

It is true the Internet has quickly become a meaningful selling channel in its own right, one we think will eventually replace catalogs as the second largest retail channel. But tracking best practices at retail web sites is only part of our mission. The potential of the Internet to enhance store-based shopping is as profound as the revolution the web has already triggered in direct-to-consumer merchandising.

That is why we’ve covered Circuit City’s program that allows customers to order merchandise from the web and pick it up at the store, Finish Line’s project to convert its POS terminals to web-enabled devices, 7-Eleven’s effort to put web-based kiosks into thousands of stores and Starbucks’ installation of wireless receivers at its stores that provide patrons instant access to the web from their laptops. And we’ve written extensively about chains that use the web to communicate real-time store inventories to suppliers and merchandisers to insure that the flow of products into the store responds to the daily demands of consumers.

These are important trends in the Internet’s application at the store level. But they are only the beginning. We believe the store of the future will become essentially a new site on the web-one that marries the human touch-and-feel characteristics of traditional store retailing with the superior access to merchandising information that only the web can deliver.

What the web-enabled store of the future will look like is anyone’s dream, but the possibilities are endless and fascinating. Think of plastic mannequins replaced by 3-D images of full-size “live” models displaying the selection of garments you want to see. Think of electronic price tags that can be reset by the hour from the chain’s headquarters. Think of touch-screen monitors that will offer shoppers personalized promotions. And think of the affiliate marketing programs retail chains can arrange to provide manufacturers and retailing partners a variety of web links to their stores-enabling all parties to derive more benefit from the store’s customer traffic and brand loyalty. If Amazon can use affiliates to convert its virtual store into a shopping mall, retailers can create the same virtual windows at their real stores.

There have been some dire forecasts about the web’s potential for cannibalizing store sales. For retailers who fail to adapt their stores to the Internet age, those prophecies may come true. But for others, the Internet spells not the death of retail stores but their rebirth as the smart store.

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