September 30, 2004, 12:00 AM

The web-enabled chain store

Today, retail chains boast some of the most sophisticated and fastest growing of retail web sites.

When retail chain executives first responded to the potential of the Internet in merchandising in the late 1990s, many were acting defensively and, as a result, envisioning a relatively limited use of the Internet. At the time, the pure plays were the rage, and they were seeking-and getting-buckets of money from Wall Street by milking the promise of web sites that would capture an enormous share of retail sales. The chains responded by hastily putting up retail web sites of their own. It was partly in an attempt to convince their shareholders that they could compete in the online sweepstakes, too, and partly an effort to keep the fledgling web-only merchants from gaining control over the new retailing channel and, potentially, of retailing itself.

Today, retail chains boast some of the most sophisticated and fastest growing of retail web sites, the result of a successful effort to parlay their powerful store brands into a major position in the retailing cyberscape. In fact, retail chains now control slightly more than 40% of retail sales on the Internet, according to our Top 300 Guide study published last June, greatly exceeding the 24% share of web-only merchants. But as this month’s cover story shows, the greatest potential of the Internet for retail chains may not be at their web sites but rather within their stores.

No one knows what percentage of retail sales will eventually wind up on the Internet. It is sure to exceed the current 5%. Some chains, such as the office supply specialists, already get about 20% of their overall sales from the Net, and there is no reason why other retailers cannot achieve the same percentage. It is clear that the growth of web retailing is coming at the expense of conventional catalogs and stores.

The retail chain industry’s response to such trends, we believe, must be twofold. Like all other merchants they must continue to enhance their web sites to attract the growing ranks of web shoppers. That’s a given. But in the process of protecting their position on one network-the Internet-they cannot afford to ignore what for them is a far more important network-their chains of physical stores that crowd America’s commercial arteries. This is what distinguishes them from all other merchants.

But in the age of the Internet, the concept of store retailing is being redefined. Responding to this challenge is the second line of attack retail chains must pursue: investments in store systems that feature Internet capabilities. Attracting today’s time-constrained shoppers means always having popular items in stock or, at the very least, capturing the sale even when the stock is depleted. It means being able to communicate with shoppers about what items are in stock before they make the trip to your outlet and to offer the capability to order in advance for pick-up at the store. It means having the ability to change the marketing messages at the store-whether communicated by a sign or a sales associate-overnight. And one day it may mean changing prices on store shelves instantly to respond to merchandising trends. In short, minding the store in today’s climate requires turning on a dime to meet the needs of shoppers who have grown accustomed to the speed of broadband.

All of these things and more are well within reach if retail chains properly equip their stores with Internet applications. This is the quieter revolution taking place in retailing today. It may not be web merchandising per se, but it clearly is web-assisted merchandising. And for the retail chain, it is at the heart of their effort to survive and prosper.

Jack Love, Publisher

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