November 29, 2006, 12:00 AM

Mass Merchants/Department Stores

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Buy’s strategy has paid off in a 33% year-over-year rise in first-half 2006 revenue to $201.7 million, as gross profit rose 54% to $24.2 million and net loss narrowed to $5.8 million from $6.3 million. But it’s just beginning to reap the benefits of its leading-edge strategy. In the first week following the debut of its BuyTV, Grover says, “we’ve recognized a 300%+ increase in the sales of products that we feature on it.”
Upscale, online could be just an online version of the company’s massive discount warehouse clubs, but it’s actually more like an upscale department store.

There’s a little overlap with the bricks-and-mortar locations, says Ginnie Roeglin, senior vice president of electronic commerce and publishing. “Some large, bulky items are in both places so that we can help get them home. Or if you buy a piece of furniture at the warehouse, there might be complementary pieces online. But we have our own buying team, and we offer merchandise that’s more high-end.” In other words, Costco warehouses might have a good mid-range digital camera, but for a professional model with interchangeable lenses, is the place to go.

Costco has found that its online customers have money to spend and don’t mind doing so, and they’re more likely than the average warehouse customer to have researched a big-ticket purchase before they arrive. “We’ve done a number of tests on the site over the years and if we offer, say, a mid-level treadmill next to an upscale version that’s much more expensive, it’s the expensive one that sells,” Roeglin says.

“Costco’s online channel plays a very strategic role where they’re looking to establish new categories or category extensions,” says retail consultant Jim Okamura, senior partner at J.C. Williams Group. “Their online channel is rapidly growing, even if it’s just a tiny fraction of the company’s business. I really admire what Costco is doing, integrating the online channel into their core business and making sure it’s consistent with the brand promise, yet using it strategically.”

Costco revamped the site’s overall look and feel this year, along with the navigation and all of the categories and subcategories, to make it easier to use, Roeglin says. “This year we’ll take it down to the item level.” For FY 2006 Costco had e-commerce sales of $880 million compared with $542 million in FY 2005.
Winning department

Big department store chains have struggled in recent years to maintain their position in retailing as growth among successful specialty stores has coincided with the decreasing popularity of department store-anchored shopping malls.

Further, department stores in general have been late to profitably leverage the web-many of them launched a retail web site as a completely separate and lowly valued channel. But J.C. Penney Co. Inc. is one department store chain that placed a high value on its web channel in the early days of Internet retailing, positioning it as part of a multi-channel strategy back in 1995. It has continued over the years to develop and improve its multi-channel strategy, reaching $1 billion in online sales last year and pushing its retail web site to new heights this year as a re-branded

And there’s plenty of growth ahead, says John Irvin, president of JCPDirect, J.C. Penney’s e-commerce and catalog division, projecting $2 billion in web sales within the next several years. has taken bold steps this year, investing in such technologies as state-of-the-art interactivity and imaging. In the spring it blended online video and TV advertising when it ran its Oscar awards TV commercials on the web, with the extra attraction of letting viewers click into the videos to purchase the apparel worn by models. It also has improved more basic shopping functions. A new interactive shopping tool, for instance, lets shoppers mix and match 142,000 combinations of window treatments in visual room settings to preview how a particular choice might look at home.

“J.C. Penney has some great content within its site to help shoppers select the right product,” says Colleen Coleman, an affiliate with retail consultants McMillan/Doolittle. also makes it easy to shop apparel by letting shoppers navigate by size or brand, she says, adding, however, that the site should play up such features on its home page.

J.C. Penney also is positioning itself for growth by bringing into its stores, where it’s starting to let store shoppers see at POS terminals additional inventory available via the web store. With that kind of multi-channel integration, $2 billion may be closer than expected.
Lookin’ smart

While all shoppers like a smart bargain, zeroes in on women 35 to 55. Whether it’s a search engine that finds all the brown boots in a size 9W, a Smart Shoppers Club that gives members the first and sometimes only shot at the best merchandise, or a Buyer’s Choice section that tags some merchandise as the best of the best, is not so much about economy shopping as it is about the unbelievable find. focuses on women’s clothing, shoes and accessories, but has a selection of menswear, home items and toys-all the while recognizing that mom is probably the one doing the shopping. Within the confines of the virtual store, seeks to recreate the same sense of urgency that once led to bruised ribs at Filene’s Basement, the company says. “SmartBargains has used real-time inventory capabilities to bring some merchandising tools to life online that have worked well in an offline world,” says retail consultant Jim Okamura, senior partner at J.C. Williams Group, Chicago.

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