August 29, 2007, 12:00 AM

Follow the leader

(Page 2 of 2)

But the main value proposition of to Wal-Mart isn’t just to generate sales. Instead Wal-Mart uses to support the company’s global network of nearly 7,000 stores and give shoppers different ways to locate and purchase merchandise. “The goal of is to be the premier multi-channel retailer,” says a spokesman. “We’ve launched several web initiatives that reflect our commitment to this goal and they are designed to deepen our relationship with customers and make it easier for them to access Wal-Mart regardless of which channel they choose.”

Large-scale systems

The big chains have large-scale systems and supply chains they use to move merchandise to hundreds and even thousands of stores. But it’s a different business model to build and maintain a virtual store and to pick, pack and ship individual web orders. Most analysts credit J.C. Penney with being adept at converting a large catalog operation over time into a substantial e-commerce business which in 2006 generated sales of $1.3 billion and is growing at an annual rate of 25%.

Other big chains are also beginning to invest in their e-commerce channel as well. Both Macy’s Group Inc. and Nordstrom Inc. expect to generate at least $1 billion in annual sales within a few years. To support such growth Macy’s is spending more than $200 million to build a pair of new fulfillment centers in Arizona and Tennessee. Nordstrom is building its own dedicated distribution center in Iowa.

Despite their small ratio of web sales to total sales, the big chains still have plenty of remaining opportunity to grow their e-commerce business. The National Retail Federation estimates that U.S. retail sales will grow by about 5% in 2007 to around $3.15 trillion. In comparison many retailing and e-commerce technology research firms expect the U.S. business-to-consumer e-commerce market to grow by around 23% to about $167.5 billion. And they expect the online retailing market will remain the fastest growing portion of the market.

If they want to make a serious effort at selling more online and not just use their web sites as marketing and merchandising tools, the big chains need to refocus their approach to e-commerce, beginning with a change in thinking in the executive suite, analysts say.

“The top executives know that their web sales might be growing exponentially, but when it’s only 1% of total sales they are going to keep their focus on stores,” says Mary Brett Whitfield, senior vice president and analyst with TNS Retail Forward Inc., a Columbus, Ohio, retail research firm. “They need to realize that there are still big opportunities and reasons to invest more in their online channels.”

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