Madison Reed has raised $32.1 million since launching 15 months ago.
Storm-tossed online retailers, spared the battering of bricks-and- mortar rivals, are finding ways to take advantage of the gaps left by store closings.
By brute force, the economic crisis is accelerating the shift in retailing to the Internet.
While retailers shutter tens of thousands of bricks-and-mortar stores, few are making severe cuts in their e-commerce teams. In fact, many e-retailers see a big opportunity for retail web sites to appeal to increasingly price-conscious consumers at a time when physical stores are cutting back on staff and inventory, or disappearing altogether.
“As Internet retailers, we have the ability to be more lean than bricks-and-mortar competitors, and that translates into savings for customers,” says Bernard Luthi, vice president of marketing and merchandising at Newegg.com, a web-only computer and electronics retailer. “It’s our opportunity to serve not only customers who are comfortable shopping online, but those who were more inclined to shop bricks-and-mortar stores who suddenly realize those choices are declining and the prices they can get online are more attractive.”
To be sure, online retail is not immune to the economic downturn-the 4.9% decline in fourth quarter web sales reported by the U.S. Commerce Department is proof of that. And e-commerce managers are being cautious with their spending, seeking to preserve cash at a time when credit is hard to come by and the recession shows few signs of abating.
But many are finding low-cost ways to fill the gaps that are emerging as stores close their doors. Those strategies include using drop-shippers to increase selection without buying inventory, linking up with local retailers in areas where major stores have shuttered, and adding more information to e-commerce sites so consumers new to the web can find answers to their questions-making the web site play the role of the increasingly scarce store salesperson.
Those e-commerce managers, including some that work for retail chains, aim to take advantage of the battering being absorbed by online retail’s biggest rival: the conventional retail store.
While there were nearly 1.1 million retail stores in the U.S. in early 2008, according to the Bureau of Labor Statistics, 148,000 of them closed during the course of the year, the most since 2001, according to the International Council of Shopping Centers. After accounting for store openings, the net decline in retail stores was about 3-4%, says ICSC chief economist Michael P. Niemira. And ICSC estimates another 73,000 stores will disappear during the first half of this year.
Retail employment is also down nearly 4% from early last year, according to the Bureau of Labor Statistics. With retailers cutting back on employees at stores still open, as well as laying off workers from shuttered stores, there is an opportunity for online retailers to provide the kind of service many stores no longer can offer, says Donna Hoffman, co-director of the Sloan Center for Online Retailing at the University of California-Riverside. “Service in stores is godawful,” Hoffman says. “Companies can’t afford employees anymore.”
These developments present opportunities for online retailers, and some are taking direct aim at wooing consumers who previously shopped at bricks-and-mortar stores in their categories.
For instance, Christian Friedland, president of web-only home furnishings retailer Improvement Direct Inc., has his sights set on former shoppers of the higher-end Expo chain that parent Home Depot Inc. recently closed down. He’s expanded the use of video and stepped up a program of photographing multiple views of items so a consumer, including one accustomed to handling an item in a retail store, can see all sides of the product.
“We are focusing on improving media offerings to make the customer experience more positive, so when the former Expo buyer visits the web site they have a showroom-like experience,” Friedland says. In recent months the e-retailer has been doing more training of customer service representatives, including using top salespeople to train others, “to accommodate showroom buyers that don’t have a lot of options now that Expos are gone.”
Similarly, when consumer electronics chain Circuit City laid off many senior store employees last year, before it finally gave up and liquidated the chain, online electronics and general merchandise retailer Buy.com accelerated the addition of product videos to its site. Buy.com shoots the videos in high definition in its own studio, using manufacturer representatives to explain the products.
“This is something we’ve been doing for two years, but Circuit City made it more popular when they got rid of their top layer of sales folks,” says Neel Grover, president and CEO of Buy.com. “That’s when we put out more of this content.”
He says the manufacturers explain their products on the videos better than most store employees can. “Even at other big stores, it’s hit or miss whether you’ll get somebody who understands that specific product,” Grover says. Buy.com now has several thousand videos on its site, each typically about three minutes long, Grover says.
The e-retailer also has taken advantage of store retailers, including Circuit City as it neared bankruptcy, declining to buy merchandise they had been allotted by suppliers. Manufacturers offer Buy.com such excess inventory at low prices as long as Buy.com promises to promote it, says Grover.
He recalls one e-mail offering a deal on 42-inch flat-screen TVs that went out at 4 a.m.; by 7 a.m. the entire allotment of over 1,000 sets was gone, illustrating how effective a major retail web site can be in moving excess inventory quickly. Overall, Buy.com’s sales were up by more than 10% during the holiday season over the prior year, and by 20% in January, Grover says.
Another way to profit from the recession is to target regions where store closings, or the lack of stores to begin with, have created a gap in a retailer’s category. That’s the strategy being employed by Leiberts Royal Green Appliance, which has operated a large appliance store in the New York City suburbs for 60 years but launched its first transactional web site in December 2008 on a platform from ShopVisible LLC.
Recognizing it was late to the party, Leiberts sent out a mailer to kitchen designers and dealers around the country that are outside of major cities and thus may not have easy access to stores with a wide range of appliances, says Rob Satran, senior vice president of business development.