Bricks, Clicks: We Can Learn from Each Other

NEW YORK (03/02/2000) - Even as they vie for customers on the Web, smart executives at traditional retailers and pure-play Internet startups realize they can learn from each other's strengths and weaknesses, and from how they tackle common problems from different points of view.

There is no one-size-fits-all approach to building a vibrant Internet business, agreed a variety of executives speaking here at market research company Gartner Group Inc.'s Internet & Electronic Commerce (iEC) show, ending today.

Established brick-and-mortar retailers and Internet "click-only" startups face different sets of stumbling blocks, the executives said.

Some of the chief constraints on traditional retailers include legacy systems that need to be overhauled for e-commerce, and chains of command that prevent quick decision making, industry insiders here agreed. On the Internet, size matters less than the ability to take advantage of new business opportunities brought about by new technology.

"It's not the big who will eat the small; it is the fast that are going to eat the slow," said Ariba Inc. Chief Executive Officer Keith Krach, at a keynote address here yesterday. Ariba, founded in 1996, specializes in technology for Internet B2B (business-to-business) exchanges, and has several high-profile customers such as networking giant Cisco Systems Inc.

An executive at an Ariba competitor, a well-established ERP (enterprise resource planning) software company, agreed with Krach. "These guys (Ariba) are eating our lunch. ... Trying to turn big established companies around is like trying to turn around an ocean liner, and these guys can run circles around us," said the executive who didn't wish to be identified.

Although Ariba is not a retailer, the company has customers who are. And traditional retailers here agreed that they need to capture the spirit of the Net startup culture. A major question for such retailers is whether they need to spin off online units or keep them in-house.

"There's no one right answer, but you have to make sure you have the commitment to be just as aggressive and competitive as the startups," said Bob Schwartz, executive vice president and general manager at Nordstrom.com, speaking at an industry panel here.

At Nordstrom Inc., the firm's e-commerce activities have been grouped together with the 100-year-old retailer's direct-marketing unit into the Nordstrom.com group, which is separate from the rest of the company, Schwartz explained.

Some retailers, like Sears Roebuck & Co., like to keep Internet activities more closely integrated into the main company. "We wanted to provide an integrated shopping experience for our customers so they can shop online and finish their purchase in the stores," said Graham Waller, director of strategy at Sears and a panelist here at the show.

However, in order to be able to move with Internet startup speed, Sears' online activities have a dedicated IT department, Waller said.

Exhausted executives at pure-play Internet startups, on the other hand, sometimes find themselves envious of the brick-and-mortar environments. "The past few months have been a blur ever since we launched in time for the (1999) holiday season," said Jay Herratti president of boo.com North America Inc., the American affiliate of Sweden-based boo.com sports fashion site."Now, I think we're going to move a little in the other direction to a bit more of a stable environment," said Herratti, another panelist at the show.

Though the cultures of startups and established players may differ, many of the basic business issues they deal with are the same, speakers here said. These problems include how deeply to discount products to jump-start online selling, the pros and cons of selling discount brands vs. premium brand-name products, and questions about when and how to team up with partners. As both types of Internet retailers tackle these issues, a gradual consensus is emerging about what constitutes best business practices online.

One thing that many industry insiders here agreed on is that relying on constant discounts and marketing low-cost, third-tier brand products is risky.

"If you're not selling proprietary products, you're in a brutal pricing game," said Bill Bass, vice president of e-commerce for clothing retailer Lands' End Inc. Many panelists here wondered how long Amazon.com (Inc.) could keep up its steep discounts on goods. "Sooner or later, you have to have a profit," said Bass.

While boo.com does not sell its own proprietary clothing and shoes, the company resells premium brands -- niche, hip brands that are hard to find, said Herratti. "These are brands that have an edge, that people are willing to spend a little more for," he said. "And what we're finding is that our average basket (the amount of money people spend at any given time) is well above the average."

Partnerships are another issue with which both the pure-play Net companies and the brick-and-mortar-based businesses have to grapple. The received wisdom is that no company can go it alone on the Net, that IT partners are needed and that portal partners are needed in order to set up links to frequently visited Web sites. But establishing these partnerships must be done with care.

"The IT partnerships are grueling; we went to company after company who just couldn't come up with what we wanted," said Herratti, who said boo.com relies on value-add, technology-intensive online features such as three-dimensional and "zoom" views of clothes to attract consumers. "What you have to try to get in the end is a company that shares your vision and is willing to learn with you, because, in the end, you all just make it up as you go along anyway, since what everyone is trying to do is so new."

However, despite the old adage about the importance of partnerships, Bass from Lands' End issued one big caveat -- don't sell your soul to snare a big partner.

"We love our portal partners but partnerships are overrated. ... Well under 10 percent of our traffic comes from portals," Bass said. "People who give up the personal data they have on their customers just in order to partner with somebody are crazy."

In other words, it's not worth getting into bed with an attractive partner if you have to jilt your customers.

As Ariba's Krach summed it up: "The importance of integrity is one thing that does not change."