Connecting the e-com dots

The decision to dot.com has to be made on a case-by-case basis.
Written by Robert McGarvey, Contributor on
The decision to dot.com has to be made on a case-by-case basis. There's no one formula that will work for all businesses, all the time

"The smartest thing I've done in business is shutting down my store and going exclusively online. Now I have a really neat business. I love it," says Sherry Rand, 54, a Salisbury, Massachusetts, retailer whose online store sells one thing and one thing only: gear for cheerleaders.

You want pompoms in any style and color? You want megaphones for leading cheers? Then you want to know about PomExpress, where Rand has conducted e-business in the two years since she shut the doors on her brick-and-mortar operation.

"Online, I don't have to carry the great overhead of a store, and — from a quaint town in northern Massachusetts — I'm selling globally. We get lots of orders from Europe, where cheerleading is really picking up," says Rand, who adds that she herself was a cheerleader through grade school and college. In the years afterward, she sold cheerleader supplies as a manufacturer's rep until she opened her own store. Now that she's operating solely on the Web, she says, "This is a great niche, and, on the Internet, I can conduct business wherever I want to be."

Another devoted dot.commer: Nancy Zebrick, 46, the onetime owner of a traditional travel agency in Cherry Hill, New Jersey, who launched a Web site in 1995 to complement her storefront. In early 1998, Zebrick decided the online operation had so many strengths going for it, she shut her brick-and-mortar store.

"The profits aren't there in a B-and-M travel agency. Online is much more profitable," she says. "The gross profit margins [per sale] are lower online, but we make it up in volume because we can sell nationally, in fact internationally," says Zebrick. Once her focus became exclusively online, her Web business took off — so much so that in late 1998, Zebrick plunged deeper into the Internet by merging her agency with online travel superstore 1travel.com, where she now owns a slice of the company and serves as director of leisure sales. "If you believe in the Internet — and I do — this is a great place to do business."

Egghead.com Inc. would agree. An early leader in storefront software retailing — it staked out its turf back in 1984 and promptly won significant brand awareness — Egghead hit tough times in the mid-'90s as it faced both big-box retailers, such as Best Buy and CompUSA, who carried more titles and often discounted deeply, and a crush of new Web-based software retailers, from Beyond.com to Buy.com. Staring at dwindling sales and the mounting costs of running traditional retail stores, Egghead threw in the towel and closed its real-world shops in early 1998 to concentrate exclusively on online retailing at www.egghead.com where, says the company, it now has over one million customers.

Should you go?
Sound good? Is it good enough to persuade you to dot.com? Shut down a brick-and-mortar operation, go strictly cyber, and, whoosh, you've distanced yourself from monthly rent payments and dealing face-to-face with grumpy customers — and you've also positioned your business to sell globally. That's how it seems when you listen to the stories of PomExpress, Zebrick's travel agency, Egghead.com and so many more. But can you count on it happening for you?

"The decision to dot.com has to be made on a case-by-case basis. There's no one formula that will work for all businesses, all the time," warns Barbara Reilly, research director with GartnerGroup, an information technology consulting firm. What's more, adds Reilly, "there once was a lot of naiveté about how easy it is for a business to succeed on the Web. It isn't easy, but many businesses discover that the hard way."

Sure, there are overnight successes on the Internet, but for every dot.com that thrives, there are more that flop, says Mark Layton, 40-year-old president and CEO of Plano, Texas-based PSSweb Inc., a leading distributor of computer supplies, and author and publisher of .coms or .bombs ... strategies for profit in e-business, which analyzes the difficulties of mounting an effective e-commerce site. "Many dot.coms will become dot.bombs — they'll fail," says Layton. "Just putting up a Web site gets you nothing. You have to take steps to build that business.

"Online or offline, you need a sustainable business model," adds Layton. "If you don't have that, you don't have a business."

When the Web was less cluttered a few years ago, virtually any site could attract attention simply because there weren't as many sites competing for it. But the dot.com space has spawned innumerable stores, which has triggered an economic Darwinism where the weak simply die — or get no meaningful traffic. "No one will know you're on the Web unless you tell them and motivate them to visit," says Layton. "Succeeding online has become very difficult."

Best of both worlds
Having second thoughts about burning the lease on your storefront and going strictly virtual? Know that there's another approach to the Internet, one that isn't all-or-nothing.

Consider Wine Country Inc., for example, which is 25-year-old Adam Chilvers' Winter Park, Florida, wine store as well as its Internet counterpart. Built around the tasty proposition that all the wines it sells are $19 or under and rated 85 or higher by a prestige publication (such as Wine Spectator), both the brick-and-mortar (opened in November 1998) and the online store (launched a month later) are profitable, according to Chilvers.

"Doing business on the Web is a dream. The costs are very low," Chilvers says. But he has no intention of shutting down his walk-in store, for several reasons. For starters, an online operation still needs some real-world warehousing for merchandise, and a brick-and-mortar provides that.

But the second reason is the clincher: "On the site, we sell to many customers outside our area, but we also get many locals coming into our store with shopping lists they've printed out on the Web." For those customers, the Web site is a great convenience: They hunt for wines they want online, at midnight or 6 a.m., then they can get in and out of the real-world store in a matter of minutes. "I'm happy with how the store and the Web site are working together to build this business. It's a good combination for me," says Chilvers.

Charlene Steinhauer, 36, goes further in endorsing the dual-channel retailing strategy. Stars Children's Wear, Inc., her Issaquah, Washington-based brick-and-mortar children's clothing and accessories store has been open for six years. "The business is very successful," she says, "and it's a steppingstone to what we're now doing online at ShopStars.com. A big plus for us is that we have established vendor relations and we can get the merchandise we want to sell, but a lot of online-only storefronts can't because many vendors are suspicious of them. They've been burned in the past by dot.com companies, but they know us and know we understand this business."

Maintaining a retail outlet has also helped Steinhauer keep up on industry trends. "By interacting with customers face to face, we've learned what they want in children's merchandise and how they want to buy it," says Steinhauer.

Even so, why did Steinhauer decide to start an online store when her brick-and-mortar operations have been on a steep upward growth trajectory? Advantages unique to online retailing drew her to launch ShopStars in late 1999, she explains. For starters, there's the ability to reach a wide audience. But another critical factor, says Steinhauer, is that "being online for us is about customer service. Our customers are busy — every parent is — and at our site they can shop at their convenience, 24 hours a day. We're open whenever they want to buy clothes or books or toys for their kids."

But, then, isn't this dual-channel strategy an unnecessary complication forcing entrepreneurs to focus on two distinctly different venues? The experts don't think so; in fact, many point to it as the way to proceed in the next century. "Don't close down a successful brick-and-mortar store to go online. Keep the storefront and add a Web site," advises Leslie Lundquist, author of Selling Online for Dummies (IDG Books).

And the logic behind this position? "There are tremendous advantages to be had by leveraging Net sales with a B-and-M," says Barton Weitz, a marketing professor at the University of Florida in Gainesville. Case in point: "You can use the store to promote the Web site," says Weitz. That means printing your Web address on bags, sales slips and advertising fliers. That can be a big step in overcoming the obstacle facing every dot.com today. "It's gotten very expensive to attract people to a site," says Weitz. "Stand-alone sites incur very high marketing expenses because they have to spend the money to get eyeballs."

Your customers' desires are another strong reason to maintain both types of operations rather than diving solely into online. "Different consumers want different things," says William B. Gartner, a professor of entrepreneurship at the University of Southern California in Los Angeles. "Some customers want the kind of personal interaction that can only happen in a traditional retail setting. For others, it's simpler to log on to the Net. The smart, consumer-oriented business makes it easy to buy, no matter the customer's preferences."

But there's a big, worrisome question that remains: Isn't all retailing heading to the Web anyway? Just last year, that was the buzz, but nowadays — with more dot.com's struggling and few breaking through to profitability — a kind of sobriety has taken hold, and experts are looking anew at the Web's potential as a marketplace. Explains Jackie Goforth, an e-commerce specialist with PricewaterhouseCoopers: "There are certain merchandise categories that will be slow to succeed online. Women's fashion, for instance. Shoppers will want to try the clothing on, to touch it. With other kinds of merchandise — commodities like consumer electronics — online retailing is the way to go."

As margins get squeezed tighter with hard-charging dot.coms fighting for market share by offering lower prices, it will become increasingly tough to succeed in a brick-and-mortar-only context. Merchants in endangered categories shouldn't panic, however, says Goforth. "We heard that catalogs would put traditional retailers out of business, and it didn't happen," he says. In fact, some catalog retailers eventually backed into opening brick-and-mortar stores. Now we hear that the Web will put B-and-Ms out of business, and that, too, probably won't happen."

"A lot of businesses are on the Web, but a lot more are not, and they're doing fine," adds Jonathan Palmer, a business professor at the University of Maryland in College Park. "What's important is for the individual business to make the decision that best serves its customers. Let customers shop the way they want to, and they will."

Making the decision
Want an easy rule of thumb to assess how your business might fare online? Jonathan Palmer, a professor at the University of Maryland in College Park, suggests three factors that shine a green light on this decision:

  1. You sell a product line that can be delivered economically and conveniently.
  2. You have a desire to market to customers outside your own geographical location and a product that will appeal broadly.
  3. There are significant economic advantages to going online, such as lower rent, labor, inventory and printing costs.

Chew especially hard on points one and two, because if they are on your side, the profits implied in the third point will likely follow.

A fourth factor might be whether you can economically draw customers to your site. Chasing a mass market — and going belly-to-belly against Amazon.com, drugstore.com, priceline.com and the like — means you'd better bring a seven- or eight-figure advertising and marketing budget to the table, because your competitors will. But the good news is that there is still plenty of room for thinly funded players who have targeted shrewd niches and developed solid business plans. The experts agree: Those are the dot.com companies that will be thriving tomorrow.

Robert McGarvey is Entrepreneur's "Web Smarts" and "Staff Smarts" columnist.

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