Convergence: Not Just for Television Anymore

In the short history of e-commerce, 1999 may go down as the year of struggling e-commerce strategies for traditional bricks-and-mortar companies. Early in the year, as companies realized they’d missed the gold rush of Holiday Shopping 1998, retailers were convinced the Internet would either be their salvation or their destruction.

The Internet and e-commerce had gained credibility as a viable, if not profitable, medium for increasing consumer base and selling goods. Companies finally figured out that a web site billboard was a waste of their money and consumers’ time.

The moment had come to sell online. Companies chose to go one of three ways: Create an entirely separate dot-com company or business unit, integrate the online business strategy with the bricks-and-mortar stores, or create a hybrid of sorts that wasn’t fully committed one way or the other.

As the 1999 Holiday Shopping Season approached, panicked bricks-and-mortar companies struggled to develop e-commerce strategies in time for what promised to be a very lucrative year. Following the quickly changing tides of industry analysts’ reports, opinions, and recommendations, some companies created somewhat schizophrenic strategies that perplexed Wall Street and frustrated consumers.

Revenge of the Two-Headed Retail Monster

Some of the companies that chose the separate company or business unit strategy were Barnes & Noble, BestBuy, and Staples. Toys R Us did it, too. But despite investing $80 million into their Internet business unit and buying a $30 million, 500,000-square-foot warehouse, Toys R Us emerged from the 1999 holiday season the same way it did the 1998 season: With a black eye.

Either in theory or in reality, these dot-com cousins compete with their bricks-and-mortar kin. Instead of offering the online store as another avenue for the consumer to purchase goods, companies created a separate entity that competed with their offline counterparts of the same name (sans “dot-com”).

In many cases, inventory has been managed separately. An online store might have more, less, or different inventory than the offline store. While the company flacks have tried to tell us the different inventories give consumers more choice, the inconsistency confuses shoppers.

Because the inventories are managed separately, prices have sometimes been different depending on whether you bought it in person, online, or by catalog.

Prices on the Staples web site are often higher than in its catalog, which may offer different items than its bricks-and-mortar stores. (A customer service representative on the phone had no idea why the prices would be different.) Also, you can’t buy merchandise in their stores and have it delivered. If you want delivery, you have to order either online or through the catalog.

Further complicating all this is the nightmare consumers encountered when they tried to return merchandise they’d bought online.

Does an In-Store Computer Count Toward E-Commerce Integration?

Other companies tried a hybrid approach – an online strategy with dotted-line integration with their stores. Bookseller Borders announced last summer they were integrating their offline and online offerings by placing Internet-enabled kiosks in their stores that were to allow users to order titles and have them delivered to their homes.

Borders President Rick Vanzura claimed the company was to be “the most integrated provider in [its] industry.” Two days later Vanzura resigned.

Outdoor gear retailer REI also followed analysts’ advice to develop so-called hybrid strategies by placing Internet kiosks in their stores.

Unless a consumer doesn’t have Internet access at home or work, we’re not sure why anyone would want to drive to a store to order from the exact same database one could access from home.

Breaking Down Borders opened its virtual doors last year by offering 20 million pairs of shoes online. Officials at the company said online shoppers could return shoes to any of its stores. The company went a step further by putting Internet-enabled computers in stores so clerks could order any shoe for an in-store shopper should the desired style, color, or size not be in stock at that store.

Circuit City also took the fully integrated approach. Users could avoid shipping costs by ordering online and picking up merchandise at their stores. The company also allows users to return, exchange, or repair any online-ordered item at any of their 548 so-called superstores. The president of the company said they were “going to run a tightly integrated company.”

Better Luck Next Time

As many companies conduct their holiday postmortems in boardrooms across the country, they will look to figure out how to make it better for Holiday Season 2000.

Offline companies are still trying to figure out the best business model for themselves. Unfortunately, it seems they’re not looking for the best business model for their customers. The Internet is not some interesting side project, but rather the normal course of doing business in the new economy and the (almost) new century.

Integration, or convergence, between online and offline pricing, ordering procedures, and return policies will strengthen a company’s new and somewhat volatile online play with support from the experienced offline company.

Rather than letting the dot-com cowboys run their own show with reckless abandon, companies may want to consider their bricks-and-mortar strengths of customer service and brand equity. Now they have 353 shopping days to figure it out.

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