Talk to Your E-Shoppers

Macy’s, a store I’ve shopped at for years, is having sales without me. I
have finely tuned radar that detects markdowns at Macy’s flagship on 34th
Street in New York. But online at Macy’s.com, there’s a different schedule
for sales and specials. For the first time since I was 16 and started paying
attention to such things, I feel as if I’m out of the loop. What gives?

I’m suffering from a disconnect between online and offline stores. The
burgeoning Web operations of traditional retailers are creating new layers of
complexity for consumers. Interacting with these stores–buying goods,
returning purchases, bargain-hunting–is more complicated than it used to be. A
lack of communication between cyber and brick-and-mortar stores didn’t mean
much when few consumers shopped online. But Christmas, 2000, was a breakout
season for traditional retailers with Web stores. Venerable giants such as
Sears, Wal-Mart, and Kmart kicked some serious e-tail tail. These were the sites
that got the best marks for service, selection, and ease of use. While Net-born
merchants struggled to right their finances, companies that were once dismissed
as dinosaurs cleaned up. But if they want to continue their success, they’ve
got some explaining to do to their customers.

I’m not talking about banner ads that say: "Shop YourFavoriteStore.com.
We’re Online.’’ That era of basic information is over. We already know
they’re on the Web. Now they need to tell us what that means. Is the
merchandise different? When do markdowns happen? What are the refund policies?
Part of their job this coming year is to make all this newness make sense. After
all, ads–from TV spots to online banners–are not simply a way to get
consumers to open their wallets. They’re also vehicles to tell consumers what
they need to know to get the best experience from a retailer.

Silence leads to confusion and hard feelings. My friend Amanda returned a
Christmas present to Barnes & Noble (bookstore chain) and was refunded the
amount B&N charges on its Web site, not the (higher) price she saw on the
bookshelf in the store. "Was that a mistake, or is this the new policy?’’
she asks. B&N says its policy is to refund the price that was paid–although
that’s tough for someone like Amanda, who couldn’t say whether the book had
been bought online or in a store. But that’s not the point. The problem was
that Amanda didn’t know what the policy was, and she felt ripped off because
of it. Better communication–not to mention coordination–could have left her
less annoyed.

Some companies have stepped up to the challenge. Staples (stationary store),
for example, is marshaling its marketing forces to keep the customer up to date
on the multi-channel operation the retailer has become. Its latest TV commercial
is a humorous little sketch about a hapless Staples deliveryman, hemmed in by
slow-driving would-be Staples shoppers. But within the gag is a serious message:
the many ways a customer can now shop from Staples. "We place a lot of
value in educating the consumer,’’ says Kelly Mahoney, chief marketing
officer of Staples.com. Instead of focusing on what the retailers need to sell,
marketing should emphasize what consumers need to know to make purchases.

Traditional retailers have a huge opportunity in the coming months to
solidify their hold on the Web buyer. Communication will. Merchants who can help
us understand what to expect and demand from these new hybrid retailers will win
customer loyalty. Those who don’t can expect to be a click away from just
plain bricks again.

By ELLEN NEUBORNE
in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

Divine overhaul

Some of the cash-rich, market-cap-poor companies are taking the opposite
approach. Realizing their original business plans were failures, they’ve done
180-degree turns and overhauled their strategies. Divine interVentures, for
example, went public as an incubator and started up more than 50 companies. In
February, with its stock market value lower than the $190 million in cash on its
balance sheet, Divine announced plans to remake itself into a software company–CEO
Andrew Filipowski’s area of expertise. It even changed its name to Divine. The
moves have helped a little: The stock of the Chicago outfit has climbed from its
low of $1 a share to $1.69, although that’s still well off the $9 a share at
which the company went public last July.

In December, the California company, Ventro, closed two of its online
business-to-business marketplaces–the Chemdex market that allowed companies to
buy and sell chemicals on the Net and the Promedix market for medical supplies.
Ventro then said it would change its focus to helping other companies build
marketplace sites. So far, they haven’t convinced investors that its new plan
is any more viable than its last one. Its market capitalization is still only
$50 million, even though it has a treasure trove of $235 million on its balance
sheet.

Then there are those companies that are sticking to their guns. They simply
think the stock market is unfairly punishing them and, if they perform well,
their stocks will recover. Consider Neupert at Drugstore.com. "We’ve made
a lot of changes in the last six months–laid off a substantial part of the
workforce, dramatically reduced marketing plans, and reconstructed the business
model to break even," he says. That’s why he’s confident his business
will survive, even though its stock has dropped from $67.60 in 1999 to $1.31.

Autobytel is staying the course, too. The company, with $82 million in cash
and a $41 million market valuation, expects investors will become bullish once
it hits operating profitability in the third quarter. "We are well enough
established that we aren’t taking down marketing costs, nor are we
anticipating any large-scale layoffs," says CEO Mark Lorimer. "After
all, we’re going to post profits in a few (months)."

Despite the risks, cash can be a powerful lure for potential acquirers. If a
purchase can be completed quickly, the leftover cash can help fund the
operations of the surviving company. The women’s site iVillage acquired
Women.com Networks for stock in February, partly to get its hands on its
one-time rival’s $30 million in cash. The two sites combined some operations
to reduce expenses and now should have plenty of money to make it to the third
quarter when the business is expected to begin generating cash. "The deal
that we cut with Women.com makes sure that we have enough dollars for a rainy
day," says iVillage CEO Douglas McCormick.

There may yet be a handful of deals like McCormick’s in the wings. But it’s
a treacherous market these days and potential acquirers will have to weigh the
risks carefully–before moving licketysplit. The free cash is disappearing
fast.

Pallavi Gogoi–BusinessWeek