Leveraging the Internet
Although not every e-commerce retailer publishes a catalog or opens bricks-and-mortar stores, it has become virtually imperative for all retailers to operate online. At the very least, single- or dual-channel retailers are finding that Web sites are mandatory for relaying information to consumers, even if they do not sell merchandise via the e-commerce channel. However, customers spend more with a retail brand when they can shop across multiple channels, and multichannel shoppers are much more likely to be loyal to the brand for an extended time.
During the Main & Wall session “Leveraging the Internet,” moderated by Tom Cagnina, managing director, David N. Deutsch & Co., attendees learned how retailers utilized e-commerce to increase performance. For instance, Gary Beer, who served eight years, until August 2007, as the CEO of Smithsonian Business Ventures, explained how the Washington, D.C.-based museum complex grew revenues by expanding its multichannel presence.
Smithsonian generates more than $200 million in annual revenue through magazine publishing and retail operations that include catalog and e-commerce sales, as well as museum stores and off-site stores.
“The dot.com store is a traditional extension of our catalog. Although it only grew revenue 10% over a five-year period, we would have lost sales without it,” explained Beer.
E-commerce also enabled the museum operator to test more products than traditional store inventories could accommodate, and in some departments this had a dramatic impact.
“Over a five-year period we grew top-line revenues 20% in travel and books [merchandise],” he continued. “Sixty percent of that 20% was facilitated by the Internet’s ability to [support] an expanded merchandise offering.”
Additionally, Smithsonian augmented its portfolio with airport-based stores. “Only 50% of D.C. conventioneers visit the museums,” noted Beer, so the airport stores penetrated an unserved but viable market.
Although multiple channels provide synergistic benefits, all channels cannot be measured by the same performance standards. For instance, Beer noted that the average price point for a bricks-and-mortar sale was $17, but the average catalog order totaled $100.
Fellow Main & Wall panelist Don Steiner, managing partner of Webster Capital, Waltham, Mass., discussed how to understand profitability and ROI relative to different channels.
Prior to founding Webster Capital, Steiner spent eight years as founder and CEO of Cornerstone Brands, which included popular catalog and Internet retailers such as Ballard Designs, Frontgate, Garnet Hill, Smith and Noble, The Territory Ahead and TravelSmith Outfitters.
“There is a tradeoff between the capital expenditures necessary for a physical store and the higher advertising costs associated with attracting Internet customers,” explained Steiner.
Transitioning from a capital-expenditure mentality to an online-investment mentality has proved difficult for some retailers, who might not blink at spending $1 million to open a new store but would have strong reservations about investing $1 million to purchase a keyword search.
Advertising for one channel will benefit other channels as well, but the total impact of cross-channel marketing will be difficult to completely quantify. Steiner cautioned, “If you mail catalogs, and send e-mails, and buy a keyword, you have to ask: ‘Are you overspending to reach your customer?’ It comes back to identifying the cost of attracting a sale.”
“Marketing costs on the Internet can be 30%, 40% or even 50% of sales, but marketing costs for catalogs are typically 15% to 25% of sales and even less for stores,” he continued.
His advice was to err on a “small scale,” test campaigns and analyze results before deploying on a large, pervasive scale. His approach clearly worked at Cornerstone, which grew from revenues of $150 million in 1998 to $750 million by the time he sold the company in 2005—and Steiner attributed much of that growth to the Internet.
Wal-Mart to sell earth-friendly CDs
SANTA MONICA, Calif. As part of Wal-Mart’s “Earth Month” the company is selling more than 20 Universal Music Group titles that come with special earth-friendly inserts. The inserts are made with special seed paper and, according to the companies, can actually bloom into wildflowers.
The inserts, in addition to being good for the environment, also offer consumers three free digital downloads from Universal Music. Universal also said that a number of its new CDs will be packaged in third-party certified, renewable recycled board and recyclable paper.
ODP urges rejection of Levan nominees
DELRAY BEACH, Fla. Office Depot is continuing to urge its shareholders to reject dissident nominees and elect the company’s nominees to its board of directors at its annual shareholders meeting this April.
In a proxy statement sent to investors, Office Depot said that Alan Levan’s proposed nominees would do little to help improve shareholder value. According to the statement, Levan’s company, Levitt Corp. has seen its share price fall about 93% over the past three years and that its subsidiary, Levitt and Sons, is in bankruptcy. Office Depot also noted that BankAtlantic, of which Levan is chairman and ceo and one of his nominees, is president of real estate, construction and development, share price has dropped approximately 75% over the past three years.
Office Depot also cited news reports that commented on Levan’s failing business ventures, as well as others that said that his nominees are not qualified to serve on Office Depot’s board of directors.
The company pointed out nominee Mark Begelman’s experience with Mars Music, a company he founded in 1997 that went bankrupt in 2002. According to Office Depot, many news reports attributed this failure to a flawed business strategy.
According to Office Depot, when Levan’s other nominee, Martin Hanaka served as chairman of Sports Authority from 1998 to 2003, the company saw its price fall by about 13%.
Office Depot stressed that its directors best understand the company and are well-suited to help the company grow.
“We strongly believe that removing two of the most experienced retailing executives from our board, including our current ceo who is driving the implementation of our strategic turnaround plan, would be highly disruptive, could delay the implementation of internal and external initiatives and could damage prospects for a successful turnaround,” Office Depot said in the proxy statement.