This essay is intended as a call to action for chain retailers. It was originaly published in Executive Technology magazine, March 2001. © Copyright 2001, Fairchild Publications. Reproduced here by permission.

THE END OF THE BEGINNING

By James Tenser

AS IF WE'RE SUPPOSED TO BE SURPRISED, the same business writers who one year ago proclaimed the end of retailing as we know it are now nodding their collective heads in mock sadness over widespread implosion of the dot-coms. It is certainly entertaining to witness dramatic plunges in stock prices and the comeuppance of arrogant venture capitalists and dot-com kids. Once again, however, the analysts and writers are focused mainly on the gory details and missing the larger picture.

The online retailing boom is hardly over. It is hardly even slowing down. U.S. retail e-commerce tripled in 2000 versus 1999 to $45 billion, according to estimates published recently by Jupiter Research. Wired Americans now number 122 million, approaching half the U.S. population.

There are even leading indicators of profits on the horizon: The ratio of marketing spending to revenue declined by a third from 79% in third quarter 1999 to 47% in third quarter 2000, according to The Industry Standard. Other indicators confirm that so-called customer acquisition costs are declining. Online hours per family are increasing. Email message counts continue to leap upwards.

These bullish metrics appear to belie the recent negativity of the NASDAQ nabobs. If online retailing continues to have a strong outlook, where has all the value gone?

A look at online retailing's leader board begins to reveal the answer: While a handful of born-for-the-Web retailers - eBay, Amazon - remain in strong shape, most of the top 50 now are traditional retailers with online branches.

The best of the best online - Eddie Bauer, Office Depot, Micro Warehouse, JC Penney, L.L. Bean, Barnes & Noble and a host of others - all share this multichannel heritage. Many were successful catalogers first. Others began with robust specialty chains.

Executives from JC Penney and Eddie Bauer are on record confirming that their three-channel shoppers (Web, catalog, store) are far and away their largest and most profitable customers. This is a most opportune moment for other strong chains to emulate them.

Some 18 months ago I forecast that traditional retailers would soon see an opportunity to acquire the technology, know-how, inventory, brands and customer lists of down-on-their-heels dot-com retailers for cents on the dollar.

Well, that opportunity has come to pass. With the dot-com dream collapsing, online retailers' market valuations have plunged, and their viability is imperiled. Traditional retailers are well positioned to pick up the pieces. When online grocery pioneer Streamline.com announced its shutdown in early November, it disappointed a core group of happy customers who loved the service. Ahold USA kicked the tires, but declined to buy. So Streamline, its know-how and its loyal customer relationships, simply ceased to exist on Nov. 22.

Pets.com cashed it in a few weeks earlier. Despite strong brand recognition, and a quality functioning site, it had not found a suitor. Last we heard it was trying to auction off its sock puppet mascot.

But as CVS drugstores proved when it acquired Soma.com in the spring of 1999, and as Ahold and Safeway each underscored when they made their respective investments in Peapod.com and GroceryWorks.com, there is significant value in some failing dot-coms.\

Shrewd retailers will ferret out this value and obtain it at the current attractive prices so as to instantly add sophisticated online merchandising capability to their existing businesses. Integrating the technology (and cultures) is a non-trivial challenge, but there is good help available from e-business consulting firms (who are pretty negotiable at the moment too).

Retail decision-makers would do well to shop boldly while the fire sale is on. This is truly the end of the beginning. Now comes the golden age of online retailing.

Single copies of Tenser's Tirades (ISBN: 0-75963-804-7) are available through our Recommended Book link at Amazon.com and other online retailers. For a quote on a bulk purchase or to inquire about the author's availabilty for readings or public speaking, contact us.