Will the internet be the salvation of brick-and-mortar retail stores? That might not be such a far-flung notion, according to Thomas Harpointner, chief executive officer of AIS Media, Inc. in Atlanta.
Harpointner would certainly like that to be the case. His company is a marketing agency specializing in interactive channels such as websites, social networks and e-mail. At the same time, he admits that those glitzy media aren't exactly fulfilling their commercial purpose on a standalone basis.
For all the talk of e-tailers killing off physical stores, they've yet to make the kind of inroads that their high profile would suggest. Only about 5 to 10 percent of retail transactions are completed online, says Harpointner. (In terms of online receipts, the actual number for 2009 was 3.7 percent of total sales, up from 3.3 percent in 2008, according to the U.S. Census Bureau.) But here's a surprise: the internet is proving to be a boon for traditional merchandisers. Harpointner estimates that online activity influences between 50 and 60 percent of in-store sales. Customers are increasingly turning to search engines to research a product. Then, armed with a wealth of information about features and price, they buy it in a store.
"Bounce rate" is the metric that measures the number of times that a consumer walks into a store or visits a retailer's website without making a purchase. (The term actually was coined to describe online shopping behavior, but it can certainly be extended to physical stores.) Harpointner says the bounce rate for online shopping is much higher than in stores - up to 99 percent versus 70 percent. After all, visiting a website takes a good deal less time and energy than driving somewhere. Unless you're a teenager who likes hanging out at the mall, the latter activity involves a stronger sense of purpose, and the higher likelihood of money being spent.
Ironic, then, that so many retailers in the early years of the internet would fear that medium. And those that did have paid a price. Harpointner contrasts Best Buy Co., Inc. with Circuit City Stores, Inc. (http://www.circuitcity.com/). The first embraced the internet as a complementary shopping channel, while the second tried to separate the two and failed to cross-promote between them. Today, Best Buy lives on, both as a chain of consumer-electronics stores and a popular online shopping site. Circuit City filed for bankruptcy protection, then liquidated its stores, leaving only a relaunched website owned by Systemax Inc. (Even as the stores were tanking, the Circuit City website was generating more than $1bn in revenue, according to Harpointner.)
Internet shopping, of course, is old news. Now we have the rapidly expanding world of social media - "a wonderful phenomenon" for retailers, in Harpointner's view. They've discovered the joys of promoting through e-mail, which is far cheaper than direct mail and can be much more easily shared with one's family and friends. In a world inundated by spam, that hardly seems a blessing, but Harpointner insists that consumers are highly receptive to e-mails from chosen retailers, and happy to spread the word about bargains.
Facebook and similar sites only add to the opportunity to reach consumers on a massive scale. Essentially, those who choose to respond are hawking the retailer's goods for free. That's a lot more cost-effective than shelling out millions for TV spots and full-color circulars in the ever-shrinking Sunday newspaper. What's more, the internet draws buyers to actual and virtual stores alike. "Any business can use social media and online marketing to drive in-store sales," says Harpointner.
But do all these new-fangled techniques really work? Haven't we grown impervious to the mass of messages that clogs our in-boxes daily? Not according to Harpointner. "E-mail is the single most effective way of direct marketing on the internet, bar none," he says. "Spamming and junk mail continue to be a problem, but we see 94- to 96-percent delivery rates on messages that retailers send to opt-in customers." What's more, a sender can instantly determine how many e-mails were sent, delivered, opened and clicked on - as well as the bounce rate for a given site.
Of course, there's a downside to social media as well. Misuse of the channel could be "a real nightmare," Harpointner admits. Thirty percent of consumers have unsubscribed from an e-mail list because of excessive frequency or irrelevancy of content, he notes. Many still resent business horning in on freewheeling social sites like Facebook. And it's just as easy to send the wrong message to millions of people, if you're a tone-deaf company when it comes to marketing communications. Witness the arrogance of Apple Computer chairman and CEO Steve Jobs, when he initially dismissed complaints about the antenna placement on the 4G model of the iPhone. "I believe Apple experienced a P.R. folly," Harpointner says. "Because of their lack of reaction, and the stance they took, it allowed critics an opportunity to really pounce on the brand."
But we were talking about the positive impact of the internet on brick-and-mortar retailers. To be sure, we're witnessing the not-so-slow death of certain retail sectors at the hands of the Web - bookshops, record shops and video-rental emporiums among them. Still, you can't digitize a business suit, or an Xbox, or a washing machine. Physical stores will be with us for a long time to come. And the likely winners will be those that don't turn their backs on the electronic media. It's a classic case of new technology meeting old-school merchandising - and both benefiting.
- Robert J. Bowman, SupplyChainBrain
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