Discount Store News

Mass has most to gain on line

Mass has most to gain on line

Cecile B. Corral

As the Internet continues to build its reputation as the ultimate sales channel for discount merchandise at everyday low prices, the dawn of the new high-tech millennium holds lots of promise for mass market retailers.

Forrester Research estimates that general merchandise could generate about $38 billion by yearend and will increase four times to $184 billion by 2004, grabbing 7% of the total $2.87 trillion retail industry.

But to make it big on line, the Wal-Marts, Kmarts and Targets of the world will need to equip themselves with heaping servings of two vital resources: money and patience. They will win over the Web if, and only if, they take their respective Internet strategies seriously, treat them as integral parts of their overall business, and practice patience when profits don’t come right away.

Already, the New Year is getting off to a rocky start for general merchandisers, according to Merrill Lynch analysts. In a December report, analyst Daniel Barry predicted that during the first half of 2000, general merchandise sales will “slow noticeably,” with same store sales reducing into the 4% range from 6% during the same period last year. Barry cites two main reasons for the slowdown period: the three rate increases by the Federal Reserve in the fall of 1999, and comparisons with stronger results in 1999.

But the light at the end of the tunnel will twinkle come the second half of 2000, when Merrill Lynch expects to see a flood of bricks-and-mortar retailers cross-channeling their stores into the Internet and sales are projected to pick up on line again. General merchandisers will be wise to be active e-commerce players by then, even if they must be willing to dig deep into their pockets to make it happen.

“We believe that by Christmas 2000, bricks-and-mortar retailers should start to dominate Internet shopping,” Barry states. “However, the cost of developing these sites should result in higher losses for Internet operations in 2000 compared to 1999, and earnings gains of many companies will be lower in the year 2000 as a result.”

Thus, profits will be pushed farther back. That’s when patience will be needed most, analysts predict.

Wal-Mart proved early on that on-line retailing is an aspect of the company being heavily explored and weighed as significant. Considerably before any of its competitors claimed real estate on the Internet, Wal-Mart in 1995 spun off a dot-com division. The original site was strictly informational, but the site soon began selling select items from a handful of categories.

For this past holiday, Wal-Mart expected to re-introduce itself on line with an upgrade Web site, but postponed the unveiling until the New Year. However, so as not to exclude itself from the holiday hype, the traditional store continued serving Wal-Mart customers and handling their orders for holiday merchandise. Customers who visited this holiday found an increased selection of toys, electronics, books and holiday decorative items.

Target followed suit, expanding its offerings into 14 categories within the home and toys categories, particularly.

But it was Kmart who ended the year with a bang when it announced 10 days before Christmas that it had partnered with the Yahoo portal to re-establish itself as an e-commerce destination, with a new name echoing its old trademark:

Peter Schwab, an Ernst & Young corporate finance unit managing director of retail consumer products, believes that so far, Wal-Mart has the best chance of succeeding on line.

“Wal-Mart brings to the table its execution and logistics–the delivery of goods and its reputation for consistency,” Schwab said.

“In fact, I think what Wal-Mart will bring to the Web will take e-commerce to a new level.”

Schwab added that waiting until these past holidays were over was a smart strategy for Wal-Mart, being that most Web consumers today tend to shop the online specialty, high-end retail stores; you aren’t yet seeing the discount shopper surfing the Web for deals. It will take another few years, Schwab said, before e-commerce evolves into a shopping venue for the masses.

“People shopping on the Web go there for convenience; the Web is not yet a function of cost,” Schwab said. “But Wal-Mart is in a position to change all that quickly.”

If the competition can’t keep up, Schwab warned observers not to be surprised if a wealthy Internet portal such as Yahoo were to gobble up a chain like Kmart

“The Net is about brand scale and reach and the way to go about all of this is acquiring brands,” he said.

COPYRIGHT 2000 Lebhar-Friedman, Inc.

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