The Internet divisions of traditional retailers have amends to make for the misery they have visited on their respective corporations.
The parent companies have spent tens -- or even hundreds -- of millions creating Web sites to stave off competition that largely vaporized on its own last year. To make matters worse, many were too late rolling out their sites to subsidize the effort with a stock offering while the IPO market was still booming. And now, those retailers that spent the most have found that their Web divisions' sales are hardly enough to offset all the operating expenses of what was once seen naively as a "self -- service" medium.
But rather than hiding behind their clipboards at corporate meetings, Internet executives within the big retailers are starting to redefine the criteria by which they are judged inside their companies, analysts said. Sales remain the primary measure of a Web division's overall performance, but other criteria now count, too.
PHOTO: NY TIMES
Retail Web sites, for example, are becoming known as a way for companies to test and monitor their customers' purchase patterns, gauging early demand for items and funneling that information back to the companies' brick-and-mortar stores to make entire retail operations more efficient. Adding value in this way, analysts said, is the least these in-house Web executives could do.
"Sales aren't there for the online folks, and margins are lower than everybody had expected, so they're looking for other ways to give back," said Angela Kapp, an Internet consultant, and the former head of Estee Lauder's online division. "So they're saying, `Hey, here's our data.'"
Kapp said such overtures had been welcome, "since business in retail isn't so good overall, and you've got to get smarter now."
Among those online divisions helping to educate the corporate parent is ToysRUs.com, which handles online merchandising and product purchasing for Toys "R" Us. John Sullivan, general manager and vice president at ToysRUs.com, said the online division had helped the Toys "R" Us stores forecast sales for various products.
"We're able to get a true national read on products quickly," Sullivan said, whereas "in the stores, it's a real challenge to do that in every state and get a good feel for how things will sell."
For instance, Sullivan said the company gave extensive promotion to Nintendo's Game Boy Advance handheld console, and the software titles to go along with it. Late last year, the company's dotcom division worked with Amazon to send e-mail newsletters to people who were looking for information on the debut of Game Boy Advance, which was released early last month.
Starting in April, ToysRUs.com held 14 drawings for Game Boy Advance packs, which included different software titles with each game device. At the same time, it began taking advance orders for the game titles and the different color consoles.
Through the advance orders and the sweepstakes, ToysRUs.com learned that the most popular color by far for the game console would be indigo. Meanwhile, game titles like Hot Potato, which the Toys "R" Us stores had not planned to carry, looked like big sellers.
The stores quickly changed course, stocking shelves with Hot Potato, while also stocking and displaying the consoles to reflect the popularity of indigo. Given the zeal of video game buyers, Sullivan said, the advance marketing intelligence was critical. "With this product, if you're not on top of it in the first three or four weeks, you're missing quite a bit," he said. "So the more data you have and the quicker you can make an educated decision, the better."
Kapp, the consultant, said companies in some other retail categories, like apparel, might find it difficult to replicate the Toys "R" Us example. Because those companies often buy products three seasons before they actually hit the shelves, she said, "there really wouldn't be enough time in that situation to re-order."
But, Kapp said, there may be time to merchandise items differently. For instance, Origins, which sells natural skin care products in stores and on the Web, packaged various products in a basket for sale online. "It was phenomenally successful," Kapp said. "So they've started merchandising the products that way in the hundred or so retail stores they have."
In some cases, the Internet has helped tip off retailers to particularly profitable items. Last year, for example, a Nordstrom print advertisement featured a woman with a belly-button ring with a diamond. Julie Bornstein, general manager of Nordstrom's Internet and catalog division, said shoppers flooded the Web site with inquiries on how to buy it.
The only problem was, the navel ring was just a prop in the ad. Within six weeks, though, the site had a similar ring designed with cubic zirconia and had it produced and shipped to its warehouses. The item sold so well that it spawned a "body jewelry" store within the site and prompted Nordstrom's stores to sell the navel rings for US$35 to US$50. (The stores also accept special orders for diamond versions priced at US$825 to US$1,100.)
Of course, jewelry is a particularly attractive product, Bornstein said, given how little space it takes up on the showroom and in the warehouse.
Retailers have also found that they can use marketing intelligence gleaned from their Web sites to help cement relationships with manufacturers. Sullivan, of ToysRUs.com, said he kept Nintendo apprised of the advance sales and demand for the various Game Boy Advance products, and of the growing ranks of those who signed up for the e-mail updates. "Hundreds of thousands" of consumers did, he said.
Sullivan said such initiatives had helped the company's dotcom unit gain the attention of vendors, even though such efforts had not yet secured the kind of product allocation that the parent Toys "R" Us can demand. "Our company is still ToysRUs.com, not Toys "R" Us," he said, "so we're trying to educate all the manufacturers that there's added value here."
Still, George Harrison, vice president for marketing at Nintendo of America, said his company had made good use of the data collected by ToysRUs.com on the Game Boy Advance -- in particular the demand for the indigo console. In the first production run of the consoles, he said, each color (indigo, white and translucent) represented one-third of the inventory.
"The next production run wouldn't arrive until August, so we were able to adjust in time," Harrison said. The indigo consoles will be 50 percent of the next shipment.
Game Boy fanatics snapped up the initial production run anyway. "But after the first couple weeks, you'll see customers who'll wait to find the color they want," Harrison said. "So this was more productive for all of us."
And though such data may not have resulted in preferential treatment for ToysRUs.com, Harrison said it certainly would not hurt. "Our approach is to follow the customer, so the more successful ToysRUs.com is, the more likely we are to work with them," he said. "They're also affiliated with one of our most popular retailers, so there's a lot of leverage there."
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