When there were still enough Web retailers around for bricks-and-mortar merchants to sneer at, the catch phrase of condescension went something like this: "In my company, we have to worry about a little thing called profit." (Cue snickering.)
But as Web retailing has dwindled mainly to the online extensions of the old-line merchants, ideas about e-profitability have taken on more nuances. According to two recently released reports from technology consulting firms -- one by Forrester Research, the other by Jupiter Media Metrix -- bricks-and-mortar retailers that judge their Web divisions solely on the basis of profits may be short-changing themselves.
"The profit of the Web site shouldn't be the goal of a bricks-and-mortar retailer's site; it should just be one measure they track," said Ken Cassar, author of the report from Jupiter. "The thing is, they know it. They know their sites are being used heavily for research, and that more transactions occur in the stores than on the site, yet they're not running their finances in a way that recognizes that."
PHOTO: NY TIMES
Part of the problem, Cassar said, is that retailers find it difficult to measure their Web sites' impact on in-store sales. But generally speaking, he said, less than half the investments a company makes in its Web division actually pay off in online sales. The bulk of the benefits accrue to the traditional stores, in the form of more sales, operating efficiencies and better customer service.
Evie Black Dykema, author of the report from Forrester, came to a different conclusion on this point, suggesting that most of a company's online investments do pay off in the form of Web sales. Yet the fact remains, she said, that the offline impact of a Web site is often overlooked.
Because so many bricks-and-mortar merchants threw money at their e-commerce divisions over the last few years -- either to respond to Web competitors or to please investors -- it is "a rat's nest to go back and figure out what costs to attribute to what divisions," Dykema said, adding, "The more they learn, the more they wish they hadn't known."
Still, she said, a growing number of retailers are starting to delve into the fuzzy science known in industry circles as "ROI analysis." ROI stands for return on investment. Among those that are further along than most, Dykema said, are merchants with a catalog pedigree, because "they've operated their businesses by the numbers for years."
The Sharper Image, for one, has instituted a number of efforts in stores and with catalogs to nail down the far-reaching impact of its Web operation. Jeff Forgan, the company's chief financial officer, said, "Whether it's perfect science or somewhat scientific, we try to calculate ROI in everything we do."
For instance, Forgan said, the company surveys customers in its stores a few times a year to determine whether they have researched certain Sharper Image products on the Web before buying. And product codes online are different from those in the catalog, he said, so if a customer calls to place an order and uses the Web product number, the Web site is credited with a percentage of that sale.
"In the overall scheme of things, it isn't a huge percentage of our store business that's coming from the Web -- 10 percent, maybe," he said. "But we have the disciplines in place to attribute a certain amount of revenue back to the Internet." The Sharper Image Web site sold more than US$60 million worth of goods last year, Forgan said.
Having such data has helped the company determine how and when to invest in either staff or systems for the Web site.
For Wal-Mart and other so-called big box retailers, such precision has been elusive. "It's hard to come up with a hard number" on Wal-Mart.com's effect on in-store sales, said John Fleming, senior vice president of Wal-Mart.com.
Clearly, Fleming said, Internet advertisements help draw customers into the stores. And he said the Web site had begun to change its product mix in recent months so that it could carry more of the items the stores cannot stock efficiently -- such as big-screen televisions "and other new technologies like digital cameras that require a lot of information for the customer to make a good decision."
"Over time, we can help the stores focus their assortments more and turn their inventories faster, because that other stuff takes away from their total productivity," Fleming said.
"So even though we haven't quantified it yet, there's a lot of value we can add."
Retailers should indeed try to use their Web sites to better deliver more informed customers to the stores, said Cassar, of Jupiter Media. In his report, he noted that retailers were spending less money on payroll as a percentage of sales than they once did -- 11.4 percent in 1997, compared with 12.6 percent in 1972 -- according to Commerce Department data. "So without improvements in technology or operations," he said, "customer satisfaction will suffer."
Cassar also said he, like Dykema of Forrester, understood why many retailers had not gone to great lengths to measure the entire impact of their Web operations. "But they're better off being a little bit wrong than ignoring the impact altogether," he said. "By ignoring it, they end up building their sites as transaction engines, where research is secondary," rather than providing a wealth of information online that might increase in-store sales.
The bookseller Borders Group is one company that took a long look at how much its Web operations were adding to the corporation's bottom line. After doing so, Borders scrapped the transactional side of its online business. Early last month, the company turned its online bookselling operation over to Amazon.com, which pays Borders an undisclosed fee for every sale it makes on Borders' behalf.
According to Edward W. Wilhelm, chief financial officer at Borders, the company's Web division, which lost US$18 million on US$27 million in sales last year, now has a positive cash flow. Moreover, because that division has shed the baggage of a fulfillment and sales operation, it can concentrate on other ways to help the parent company.
Through a Web site, Borders Group helps customers determine which books are in each store's inventory, so they can either reserve the book or order it, if it is out of stock.
Notably, the fact that the Internet division no longer competes with Amazon may also benefit Borders in ways unexpected when the joint agreement was announced. Wilhelm said Borders had offered to let Amazon customers pick up their books from Borders stores directly, rather than wait to have them shipped. No agreement has been reached, he said.
Whether or not that actually comes to fruition, Wilhelm said, the company will continue to look for ways to squeeze more cash from the Web investment it had made in its attempt to keep pace with Amazon and the Barnes & Noble Web site.
"We're earning an adequate return on that investment already," he said. "Now we just want to drive more traffic to our stores."
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft