MULTICHANNEL MARKETING: Late to the plate Web newbies now playing catch-up

When $1.1 billion cataloger/retailer Williams-Sonoma went live with its Website in November 1999, it figured its brand name would attract shoppers. And in fact, within two months, the company had raked in an estimated $8 million online. But not knowing exactly how much business to expect, the San Francisco-based kitchenware company loaded up on inventory, leaving it with postholiday overstocks.

The need to discount the excess inventory led Williams-Sonoma to fall 13% short of analysts’ fourth quarter income estimates. Within hours of the company’s March 6 announcement regarding the shortfall, its stock plunged 40%.

“Williams-Sonoma lost $500 million in value that day,” exclaims Kevin Silverman, an analyst with Chicago-based investment bank ABN AMRO. “That’s the value of two Coldwater Creeks.”

If Williams-Sonoma had made the same mistake several years ago, chances are its stock wouldn’t have taken such a hit. During the infancy of e-commerce, such errors were the rule rather than the exception. But now that a significant number of companies have already learned from their mistakes and are established online, the bar has risen for Williams-Sonoma and other latecomers. These include women’s apparel cataloger J. Jill Group, gifts cataloger Rivertown Trading Co., and upscale apparel and home decor marketer Neiman Marcus, which didn’t begin selling online until the start of the last holiday season. Then there are natural fibers cataloger Garnet Hill and upscale apparel purveyor Saks, which are slated to launch their online catalogs before the fall.

The benefits of waiting

“We don’t think we launched too late,” says John Hayes, president of J. Jill Direct, the catalog and e-commerce division of the $250.2 million J. Jill Group, whose site went live on Sept. 1.

The Hingham, MA-based company recognized two years ago that it could not ignore selling on the Internet. “But we first wanted to make sure that our Website stayed true to our brand, that the customer shopping experience was identical no matter what the shopping channel,” Hayes explains. “We think our timing was good….Our goal was to work out the kinks on the site in time for holiday 1999.” Moreover, it’s likely that J. Jill was able to learn from – and avoid making – the mistakes of others.

The latecomers, say some observers, also benefited from the continual technology improvements. As with other types of technology, from calculators to digital cameras, the computer software and hardware needed to create a transactional Website have become much more sophisticated and more affordable over time.

The first-mover advantage

But as the technology has become more sophisticated, so have shoppers. Thanks to e-commerce standard-bearers such as Amazon.com, customers have higher expectations than when the Web was little more than a novelty.

“You have to do the Website right the first time because consumers shopping online are less forgiving now,” says Rich Berkman, a senior analytic consultant for Cambridge, MA-based NetGenesis, an e-commerce software and service provider. Analysts and investors are less forgiving now as well – as Williams-Sonoma learned.

And some marketers dispute that the johnny-come-latelies can create an ideal site solely by observing the errors of their predecessors. There is a learning curve involved with setting up an electronic business, explains Bob Manning, chief operating officer for $25 million travel supplies Magellan’s. The Santa Barbara, CA-based company began selling on the Web in February 1998; online sales now account for 15% of total revenue.

“The catalog business is an exact science; it’s all numbers driven,” Manning says. “With e-commerce, those business rules haven’t been worked out. There’s no formula yet of what works online.” So the newcomers will still suffer growing pains – though now in front of a much larger audience than a few years ago.

Then again, this same drawback can also work to any newcomers’ advantage, Manning admits. Take the ongoing search for an effective means of attracting new customers. “Catalogers began advertising through banner ads, and that didn’t work. Then they began using affiliate programs, and that didn’t work,” he says. In short, even the established online marketers are still feeling their way around the new medium. “And as a result,” Manning says, “many companies are still on equal footing.”

What’s in a name? For relative newcomers to e-commerce, plenty. According to Barbara Miller, a research analyst with New York investment bank Goldman Sachs, a well respected brand name can help some catalogers that are just beginning to sell online catch up to more established Web brands.”For instance, consumers who know and love Williams-Sonoma are going to go find it online,” Miller says. “It has built a tremendous amount of equity in the brand name.” Conversely, a lesser-known company may have to work harder to compensate for its late online start.

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