ONLINE: DAVID VERSUS GOLIATH

Byline: Lisa Lockwood

NEW YORK — Who’s got the web advantage? Established retailers and manufacturers who develop a site, or pure players who create brands strictly for the Internet?
That was the key question posed to panelists at a Fashion Group International symposium this week entitled “E-Commerce. WWW…What Works, What Doesn’t and What’s Next.”
Traditional firms and newcomers squared off, with each camp claiming they’ve got the edge. The traditionalists argued that they earned the customers’ trust, and built the infrastructure, while the pure Internet players say it’s a whole new customer base out there; they speak their language; they’re willing to invest millions in the site before making a profit, and they’re not duplicating what can be found in the brick-and-mortar world.
Panelists included Denise Seegal, president of Liz Claiborne; Angela Kapp, vice president, special marketing and media at Estee Lauder Cos.; Kimberly Miller, vice president, Internet strategies at Macy’s.com; Nancy Evans, co-chairman and editor in chief of IVillage.com, and Kenneth Seiff, founder and chief executive officer of Bluefly.com. The seminar, at the Sheraton New York, was moderated by Omar Wasow, an Internet analyst for MSNBC and WNBC.
Wasow cited some staggering statistics about the growth of e-commerce. He noted that in 1998, e-commerce sales totaled $50.6 billion. That figure will grow to $111 billion this year, and it is estimated it will increase to $1.3 trillion in 2003. He noted that clothing is the sixth most popular item bought online, following, in order, books, software, music, travel and hardware.
He said that, compared with last year, four times as many Christmas shoppers are expected to shop online for holiday this year, spending $10 billion.
“The rate of change online is simply astonishing,” said Wasow. He pointed out that vogue.com started posting images from the fashion shows online last week, fragrance counter has become ibeauty.com and “boo.com will be taking orders before the earth collides with the sun.”
Discussing whether brands established for the Internet — such as amazon.com, ivillage.com or bluefly.com — have an advantage over established retailers and manufacturers, Lauder’s Kapp said, “From our point of view, we have a portfolio of brands. We expect they’ll become more important online. We always make sure we’re building the brand. The single most dangerous aspect is the commoditizing of prestige brands and taking away the allure.”
Currently, Lauder operates e-commerce sites for its Clinique, Origins and Bobbi Brown divisions.
“Old companies have to do business in new ways and respond to customers demanding convenience and not wanting to drive 20 minutes to a mall. The phenomenon of the Internet is word of mouth. IVillage and Amazon built brands because the moment is right. The access to capital online is inexpensive. You have to take the asset, and not duplicate what you have in the real world, but you have to enhance it.”
Asked whether being a new brand can be at a disadvantage, IVillage’s Evans said, “It’s going to be harder and harder to establish new brands online. We started in 1995, and I came from traditional publishing. I really felt it was an advantage to us that our only business was mastering the Internet. Had we been affiliated with a big publisher, it couldn’t have gone as quickly and effectively as it did. Coming from traditional media, I had to unlearn everything I knew. I quickly learned from the consumer and women coming to IVillage, and what she wanted was different than what I expected.”
IVillage currently has 2.1 million members and 7.5 million visitors.The site went public this spring, but like all other Internet operations, isn’t making money yet.
“It couldn’t have become IVillage if we weren’t creating a brand. It’s run by people, not by a brand. You also need to be open. Having a great brand can actually curtail you unless you have life-changing activities as a brand,” said Evans.
“To be a brand today or yesterday, you have to have a reason for being,” said Seiff of Bluefly, which sells end-of-season and brand name apparel online. “You have to provide something consumers can’t get. Yahoo and Amazon offered something new. They were the first and the best to do it. Once they’ve gotten brand awareness and share of mind, it’s hard to unseal it. When you look at what it takes, traditional brands don’t have the resources to succeed online. Traditional retailers are very slow to invest $100 million to build a new brand. They have difficulty recruiting top talent. The talent pool gravitates toward pure players.
“The other main issue is this is a new business, not just a new channel. It’s as different as the catalog is different,” Seiff said, adding that when certain catalogs first cropped up, such as J. Crew, Land’s End and Victoria’s Secret, “they dominated, not retailers.
“When you look at the environment, the Internet is really hot. For the first time in history, no matter how big you are, you’re somewhat at a disadvantage, unless they have a reason for being online. It’s a game of offense, not defense. The big brands will find themselves displaced by new brands,” Seiff contended.
“I absolutely agree with him,” said Macy’s.com’s Miller. “It’s a cultural change for a traditional retailer and manufacturer to go online. It’s a tough competitive world out there. Being defensive is not a reason to be there. It’s about being offensive. Stores offer multiple channels. It’s about giving your customers options about choosing how they’ll do business with you. There’s the catalog, the store and online. The reason for being online is giving the customer the ability to search and do research online before coming to the store. It’s about the customer, and offering services to help her shop.”
Customer service was cited several times as an important element of the Web.
IVillage’s Evans pointed out that women must have a certain comfort level before they’ll start buying online. She said generally they’ll begin by buying books at amazon.com. When they see that the books actually arrived, and weren’t dented, they’ll make another purchase. She noted that when a site then says, “Hi Nancy. Welcome back. Now that you bought xyz, how about abc?” that’s more customer service than she’s experienced in a department store in a long time.
Another hot issue is whether establishing an e-commerce site will cannibalize one’s department store business.
Liz Claiborne’s Seegal said, “Cannibalization is a concern if you’re in one channel. If we don’t play in the Internet, we’ll be cannibalized in that channel.”
One big concern is the large investment necessary and the length of time it takes to break into profitability online.
Seegal pointed out that a large, public company needs to have top-line and bottom-line growth. “The question is, can one enter the field of e-commerce and be profitable?” She said Claiborne is not set up to handle orders one individual at a time. Some companies make the investment via a spinoff or separate subsidiary, such as Delia’s ITurf, and they service this new channel, she said. The Liz Claiborne site is primarily informational.
“A year ago we became a separate subsidiary of Federated Department Stores,” said Miller. “It became a successful move for us.”
Asked if that division will ever make money, Miller responded, “Yes.”
Bluefly’s Seiff noted that if one’s audience is online, a company has to be online. “This is part of their life. They’re not speaking the language of their brand. If you can’t speak to your audience, you’re committing an offense. If that audience is online and you’re not, you’re missing opportunities.”
He acknowledged that a lot of companies are losing business on the Internet, but, at the same time, they’re building shareholder value. “Look at our business. We’re clearly losing money, but at the end of the day, I want to own 70 percent of the market. We have to do it quickly. Wall Street won’t have tolerance forever.
“We’re somehow at an advantage,” said Seiff. “Denise [Seegal] has a shareholder base to deal with, and our shareholder base is betting on us dominating the market. Denise has to balance the Internet shareholder base and the retailer base, which is more focused on profitability and revenue growth. How do you invest in the future online? This is a land grab. If we don’t do it, someone else will. Wall Street is taking a long-term perspective,” Seiff said.
When asked whether investing in the Internet should be more of a long-term speculation or short-term play, Lauder’s Kapp said, “We have a 50 percent market share in the prestige business. Anytime we announce anything with e-commerce, our stock rises.” Building trust with consumers was another key point discussed by the panelists.
IVillage’s Evans pointed out that the company started in 1995, less than 9 percent of people on the Internet were women. Today, 51 percent are women.
“What has happened is more women are on it. They’re much more driven by usefulness and practical things. She said that the 24-to-54-year-old market is larger than the youth market online.
Seiff noted that trust is easy to get and easy to lose. “There’s a new set of players out there that is entirely consumer-focused, and a lot of stores out there who are geography-focused. We have an asset, not a liability, being new.”
As for branded durability, Miller said between Lauder, Claiborne and Macy’s, “we have over 250 years of branding behind us. No pure play can compete with that.”
Responding to an audience member’s question about selling counterfeit merchandise online, Bluefly’s Seiff said, “Bluefly guarantees its consumer it only sells first quality merchandise. That’s part of the trust.”
But currently Bluefly, which sells off-price brands, is being sued by Tommy Hilfiger for selling bogus Hilfiger apparel on its site.
“We’re conducting an internal investigation. We do a lot of things to insure our product is credible. We’ll buy direct from Tommy Hilfiger in the future. That should put to rest any complaints they have.This is a blemish we’d rather not have. We’re still conducting our own investigation,” said Seiff.
Asked about another prickly subject, that of returns and markdowns, Macy’s.com’s Miller said, “Anything you buy online you can return to our stores.”
Bluefly’s Seiff said he hasn’t had to mark down merchandise in 13 months in business. “So far, return rates are more typical. We have a 22 percent return rate and our business model is designed to handle a 25 percent return rate. We’re trying to bring it down. We give the consumer 90 days to return it, and we pay for one way if there was a problem, and two ways if it was our fault.
Discussing what’s next, Seegal noted, “We’re not engaged in e-commerce, except for Lucky brand. The Internet is a critical informational took, and for business to business.” She said the company has Liz LInk, which department store customers can tap into it 24 hours a day to find out about the status of a particular order. Its “Liz at Market” site services the golf division. Golf shops can buy online and then its wholesale operation can create an order for them.
IVillage’s Evans said she’ll be getting more stores at its cyberspace community. “We’re bringing more stores into IVillage. When women want to shop, they’ll shop,” she said.
“For us,” said Seiff, “the focus is on the next three to four months on building an infrastructure, and getting ready for Christmas. We brought customer service in-house and we’re building a brand in consumer magazines. We’ll start a broadcast campaign later this year, and we have about 30 to 40 initiatives to get ready for the fourth quarter.”
Macy’s.com’s Miller noted that it just bought a stake in Weddingchannel.com, and that should change the bridal registry business, and the retailer is also putting Macy’s products on other people’s sites.
As for Lauder, Kapp said that as the company buys more brands, particularly those with limited distribution, she’ll be getting them online. “If you can’t get the products [at retail], it’s a opportunity for plus business. It helps everybody.”