TWO E-VIEWS FROM WALL STREET
RATING THE BROAD-LINERS

Byline: Ira P. Schneiderman

NEW YORK — Traditional broad-lines retailers are going to keep marching ahead online, while pure-plays continue to drop out of the cyber-parade.
That’s the view of Daniel D. Barry, vice president and chief analyst of broad-lines merchants at Merrill Lynch. And in a quarterly “Web Watch” report, which monitors the progress brick-and-mortar retailers are making on the Internet, Barry cited JCPenney.com, Macys.com, Nordstrom.com, and Sears.com as the current leaders among the traditional crowd.
At the same time, the report makes clear there are many measures of a successful Web site and no one yet does all of them well, leaving plenty room for improvement. For instance, Barry noted the brick-and-mortar sector “now dominates the e-commerce space but [is] still well behind Amazon, the leader in overall excellence. E-tailing,” he observed, “is moving to a multi-channel world in which most brick-and-mortar retailers will have a Web site selling products, and many will have a catalog as well.”
And despite the profusion of dot-com bombs and steady stream of Internet layoffs, Barry forecast “brick-and-mortar retailers will slowly but steadily develop large-size e-commerce businesses, while the pure-play e-tailers all but disappear.”
Merrill Lynch’s broad-lines practice, led by Barry, tracks a group of 20 publicly traded companies, including department stores, general merchants, dollar stores, and book stores, such as Neiman Marcus, Saks Fifth Avenue, May Department Stores, Dillard’s, and J.C. Penney, as well as Sears, Roebuck & Co., Nordstrom, and Federated Department Stores.
Assessing the current state of the broad-lines crew in cyberspace, Barry said, “Although all their sites are losing money, the losses are manageable and are being controlled to keep losses low. In fact, the rate of growth in Web site expenditures is being driven principally by a reluctance to show excessive losses — generally not more than 5 cents per share,” the analyst continued. “As a result, the e-commerce industry, which was once running fast, has slowed to cruising speed.”
Not surprisingly, traditional stores performing best online are those that already have fulfillment capability through a catalog operation, like J.C. Penney, Nordstrom, and Macy’s, along with those able to sell high-priced products, Barry said, as a big ticket item “is inherently more profitable.” Broad-lines merchants offering big-ticket items online include Saks, Neiman’s, Nordstrom, and Costco. At JCPenney.com, for example, the average customer spends $100 per transaction, or 25 percent more than its average catalog order. According to Merrill Lynch, the Penney’s site generates the most visitors and produces the highest rate of converting browsers to purchasers of any e-tailer selling apparel or home goods.
In addition to evaluating the big picture, Barry, along with Merrill Lynch broad-lines analysts Stacy L. Turnof and Glenn M. Salzman, sized up the current content of various broad-lines Web sites based on 10 elements.
Here are the rankings:
Ease of navigation: Sears.com, JCPenney.com; Runners up: Target.com, Walmart.com.
One-stop shopping: Walmart.com; Runners up: Target.com, Macys.com, Fingerhut.com, JCPenney.com.
Easy return policy: Nordstrom.com.
Product information: Sears.com; J.C. Penney.com; NeimanMarcus.com, Saksfifthavenue.com.
Gift Registry: Federated’s WeddingChannel.com; Runners up: J.C. Penney.com, mayco.com, Dillards.com, NeimanMarcus.com.
Competitive Prices: JCPenney.com, Nord-strom.com’s clearance area, Walmart.com, Costco.com, Target.com
Customer Service: Sears.com, Nordstrom.com
Simple, hassle-free order process: Barnes& Noble.com, Borders.com
Delivery process: Barnes&Noble.com, Borders.com
Integrating catalog business and fulfillment expertise: Federated’s Fingerhut, Macy’s and Bloomingdale’s online operations; JCPenney.com; Runners up: Nordstrom.com, Target.com.
The “Web watch” analysts examined traditional retailers’ Web sites for their weaknesses. Among the comments:
Dillard’s: Most products among the site’s 150,000 stock keeping units are basics.
Federated: Burdines’ e-commerce capabilities are still weak, with only a gift registry, and Rich’s, Lazarus, and Goldsmith’s do not have any e-commerce capabilities, except a bridal registry through the WeddingChannel.com.
Kohl’s: Does not yet offer e-commerce; only e-gift cards.
May Department Stores: Lacks e-commerce other than a bridal registry, and the wedding registry items cannot be viewed online.
Neiman Marcus: Selection is limited compared with other retailers but is increasing each month.
Nordstrom: No link between the WeddingList.com and Nordstrom.com.
Saks Fifth Avenue: Slow in developing e-commerce relative to most other department stores, but its average order size is north of $300, and the site is pulling in 15,000 visitors a day.
Looking ahead, Barry projected, “As traditional bricks-and-mortar retailers rush into e-commerce they should [realize] synergistic benefits, which is much better than having a ‘first-mover advantage’ in eventually generating profits.”