Dot.coms step out of the virtual world into the real one

E-commerce

During the internet's honeymoon period the phrase 'clicks and mortar' was coined to describe the strategies of traditional bricks and mortar companies moving online. The received wisdom was that Old Economy players had no choice but to develop an e-commerce strategy if they were not to suffer a long, lingering death at the hands of their lower cost dot.com rivals. The dot.coms, however, didn't need to bother with an expensive high street presence.

During the internet's honeymoon period the phrase 'clicks and mortar' was coined to describe the strategies of traditional bricks and mortar companies moving online. The received wisdom was that Old Economy players had no choice but to develop an e-commerce strategy if they were not to suffer a long, lingering death at the hands of their lower cost dot.com rivals. The dot.coms, however, didn't need to bother with an expensive high street presence.

But as e-commerce evolves the mood is changing. Pure internet players are beginning to realise that existing only in the virtual world can hinder brand development and efficient distribution of goods. Perhaps shops have a purpose after all. There are signs that some dot.coms are starting to seek a high street presence, though most are stopping short of opening stand alone stores. In Italy, for example, the online electrical retailer CHL has a network of over 30 high street sites, which it runs in conjunction with its online operation. The sites are not shops, as such, as they do not stock any goods. Instead the small units feature a few tables with computer screens, which customers can use to place their orders. They can also use the sites to pick up orders and drop off returns.

In the US e-toys has signed a deal with Gap that sees the two companies cross promote each other. Customers who spend $75 at Gap Kids, Baby Gap or e-Toys receive a $10 gift token towards their next purchase at any of the participating brands.

In the UK, Charles Schwab, the online share dealing company, is planning to open a share shop at its Milton Keynes call centre in the next few months. If successful it will open five to 10 more next year. E-Trade, another online sharedealing service is also looking at opening branches in the United States. So are several internet-only banks as a result of the growing realisation that customers are reluctant to commit significant assets to the ether without the reassurance of a physical presence. As one online banker says: "In certain circumstances, people want to be able to eyeball someone."

There have also been rumours of Amazon.com hatching a deal with Home Depot, the DIY retailer. Though some say Amazon might love to open stand-alone high street stores, it knows it can't. The reason is that it would hammer the company's share price, which is already reeling from a damaging broker's note last week. The whole rationale of investing in dot.com start-ups has been the attractions of their lower costs bases, which enables them to charge lower prices. If they start to saddle themselves with the same high street "baggage" as their Old Economy rivals, the game would be well and truly up.

But some kind of physical presence, either through joint marketing deals or taking small concessions in compatible stores could be a way of both raising brand awareness and ironing out delivery problems.

One investment banker tells the story of a London colleague ordering a Scalextric set from an online toy retailer last Christmas only to find one of the cars was faulty. On finally contacting the company the banker was told that an entire new set would be dispatched. He was also told to keep the original set as it would cost the e-tailer too much to process its return. If the company had a link with, Woolworths, say, the banker could have returned the faulty car to the store.

Traditional retailers have already found that having a presence online can boost sales in high street stores. A study Mixing Clicks with Bricks, by Forrester Research, shows that 80 per cent of traditional retailers find their stores benefit from online selling. As the e-commerce market matures, multi-channel strategies are likely to become commonplace. And one thing is clear. The dot.coms will have to make as much effort to sell on a multi-platform basis as their Old Economy rivals.

Web widens net

The internet is broadening its demographic appeal in the UK, according to Forrester Research, with the C2D social group, appearing as the fastest-growing online user group.

In 1998 the internet was very much an upmarket phenomenon in the UK with 86 per cent of users in the ABC1 category. That proportion has dropped to 74 per cent with C2D category doubling to 24 per cent. Good news for the likes of Littlewoods which is reinventing itself as a multi-channel retailer. Bad news for Somerfield which axed its online grocery delivery service last month due to poor order levels.

Jargonbusters

Cyber-strike: Trade unions are taking to the internet to organise labour in more modern ways. Workers at Elf in France, for example, have said they will use the internet to co-ordinate future action.

S-Commerce: As in store-commerce, the hot new area. Based on the high street these sites provide rapid fulfilment and a wide range of goods.