How old-line stores begin anew online

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Tiffany & Co. VP-Investor Relations Mark Aaron told Wall Street last year the jewelry seller would launch a Web site filled with information about how to approach buying diamonds and pearls.

Tiffany, he stressed in the spring 1998 announcement, had absolutely no plans to sell its little blue boxes via the Internet.

Plans change. Starting this fall, the site will open its vaults to the Web, giving cybershoppers the chance to have breakfast, lunch, dinner or a midnight rendezvous at Tiffany's.

Mr. Aaron--like executives at Williams-Sonoma; Sears, Roebuck & Co.; Wal-Mart Stores and numerous other brick-and-mortar retailers--has experienced an e-commerce epiphany that has led to something of an Oklahoma-style land rush, albeit in reverse, of so-called "dirt retailers" moving into cyberspace.

"As we watched the Internet explode over the last year, we realized there may indeed be an opportunity for us to do some business," Mr. Aaron said. Now, he touts Tiffany's qualities that make it a prime e-tailing candidate: products understood by consumers, a trusted brand name and an existing catalog and distribution system in place.


With only 37 U.S. stores and plans to open just three to five more a year, "clearly there are a lot of people who know us, respect us, admire us," who would like to have access to Tiffany products but don't live near stores, he said.

Goldman Sachs, in a June report on Internet retailing, said the Internet over time could capture at least two to three times the sales of catalogs. Though the presence of stores once was thought to be a liability for cybervendors, Wall Street has begun to sense the synergies between onland and online retailers, including using stores to sign up online customers, the ability to conduct in-person product demonstrations, and handle returns or exchanges on the spot to spare customers' having to pay shipping charges.

For toys, the holiday e-commerce battle promises to be more gory than any ever conducted by G.I. Joe.

Toys "R" Us, left in the dust last year by, among other things, a strong showing from eToys, this year pledges a marketing campaign designed to make its Web site, as well as its retail stores, No. 1 in toys. Wal-Mart has displaced Toys "R" Us as the retail leader in toys, while eToys is tops in the virtual world.


Toys "R" Us recently hired Leo Burnett USA and its Starcom Worldwide media unit, both Chicago, to handle advertising for its stores and e-commerce unit.

But in an interesting twist, Warren Kornblum, Toys "R" Us chief marketing officer, said that before he awarded the Web business, he made sure Burnett's Toys "R" Us teams could compete as well as cooperate with each other.

"We wanted an agency which could allow a healthy competition between the brick-and-mortar and online units and yet take advantage of the synergies," he said.

But it isn't going to be easy. Competitor KB Toys is expected to spend as much as $50 million in advertising via Goldberg Moser O'Neill, San Francisco, to back its online efforts, while is said to be about to step into the toy-selling fray.

Toy manufacturers also aren't about to be lost in the dust. Mattel, for example, has a Web site, and is projecting sales of $60 million in 1999, expected to jump to $1 billion in three to five years.

At the same time, traditional mall-based specialty retailers in the category, such as Babbage's Etc., a software and videogame retailer, is launching TheGamestop. The site will allow hard-core gamers to register online for game playing devices or new games about to be released. The games will be delivered to a player's home on the day they are released.

"We see it as an opportunity plus a defensive" measure, said Dan DeMatteo, president, Babbage's Etc., whose personal service will be challenged by the R Zone, a new Toys "R" Us in-store area focusing on electronics.


Wal-Mart, meanwhile, is planning a major online move. All that appears to leave eToys, the company that woke up the category, trying to keep ahead. EToys doesn't have the Web lead over rivals that, for example, has over in books. In May, more than 517,000 people browsed or shopped at eToys, not quite double the traffic that went to Toys "R" Us' existing site, according to Nielsen/NetRatings, which tracks the Web market., in contrast, drew more than three times the traffic of aggressive promotion by its rival.

Not all traditional retailers look at the Web as a different distribution channel. Starbucks Coffee Co. is trying for a presence that goes beyond a grande latte.

"This is not about selling coffee beans," said Starbucks Chairman Howard Schultz at Hambrecht & Quist's retail conference last month.

Instead, he is trying, through alliances with other Internet players, to set up a blend that will offer other marketers online access to Starbucks customers, a move Wall Street didn't exactly swallow, depressing Starbucks' stock price.

Even mom-and-pop retailers are making the move.

Internet Tradeline, a Web design and e-commerce hosting company, builds virtual malls for small merchants, from Cape Cod to Fairbanks, Alaska, using local newspapers for support through sales and advertising. The newspaper and Internet Tradeline split hosting fees and a percentage of online sales.

Copyright July 1999, Crain Communications Inc.

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