Let's Get Physical

Baldwin Louie — Fri, 10 Nov 2000 14:00:00 -0800

Mel and Patricia Ziegler build companies the way Martha Stewart throws garden parties for 500 people: They make it look so easy. The Zieglers' successes so far include Banana Republic, which had revenues of $191 million when they sold it to the Gap (GPS) in 1988, and the Republic of Tea, which they built into a $4 million company before selling out in 1994. Last October they embarked on a new venture, an online clothing company called ZoZa. Despite all the dot-compost out there, the Zieglers are confident. Because once again they're on top of a trend: getting physical.

Mel Ziegler thinks pure-plays won't work, period. So, for ZoZa.com he's come up with a "walk-in Web site." The walk-in part will debut in the tony Marin County, Calif., town of Mill Valley. It's a shop, but it's equipped with minimal staff and inventory. Customers can try on clothes, but they have to order from computers in the store - and then wait for delivery.

ZoZa was first mapped out as a Web-only enterprise. But Ziegler decided it's not feasible to create a brand exclusively online. "We built Banana Republic through catalogs," he says. "We plan to build ZoZa using the Web, but as just another medium. We'll start with the Web, but we'll have a catalog, and then we're going to build stores next year."

The Zieglers are known for marching to their own Northern California tune - they call themselves "Zentrepreneurs." But their new effort follows in the footsteps of other online retailers trooping back to terra firma. It's the latest stage in the rapid evolution of e-tail: Having realized they can't simply wave a shiny ad campaign and wait for shoppers to come running, Web retailers are taking concrete measures to draw customers - building stores, printing catalogs and setting up kiosks to sell their products.

Former cosmetics pure-play Bluemercury.com now has two stores in Washington, D.C., and plans a third in Philadelphia. IParty.com, which sells party supplies online, recently bought 33 outlets in the Northeast from the bankrupt Big Party chain. In October, when Gazoontite declared Chapter 11, the bricks-and-clicks purveyor of allergy remedies shut down its site altogether and bet its future on its five real-world retail outlets. "The stores are our best shot at profitability," CEO Dan Korn said at the time. "The Web site is not nearly as attractive an investment."

Other e-tailers are stepping more gingerly back to earth. Lucy.com, Estyle, eZiba, Food.com, Art.com, Allpets.com and others have hired direct-marketing execs from such companies as Lands' End (LE) and launched catalogs.

The reason is plain: Consumer catalog sales topped $59 billion in 1999; online sales totaled $14 billion. What's more, catalog shoppers tend to spend more per order than Web shoppers.

Of course, simply whipping up a glossy print production is no guarantee of profits. The paper medium has its own pitfalls. But many e-tailers see catalogs as a move in the right direction - away from extravagant ad campaigns, and toward more targeted expenditure of their shrinking cash reserves. Garden.com (GDEN) mailed its debut catalog in April and says it has lowered customer-acquisition costs by 30 percent. Lucy.com VP of business development Kate Delhagen says her firm's new 40-page catalog cost over $1 million, but adds that catalog spending is just 25 percent of Lucy.com's marketing budget - less than the site spends on traditional advertising.

Catalogs typically run between 75 cents and $1.50 each to produce. Variables include the quality of the paper and the quality of the mailing list. Lucy.com distributed 1 million copies of its first catalog this past September and another 400,000 for the holidays. Delhagen says she'll need to wait until she can analyze responses before she decides whether to stick with the strategy. Art.com reports that it spent $1 per catalog and anticipates a return of $2.50 to $5 on each.

Also in September, Allpets started sending its 92-page catalog to 2 million customers and new prospects whose names it bought from other mailing lists. The target market is pet-owning women between 25 and 60 who make at least $57,000 annually.

E-tailers judge catalogs not only by sales but by Web traffic generated. The idea is to put a tangible, tantalizing sample of your merchandise in consumers' hands and hope they go online to find out more - or, better yet, buy something. A survey by the Direct Marketing Association, a trade group for marketers, found that half the people who received a catalog from a company that also had a Web site placed an order at the site.

"It may be much easier to put up a Web site overnight, but [dot-coms] are realizing that catalogs are very useful for targeting customers," says Robert Wientzen, president of the Direct Marketing Association. "It's not just slapping up a banner ad and hoping people will come."

The lifespan of the catalog is filled with chances to make an impression. When it arrives in the mail, customers thumb through it and decide whether to keep it. Even if it's dumped immediately, a catalog leaves a more lasting impression than mass e-mailed (and quickly deleted) product newsletters.

Products look better on paper than in pixels. Pages are easier to navigate; they can be dog-eared or torn out. A catalog can end up a mosquito swatter or a coffee-table coaster, but even on its way to the recycling bin it may get one last look. Those moments alone are worth the price to pure-plays adrift in the echoing reaches of cyberspace.

Then there are the unwired masses to consider. Through its catalog, eZiba.com can tout the attractions of its Zulu wire bowls to shoppers who would sooner set off across the Sahara Desert than venture online.

"Everybody is thinking about their offline presence these days," says Elaine Rubin, chairwoman of Shop.org. "If you choose not to put out a catalog or partner with an established brick-and-mortar or something along those lines, the online world has become a difficult place to build a business."

MALL OR NOTHING?
One quick way to get physical is with a kiosk. These Internet terminals are set up in stores to connect customers to retail sites. PC-maker Micron offers its computer systems via kiosks at 358 Best Buy stores. Since Micron partnered with Best Buy, its PC sales have improved - the fiscal quarter ending August 31 was the first in almost three years that Micron posted a year-on-year sales gain. After successes in Europe and Asia, Internet music distributor Liquid Audio (LQID) is bringing its Liquid Kiosk Network to retail outlets in the U.S. The stations let shoppers preview, buy and download music on the spot.

Mall developers also see kiosks as a moneymaker. General Growth Properties (GGP) and Simon Property Group, (SPG) two of the largest mall builders in North America, have tapped the firms DotJunction and Clixnmortar to open multichannel kiosks in their shopping centers. Art.com was one of the first clients to list in these kiosks, which look a little like glorified phone booths. The site pays a fee for the service. Art.com sees the kiosks as a way to advertise in malls (the site's logo will appear on the screen) and give shoppers another channel to browse products.

Shop.org's Rubin cautions that kiosks are still an open question - they enjoyed brief popularity in 1995 and '96, then failed. Many shoppers who are comfortable online don't go to the mall, and vice versa. Kiosks can be expensive to maintain, as well.

Kiosks and catalogs can only go so far in solving one of e-tail's fundamental conundrums: Shopping is a social event. According to retail guru Paco Underhill, if you don't have a brick-and-mortar presence, you can't reach your most lucrative customer, what he calls the "born-to-shopper."

Underhill is the author of Why We Buy. His company, Envirosell, is the top consulting firm in the field of shopping behavior and retail architecture. He has studied hours of video footage, looking for things retailers should - and shouldn't - do to attract customers. He even discovered the "butt brush," the phenomenon whereby a shopper will quickly exit a store if bumped from behind while browsing.

GETTING IN TOUCH
Butt brush notwithstanding, Underhill says what online shoppers miss most is physical contact. "Shopping is a very sensual activity," he says. "People need to touch in order to buy - especially if the tactile qualities are important to what they're buying, such as sweaters or towels. Almost all unplanned buying takes place in a store as a result of these sensory experiences winning over a customer."

Underhill has found that the more time people spend in a store, the more they buy. It's tough to make shoppers linger at a Web site, he points out - they're far more likely to grab and go. Then there's the "Ooh! That looks so cute on you!" factor. Utterly lost online.

"The experience of brick-and-mortar shopping is unique, and I don't think it will ever be replaced with online shopping," Underhill says. "Especially in our tactile-deprived society - and especially after sitting at a computer all day - the physical sensations of shopping are a welcome change."

Genevieve Bell, a cultural anthropologist who has studied online and offline shopping for Intel, (INTC) agrees that online shopping lacks the fantasy aspect that stores offer. "A huge element when you're shopping is play-acting, playing dress-up and imagining you're someone else," she says. "In America, shopping is a way to feel good about yourself. That isn't what happens with e-commerce."

By getting in touch with shoppers, Web retailers might start feeling a little better about themselves, too. Especially when the revenue numbers arrive.

SCAMPERING BACK TO DRY LAND
E-tailers are returning to earth. Having tried - and failed - to attract sufficient customers through such high-concept campaigns as sock puppets, blimps and Frisbee giveaways, they're realizing that maybe the best way to get in touch with shoppers is to give them something to touch, like a catalog, a kiosk or even - surprise! - a corner store.

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Blair Clarkson is a staff writer for Grok.

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