'E-tail' growth sets a new trend in retail business

Webvan, Boo.com, Pets.com - the road to the online retailing future is littered with the wrecks of internet start-ups once hailed as the pioneers of a retailing revolution.

Yet four years after the internet bubble burst, online retailing is thriving - set to be the fastest-growing area of retailing this Christmas shopping season, as it was last year. ComScore Networks, a research firm, predicts that online sales for November and December - excluding travel sales and auction sites - will grow 23 to 26 per cent to about $15 billion (€11.27 billion) in the US, still by far the largest market.

For the full year, ComScore forecasts that US internet spending will leap 25 per cent from $52.9 billion last year to about $66 billion this year, driven by the spread of broadband connections and growing consumer confidence in shopping online.

This trend is reflected in other developed markets - notably Britain and Japan. Innovative internet retailing is a global phenomenon.

The shape of e-tail, however, is very different from what was predicted a few years ago. Apart from Amazon and eBay - the web's biggest forum for buying and selling, though it is an auction house, not a retailer - most of the biggest online retailers are not internet start-ups but traditional shop or mail-order groups.

Retailers have brought their investment capacity and trusted brand names to bear on internet shopping, boosting public confidence. Many have integrated online sales into a "multichannel" strategy that may link a website, shops and a mail-order catalogue.

"There was a time when everybody said the internet was going to steal purchases from shops. But the opposite is happening: multichannel retailing is the reality today," says Mr Darrell Rigby, head of the global retail practice at Bain & Co, the management consultants.

"Many classic bricks-and-mortar retailers actually started making money on their online operations long before Amazon did." Amazon is a prime example of the fusion of the online and "offline" retail worlds.

The company has expanded well beyond its roots as a seller of books and CDs, acting as an online mall selling everything from gourmet foods to clothing.

Evolving from pure retailer to "retail platform", it now conducts its online commerce in partnership with bricks-and-mortar retailers such as Target, Nordstrom, Borders and Circuit City. That blending of online and offline is offering consumers new ways to shop. They may research and order their purchase online, but have it delivered to a nearby shop - a service offered by retailers such as Sears Roebuck and Circuit City - so as to avoid delivery charges and allow them to see it or try it on first.

They may see a sofa they like in a brochure they received in the mail from retailers such as Pottery Barn or Crate and Barrel, go and look at it in a shop, mull it over, then order online.

Williams Sonoma, the kitchenware chain that is Pottery Barn's parent, is generating much of its new business online.

Recreational Equipment Inc, better known as REI, is another highly integrated multichannel retailer. A member-owned co-operative, which sells outdoor gear and clothing and has a heritage as a shop and catalogue retailer, it embraced the internet in the mid-1990s, putting internet kiosks in its shops as early as 1997.

It now offers 40,000 products online - more than its biggest shop could stock. Direct sales - four-fifths online, one-fifth by phone - account for 15 per cent of total orders. About 35 per cent of people ordering online will pick up their purchase in one of REI's 76 shops - and about one-third of those will buy something else in the shop at the same time, with an average purchase size of $90.

Ms Sally Jewell, REI's chief operating officer, says that the company's website, with 50,000 pages of product information, drives online and in-store sales. "Even our retail customers are frequently coming to our stores with a print-out from our website where they have done some pre-screening. They'll say: 'I've looked into tents, narrowed it down to three, but now I would like to take a look at them.' "

Ms Jewell admits that shoppers may research purchases on its website, then use an online price comparison service to buy the product cheaper from a cut-price retailer.

"We have to offer a compelling reason to do business with us," she says, citing REI's 100 per cent satisfaction guarantee as an example of its advantages.

Some of the biggest US retailers are developing integrated operations. JC Penney, the century-old department store chain, saw its internet sales reach $600 million last year. It offers 200,000 items that can be delivered to customers' homes or any of its 1,020 shops.

Mr Steve Riordan, a consultant at AT Kearney, says traditional retailers that have not yet embraced the online world face heavy investment and some tough choices. "There is not yet an emerging best practice," Mr Riordan says. "Things are sort of at the gawky teenager stage."

While the US still leads the way, it does not have a monopoly on successful internet retailers.

Tesco has the world's biggest online grocery business. It has helped Safeway, the third-largest US supermarket chain, to set up its internet operations.