Online retail sales are growing, and plenty of small merchants have found that the Web is a perfect place to start building a sales empire. But many of them also find that there comes an inflection point in their growth curve when they need a presence in the offline world.
That’s been a hard choice to make: All those decisions about optimal location, per-foot prices and overhead costs are the reasons many operators took to the Internet. But the carbon-based choice may get easier, thanks to a new project to give pure-play Internet retailers a foothold in the brick-and-mortar world. Epicenter Holdings is proposing to set up showcase stores in prime shopping-mall locations around the country that will feature products that have until now only been available on the Web or through catalogs.
The first Epicenter Collection store is slated to open next year in a 200,000-sq.-ft. space in the Polaris Fashion Place mall in Columbus, OH. The store will bring “up to 60” Web and catalog merchants together with some cutting-edge shopping technology that will let customers buy as easily and conveniently in person as they can now do over the Internet, according to Tony Lee, CEO of Epicenter Holdings.
“In a multichannel world, consumers increasingly expect a brand to have a retail presence,” says Lee. “With both catalog and online sales, there are only so many customers who are willing to buy some things, particularly fashion-related items, without seeing them or trying them on first. On the Web, the single largest reason for shopping-cart abandonment is that people can’t see or touch the merchandise.”
Lee points out that some direct marketers who made the leap to branded stores in the ‘80s are now among the best-known names in retail: Williams Sonoma, Sharper Image, Coldwater Creek, J. Jill and Victoria’s Secret. “Ninety percent of their revenue now comes from the retail channel,” he says. “They forged the way. I think the direct industry is now ready for a second wave of direct marketers who want and need to go into the retail world.”
The timing for this leap is right because growth is “somewhat stunted” in both the catalog and online realms, Lee says. On the catalog side, costs are going up and unique names are getting harder to find; the hot marketing tool among Web sellers—search engine marketing—is also increasing in price and in addition is basically ‘brand-blind”, since most searchers start their quest for products with generic terms, not brand names.
Timing is also good on the retail side of the equation, because increased consolidation among established department store chains is opening up anchor positions in a lot of desirable shopping malls. Epicenter’s near-term plan is to grab up those valuable locations in at least 10 malls around the country; in the long term, Lee says, the company hopes to find 100 such positions, always in shopping malls to produce the optimum traffic flow. One of the other stakeholders in Epicenter is chairman Sheldon Gordon, known for developing the Forum Shops at Caesars Palace in Las Vegas and for the Beverly Center mall in Los Angeles.
For Web or catalog marketers, the value proposition is the chance to get into a dedicated retail space with relatively little worry or capital expense. Building a store can cost between $300 and $500 a square foot, Lee says, while renting one can involve a 10- or 15-year lease. “Smaller direct players—or even many large ones—can’t justify the capital and risk involved,” he says. “And they can’t get prime locations within those malls because they haven’t got name recognition. We choose the sites with the best traffic potential, we rehab the buildings and supply the infrastructure costs—air conditioning, lighting, heating. All the merchant has to pay for is the fixtures and fittings in their space. So they can get into retail for $50 to $60 a square foot, about a fifth of what it would cost to open a regular retail store.”
Leases too will be about a fifth of what they are in the larger retail world: two to three years, giving merchants a comfort zone in which to test the concept and see how well it works for them.
The systems component is another possible obstacle for direct marketers looking to set up in retail. Epicenter has created a retail system that it will give to each of its tenants that will allow them to transform purchases at retail into what their own systems can recognize as a direct marketing order to be picked and shipped.
On the customer side, part of that systems infrastructure includes a point-of-sale handheld scanner called a BuyPod. Shoppers will be able to open accounts using the credit cards at kiosks located around the store and get a first-time look at how to buy from Epicenter. They can then use these BuyPods to scan bar codes, get more product information about sizes, colors and other options, and make purchases via a touch screen on the scanner. They will use the scanners throughout the store and then take delivery of their purchases at home, in a combination of retail’s high touch and the Internet’s convenience.
The scanners are not only convenient for customers, but they help keep payroll down by getting the buyers to do some of the purchasing work themselves. (Credit card information is not held in the scanners but in the store’s system, so there’s no danger of that personal information will be accessible to subsequent users.) Customers will also be able to pay at a standard cashier if they wish, but the growing success of self-service checkout at supermarket chains indicates that a large portion of the buying public is ready to ring themselves up.
Still, customers who want to pay the old-fashioned way can do so at a cashier. Lee expects that merchants will also want to make some items available for immediate take-home and will perhaps showcase only their larger or more expensive products.
Merchants will also be able to have their Web sites or catalogs featured on electronic kiosks, so that customers can look for inventory items that may not be featured on the sales floor. Epicenter will also lend its expertise to the problem of hiring and training sales personnel, who will then be employed by the individual merchant and dedicated to that store-within-a-store. As for the product mix within Epicenter’s walls, Epicenter is still in talks with merchants and has not finalized the roster for the first store, but Lee says the offerings will probably range from home furnishings through gifts and apparel to children’s items, toys and sporting goods. “We will probably defer to categories that will get an extra leg up from having the ability to touch and test the merchandise,” he says. “We don’t want to be in the commoditized band, so I don’t think we’ll be introducing any consumer electronics, for example, or general merchandise brand names.”
That final merchant slate will also be chosen with an eye toward finding compatible co-tenants. “Not only does the mix have to fit with the demographics of the market that we’re opening an epicenter in, but each of the stores has to be complementary to the others,” he says.
Epicenter’s preliminary research indicated that merchants interested in crossing channels to the retail side were most concerned about keeping control of their stores and their marketing efforts, Lee says. As a result, Epicenter is aimed at producing a setting in which sellers can market themselves as they wish; the company will earn its revenue from the rental stream and won’t take any portion of tenants’ sales revenue.
The company is in discussions for four or five more locations and expects to announce more stores soon, a move that Lee considers crucial. “Many of these online or catalog merchants will want to open more than one store,” he says. “We have to satisfy them early on that a successful Epicenter store is an expandable concept that can be leveraged. We want to partner with them to help build their hundred-store national chain. That could be a very substantial piece of business that could double or perhaps even triple their sales.”
