E-tailers and Space Invaders

Some thought Internet startups would wipe out whole sectors of traditional bricks-and-mortar firms. But old-economy companies are carving out their own presence, and some may become the biggest winners on the Web.

Identifying profitable customers is not the end of the job, however. E-tail operators must attempt to retain those customers. Toward that, Swan says Webvan monitors the performance of the distribution and delivery of goods by the company’s couriers. That performance includes merchandise put-away rates, order pick rates, courier deliveries per hour, as well as the time it takes couriers to go from one point to another. “Our business model is not just based on grabbing customers,” he says, “but on effectively picking and delivering to them in an efficient manner.”

Beyond pulse-taking, CFOs at clicks-and-mortar companies must assess whether an online operation is delivering full value to shareholders. Finance chiefs must constantly evaluate whether it’s prudent to hive off online operations — often a tough call. “While it makes sense from an investment standpoint, you need to make sure that the customer experience is seamless between the two distribution channels,” notes Patricia Seybold, head of the Patricia Seybold Group consulting firm. “For example, if the Wal-Mart on the Web bore no relationship to the Wal-Mart in the physical world, it wouldn’t make sense.”

Mary Modahl, vice president of research at Forrester Research, says one way to approach the spin-off question is to look at how closely the traditional and online ventures are related. “If you’re in a situation in which some traditional part of your business will never be done on the Web — maybe you run a chain of amusement parks — it often makes sense to split off the E-commerce business,” she advises. “But when you’re essentially serving a single market, it’s better to be integrated. If you’re a catalog marketer, it’s certainly not a good idea to have a separate E-commerce business.” &mdash R.M.

Virtual Realities

Although starting up an E-tailing operation often makes good business sense, it can make for a bear of a rollout. Just figuring out the size of the operation can be nettlesome. “One of the hardest things is to determine the scale of the site for your launch,” says Nancy Babine-Kucinski, president and COO for Lids Corp. (www.lids.com), a hatmaker that spent $2 million to launch its Web site last year. “There are still many unknowns in this medium, so you need to be specific up front about what you want to accomplish, or you’ll waste lots of money.”

For instance, people may underestimate the cost of meshing a Web site with a company’s existing technology, says Patricia Seybold, of Patricia Seybold Group, an E-commerce consultancy. She says the integration of systems can comprise up to 80 percent of the technology bill. “That was the hardest part for us,” says Jeffrey Rein, who oversaw the launch of Walgreen’s consumer Web site last year.

At Lids, the new Web site connects to the company’s demand-chain and financial systems. “When someone places an order on our site, it goes into our merchandising system, which checks to see that we have the product in inventory, notes it’s being taken out of inventory, rolls the transaction through our financial systems, and sends an electronic order to our warehouse,” where an employee picks up the merchandise, electronically creates an address label, and ships it. “It’s a paperless process totally integrated into everything else we do,” Babine-Kucinski says.

Such integration isn’t cheap. Re-engineering processes to work in the virtual world can be a significant expense, notes Cheryl Shearer, global ebusiness executive for IBM (www.ibm.com). “You’re learning to run yourself in a different way,” she says. “You have to change processes; write them up; train people; and then tell everyone who uses your E-commerce system, including suppliers and customers, how to use it.”

Stepping on toes within the organization can be just as problematic. Babine-Kucinski says Lids had to make some changes in its operations to accommodate its E-commerce initiative — like revamping the bonus formula for its 3,000 salespeople. If Lids hadn’t changed the plan to incorporate sales over the Web, she says the hatmaker ran the risk of having its staff work at cross-purposes to the company’s E-strategy. —R.M.

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