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Blame Retailers for Web’s Slow Start as a Mall

August 16, 1995

Merchants pioneering electronic commerce on the Internet complain that technological glitches are holding them back. But their biggest enemy may be themselves.

Aside from a few limited successes, the estimated 35,000 vendors on the Internet’s World Wide Web, ranging from Gottschalks department store to Salsa Express, have had little luck. Annual U.S. retail sales now top $2 trillion, but Web merchants have toted up sales of just a few televisions here and a few pizzas there.

Mostly the merchants blame technology. Computers and transmission lines aren’t fast enough, they gripe, and security software is still being perfected. But these problems are likely to be fixed in the next two to three years by the normal march of technology. A more complex obstacle is the merchants’ resistance to marketing strategies that will lure consumers to the Web, which is the graphical portion of the Internet.

On-line purveyors generally decline to offer discounts, even though electronic selling can save them as much as 50 percent of their costs. Lands’ End Inc., for instance, rejects discounts because they conflict with its ``one-price″ policy. ``We really don’t feel it’s fair to offer certain customers an advantage over others,″ says Diane Solberg, who’s in charge of on-line sales.

Many on-line merchants are also fighting the use of consumer-software agents designed to find bargains because they see global comparison shopping as a major threat. And most don’t know how to construct appealing storefronts on the Web, and are reluctant to go to the trouble to offer a wide variety of products.

Given all this, customers say, ``I’m going to buy it at the store,″ says Kathy Klotz, an analyst for Dataquest Inc., a research firm. Another researcher, Mary Modahl of Forrester Research Inc., predicts sales on the Web will amount to only about $6 billion in the year 2000, a fraction of the $53 billion the catalogue industry takes in now.

Offering discounts is especially important because on-line shoppers apparently aren’t willing to pay premiums for good service like fast shipping, reasonable return policies and extensive product information. In an on-line survey by Arthur Andersen, 49 percent of the 1,013 people queried said they would pay nothing for extra service; 34 percent said they would pay $1 or less.

Most Web merchants seem to be following the lead of catalogue companies, which usually limit discounts on the assumption that customers will pay for convenience. But those few Web merchants that have offered significant discounts on-line say the strategy wins customers.

Internet Shopping Network, a Palo Alto, Calif., unit of Home Shopping Network Inc., says it offers about 27,000 computer and software items on-line that are priced about 10 percent to 20 percent below store prices, along with a few thousand other items that are mostly sold at full price. That formula generates more than $500,000 a month in sales, says the unit’s founder, Randy Adams. He’s now trying to expand by adding items that are less high-tech like watches and pots and pans.

Several music CD stores offer discounts of 10 percent or more. That pleases David Laur, a Seattle computer programmer and self-described music fanatic. He now does almost all of his $100 to $200 a month of CD shopping on-line, he says, because ``for music prices, it definitely beats the stores.″ One of his favorite sites is CDnow Inc., a closely held Blue Bell, Pa., company that says it sells 112,000 titles on-line. The store won’t disclose sales, but co-founder Jason Olim says more than 20,000 customers have made purchases and many have come back for more.

Convenience does win customers. In a physical store, customers must wander around trying to find items, and expert advice is often at the end of a long line _ if it can be had at all. Several on-line CD stores offer ``search engines″ _ or software built into their Web pages _ that allow customers to search the stores’ electronic warehouses by artist, song, album, record label or genre in less than 10 seconds.

The next step is offering ``intelligent agents″ _ essentially electronic to-do lists _ that search several stores so that customers can compare selections and prices without having to visit each site themselves. Companies including AT&T Corp. and General Magic Inc. are working on commercializing the use of agents, but so far, the only agent actually working on the Internet is Arthur Andersen’s BargainFinder.

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