Retailers struggle with the brave new world of online selling - and how to make it lucrative.
The bravest of retailers, nevertheless, have taken the leap to e-commerce, even though it isn't always profitable. The costs of setting up a site, staffing it, maintaining it, stocking it, writing smart copy and taking good photos all come with a hefty price tag that can easily exceed sales. Among other pitfalls: if the retailer runs out of a popular item, does it sell its last ones to its Web shoppers or those who are standing in its physical stores?
"For retailers, it's a bit of a minefield, in terms of how you do it," said David Russell, president of Sporting Life, a high-end Toronto-based fashion and sporting goods chain that launched its own e-commerce site a few years ago. "It's kind of a brave new world."
But it's a world that Mr. Russell - and other retailers - say they can't ignore. Shoppers, especially younger ones, expect to be able to buy online. Moreover, e-commerce often sparks additional bricks-and-mortar business: customers tend to shell out at least three times more at a retailer's physical shop than at its website, research has found. Increasingly, consumers are researching those purchases online first.
In the next year or two, retailers such as Sporting Life are counting on luring more customers to their e-commerce to reap the rewards of their investments.
"It's a huge challenge," Larry Rosen, chief executive officer of upscale men's clothier Harry Rosen, told a conference of the International Council of Shopping Centres on Wednesday. "It's demanding huge amounts of our marketing budget ... The business isn't there yet."
Yet the business overall is burgeoning. E-commerce sales rose 18 per cent last year from 2007 as Canadians placed orders for goods and services valued at $15.1-billion, Statistics Canada reported last week. Four in 10 Canadians (aged 16 and over) used the Internet to place more than 95 million orders in 2009, up by a third from 2007 levels.
Amid the gains, retailers still are navigating the unfamiliar territory. Mr. Russell recently learned a lesson when he ran a sale on Lacoste fashions at both his physical and virtual stores. Demand was so overwhelming that he quickly ran out of the merchandise.
With just a couple of the Lacoste items left, he had to decide whether to sell them to his online shoppers or those at his bricks-and-mortar store. Ultimately, he chose the latter, inevitably disappointing his e-shoppers and potentially losing their future business. Next time, he'll put aside a set amount of merchandise just for the Web sale, he said.
The way the business is run now, "it's not a long-term model for success, so it has to grow," he added. Already, Sporting Life's e-commerce sales are picking up at a rate of more than 10 per cent a year. They now make up less than 5 per cent of the retailer's overall revenues, but the proportion is expected to rise to 10 per cent in the next several years.
And while e-commerce may not yet be a profit centre on its own, it tends to bolster the bricks-and-mortar stores' sales. For every $1 of sales at its online site, Harry Rosen enjoys $7 to $10 of sales at its physical stores, Mr. Rosen said.
More than 40 per cent of sales are influenced by the Internet, he said. Shoppers are using the website for their research. "We have people who come in and say they saw something on the Internet site and they want to try it on." As a result, the site provides an increasing amount of advice, stories and information. "But it's expensive - it's very expensive," Mr. Rosen added.
Some retailers, such as Indigo Books & Music, are trying to offset weak sales by selling more products online than in its stores. With its web site re-launch this month, Indigo will carry as much as 10 times more items in some product categories as in its physical outlets.