The nation’s three largest CE retail chains pointed to digital products and the untapped potential of e-commerce as the keys to continued growth in the new century.
Appearing at a Retailing Power Panel yesterday, presidents Brad Anderson of Best Buy, Alan McCollough of Circuit City and Len Roberts of RadioShack lauded the fourth-quarter performance and long-term upside of digital devices, and the additive sales that a click & mortar distribution model will bring.
Indeed, Roberts projected that RadioShack will derive fully 50% of its revenue from online sales in five years owing to its smaller store format. And number-one CE merchant Best Buy — which will only begin to offer a full product selection through its Web site next month — sees that channel accounting for 15% of total sales over the same period, Anderson said.
Anderson also sang the praises of digital products, which grew from 4% of Best Buy’s sales in 1998 to 10% last year. “The growth of digital products is remarkable,” he said, “and that kind of ramp will continue.”
Circuit’s McCollough concurred, noting that “there’s great excitement in anything digital and a lot of interest in new technologies. But the real excitement is what lies ahead.”
But despite what Anderson described as “an embarrassment of riches” on the show floor, new product challenges remain. Chief for Best Buy is “trying to edit through the selection,” he said, while Circuit sees its biggest hurdle as making complex technologies palatable for the masses.
“The challenge is how we translate all of these wonderful new technologies,” McCollough said. “We have to keep it simple, and explain them and show them in ways so that the customer will line up and want to buy them.”
Roberts agreed, saying, “We must demystify technology. If we fail, we face a slower adoption rate.”
Likewise, the Internet, despite its vast promise, presents a number of inherent stumbling blocks apart from issues of start-up costs and profitability. For the storefront-based mega merchants, topping the list is sales taxes — which they collect and pure-play e-tailers don’t.
“I’m a bit mystified by those in government calling for the Internet to be a tax-free zone,” McCollough said. “It’s not reasonable or fair that we should advantage the Internet with tax abatement. We should not be disadvantaged by the government. We want parity.”
But tax liability aside, real estate will ultimately give chain stores the upper hand in the coming e-commerce wars, thanks to an in-place distribution network and the fulfillment options that storefronts provide.
“We already have all the infrastructure and resources in place that are necessary to both channels,” McCollough said. “The cost of product movement is already accounted for, which is a huge advantage for brick & mortar stores. There’s been a lot of hoopla about Internet-only retailers, but my question is how are they going to compete with a brick & mortar store with a tightly integrated e-commerce function? At the end of the day, the click & mortars will be the winners.”
Although revenue from bestbuy.com is currently “negligible,” Anderson described the Internet as “the greatest tool ever in history to serve new customers and track current customers.” Best Buy’s online challenge, he said, is to “put the organization together culturally in order to have a seamless integration of brick & mortar and Internet stores. Those who can’t will be lost.”
For Tandy, “the Internet will be explosive for all of us if we leverage it in the right way,” Roberts stressed. “We must provide added value, not just cheap prices.” For RadioShack specifically, the Web will allow the retailer to break the bounds of its small-store format. “It allows us to extend our reach, to widen our assortment and reinforce the brand,” he said.
But despite Circuit City’s lead in getting its full assortment online, and in integrating its 600-plus stores with its cutting-edge Web site, McCollough let his terrestrial bias show. “There is no substitute for a customer walking up to an end-cap and having a well-trained salesperson explain the product,” he said. “Does a customer with a thousand dollars in hand want to wait three days or three minutes to buy a camcorder?”