July 24, 2000

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Redefining Business:
The Landlords Of Cyberspace

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Simon's initiative, called FastFrog, targeted teenagers--those most loyal foot soldiers of the Internet who were reared on E-mail, personal Web sites, and malls. It gave 10,000 young shoppers at two malls in Atlanta--Gwinnett Place and Mall of Georgia--wireless, handheld bar-code scanners, and let them zap all their favorite clothes, CDs, or athletic shoes at eight participating stores. When they went home, they could log on to FastFrog.com and E-mail their wish lists to family and friends who might buy them gifts.

But Melinda Winstead, who manages Gadzooks, a clothing store in the Mall of Georgia, said only a handful of parents wandered into her store with a FastFrog list last Christmas. The initial results created a lot of work, she says, because the list had a description, but no stock-keeping number or price. "They were still working the bugs out," Winstead says.

This Christmas season, Simon will test new versions of FastFrog and a similar scanner program, YourSherpa .com, which lets adults scan products throughout the mall, pay at one checkout, and have the products delivered at home. Simon will widen the target demographic group but stick to specialty retail shops because of the logistical hassles of recording the huge number of products in a department store, Covington says.

"What this technology's going to do is allow you to find a product when you're having trouble," Covington says. "When you know where a product is, you're going to use whatever traditional methods are out there."

THE BUSINESS MODEL
The big idea behind Mallibu.com and ShopSimon.com is that coming generations of mall customers won't see a sharp distinction between shopping online or at a mall. They'll expect to be able to buy anything at any time, and the malls want to enable the sale no matter what the channel is. They imagine people not just heading to the mall to buy clothes and have coffee with friends, but also logging on to their computers to buy mundane items such as socks and mascara refills. "They'll use the Web to buy the things they have to and still go to the mall for what they want," Graves says.

For all the talk, however, the Internet represents a slim piece of the shopping pie, and it's not at all clear whether there's enough business online to support the IT investment. In 1999, consumer spending online accounted for approximately 0.4% of total retail sales. That number, heavily weighted by purchases of homes and automobiles, is expected to grow to roughly 2% in 2002, according to Andrew Bartels, senior research analyst for E-commerce at Giga Information Group. But, he says, the significant prediction is that 19% of sales concluded in real-world stores will be influenced by research on the Internet.

"This click-and-mortar plane, the ability to help customers find what they want online and let them buy either at the site or at the store, is the future of online retailing," Bartels says.

Until recently, the dual-channel strategy was most successful for service providers such as airlines and brokerage firms, or catalog retailers that are set up for individual deliveries. Bartels says it's much more difficult for a company to link inventory and stock information from different stores to a central Web site when the company is selling goods in a shop as well as online or over the phone.

Distributing online coupons that can be redeemed in stores is one way companies are experimenting with dual-channel strategies. In another measure, RedEnvelope and other online retailers have printed paper catalogs to which customers have responded positively, says Bartels, who predicts Amazon.com will open a real-world store this year. Also, traditional grocery stores may begin accepting online orders for paper towels, laundry detergent, breakfast cereal, and other dry goods and have them boxed and waiting for shoppers when they arrive to purchase fresh items such as meat and vegetables. One such company, Albertson's Inc. in Boise, Idaho, is conducting a pilot delivery program for nonperishable items only.

"There will be many more experiments as companies try to figure out ways of getting these channels to work together," Bartels says. "Some of them will be goofy ideas; some of them will be good ideas."

But will the volume of online sales be worth the effort? Schuelke, the NASCAR goods retailer, is happy with the results and the effort. To enter inventory, Schuelke and his staff took digital pictures of all the products in the store and wrote a description for each item, including weight and retail price. And though Mallibu.com's goal is to drive local sales, Checker Flag has also tapped the borderless nature of the Internet, attracting interest from outside its ZIP code. Schuelke seeded message boards on Nascar drivers' Web sites, selling die-cast stock-car models to customers from Arkansas and Alabama who E-mailed orders. He even engaged in some old-fashioned barter, swapping a limited-edition Dale Earnhardt Monopoly game, retail $34.95, for a banner ad on a Louisiana woman's unofficial site about driver Kevin Harvick. "I can leave messages all over the place and broaden my customer base. That's exciting," Schuelke says.

Simon and General Growth are content with positioning themselves for the moment when technology and customer habits demand interactive shopping. Graves says the big payoff will come once products can be wirelessly scanned into inventory as they're received and shelved, then subtracted from inventory as they're sold--all accessible via browser by manager or customer. "We're positioning Mallibu.com for 18 months from now, when the point-of-sale terminal and the desktop browser merge," Graves says.

The gamble is familiar to brick-and-mortar developers--betting that when they've built a place to shop, retailers and shoppers will come. Soon Simon and General Growth will find out whether those retailers and shoppers buy into the same concept online.

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Photo of Covington by Greg Whitaker
Photo of Graves by Jeff Sciortino

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