Retailers Mull Pulling Plug on E-Commerce

Computerworld - San Jose
Federated Department Stores Inc. stunned the retail world late last year when it ceased selling merchandise on its Bloomingdales.com site.
At last week's eTail 2002 conference here, some retail executives and experts predicted that more traditional retailers may pull the plug on their e-commerce sites this year - or at least re-evaluate and scale back investments in online operations.
They said the harsh economy is forcing retailers to take a harder look at their Internet commerce operations, which were expensive to launch and can be costly to maintain. For most retailers, online sales still represent a very small fraction of overall sales.
The ROI Factor
"I think there's going to be some fallout. It'd be naive to think there isn't going to be," said Brian Kilcourse, CIO at Longs Drug Stores Inc. in Walnut Creek, Calif., noting that he expects to see some retailers shut down their e-commerce operations.
He said one problem is the high cost of entry for e-commerce. "You need to spend $20 million to get the beginnings of a Web offering - well, in our case, that's four or five stores," Kilcourse said. "So one of the things the CFO will ask, rightly, is, 'Am I going to get four or five stores' worth of ROI out of this investment?' "
But Kilcourse added that retail executives need to keep in mind that a Web presence is intended to build their brand, not merely generate sales.
Ralph Briskin, director of e-commerce at The Men's Wearhouse in Houston, said he doesn't see how major retailers' e-commerce sites can "be profitable on this year's basis or this month's basis or today's basis, let alone pay back on the investment they've made."
"This is not like going into a store and putting up some fixtures and then they stay there for years on end," he said.
Dyan Triffo, a financial analyst at Deutsche Bank Alex. Brown Inc. in New York, said retailers are facing tremendous pressure to focus on the bottom line. "The economic environment is forcing people to make strategic decisions about what areas they can cut, where they can save money," she said, "and [e-commerce] is an obvious area to look at first because it's the newest [and] it's taking a lot of money out of the budget.
"A lot of companies are realizing they spent a lot of money on this channel and haven't necessarily gotten anything out of it," Triffo said.
A storefront or Yellow Pages-type presence might be adequate for some retailers,