E-tailers cry out, 'long live the high street'
8 February 2001

Over the past year there has been a reversal of fortunes in the dotcom world, writes Chloe Veltman. Some internet companies have had to decide whether to go for bricks instead of clicks

LAST year, dotcom companies loved to boast that they were "pure plays" which meant that they only operated on the net. Businesses could be run so much cheaper online, they would crow.

Long live the internet! The high street is dead! How times have changed. A growing number of "pure plays" have now moved into the real world, although it was not so long ago that traditional "bricks and mortar" retailers such as Walmart, The Gap and Circuit City were rushing to grab a piece of the e-commerce action.

Internet companies have now found themselves confronted by a traumatic decision - either disappear under a deluge of unpaid bills or boldly go onto the internet's final frontier, the high street.

By way of example, let us begin at San Jose airport in Silicon Valley. For the high-tech traveller, the days of sitting on an uncomfortable chair with your lap-top perched on your knees are over. Terminal C's shiny, new internet cafe enables anyone with a lap-top to plug in, hook up to the web and surf for free.

There is nothing revolutionary about the idea of an internet cafe in an airport as you can check your e-mail or place a pre-flight bet on the auction site eBay whether you are at Gatwick or Jakarta International. But San Jose airport's new cafe is an interesting case because the company behind the venture is the online travel service Expedia.com.

"We're not just about booking tickets online. It's about reaching out to travellers everywhere," says Christina Kosloff, the company's product manager.

Over the past year, however, there has been a reversal of fortunes in the dotcom world. A recent survey of US travel e-commerce conducted by Media Metrix, a New York-based company that measures trends in digital media, revealed that eight out of 10 of the top fastest growing retail sites were traditional offline brands, such as Kmart and Target.

In the case of Gazoontite, a San Francisco-based business which helps allergy sufferers, going from "clicks to bricks" has meant shutting down its e-commerce wing. Founded in March 1999 as an internet company, Gazoontite opened a high street branch in San Francisco which was followed by openings in several other US cities.

Originally the company had viewed its website as its primary revenue source, spending millions of dollars on marketing and implementation.

While Gazoontite's shops did unexpectedly well, its internet operations languished, swallowing up all the profits generated by its shops. In October, the company filed for bankcruptcy.

With new ownership but trading under the same name, Gazoontite has temporarily foregone the dotcom tag, selling its range of air purifiers, vacuum cleaners and hypoallergenic stuffed animals from three shops in San Francisco, Costa Mesa and New York.

"Customers need to experience a product physically," says Craig Womack, Gazoontite's new president and chief executive.

Womack hopes that the Gazoontite website, which is "in hibernation", will re-launch this year.

Bricks to Clicks

Not every internet company needs to go bankrupt before trying its luck on the high street. Other Net-based companies with strong e-commerce track records have developed significant physical infrastructure alongside their websites.

In the financial services sector, online share dealing services such as Charles Schwab, E-Trade, DLJDirect (now called CSFBdirect) and WebStreet have all expanded into the real world with branch offices and cash machines. Charles Schwab has 415 offices in the US while rival E-Trade acquired a cash-machine network with 9,600 locations in March last year. DLJDirect opened its first branch in Florida last May with plans to open offices in other US cities this year.

"The lines between the traditional and online broker are beginning to blur," says Blake Darcy, chief executive of DLJDirect. "Now that online investing is no longer a novelty, self-directed investors are seeking higher levels of personal service and the convenience of a local physical site where they can deposit funds or find assistance."

Don Peppers, a partner at the Peppers & Rogers Group, a Connecticut-based consultancy firm that specialises in customer relations, says: "It's not enough for companies to exist in one medium because customers do not exist in one medium."

The impetus for internet-based companies to develop a presence in the physical world has led to some interesting interactions between the real and virtual worlds. Gateway, the computer retailer which was originally founded in 1985 as a telesales company, was the first one to start selling computers on the internet in 1993.

Three years later, the company decided to build showrooms to tap into the large number of potential customers who felt uneasy about ordering a computer without seeing it first. Greg Lund, manager of consumer initiatives at Gateway, says: "Some of our customers might visit a Gateway store and then order online while others might browse the website and then place their order over the phone."

Companies, such as office supplier Staples, are looking for ways of bringing the virtual world onto the high street by installing computer terminals in their shops for customers to use for research. These companies are neither "bricks" nor "clicks", but a mix of the two.

At TheWeddingList.com, a company which does exactly what it says on the tin, customers can register their wedding list and look for presents online, over the phone, through a catalogue or in person at the company's shops in New York, Boston and London. "We see TheWeddingList as a fully integrated experience," says Daphne Murray, director of marketing and communications. Since a "live chat" feature was added to the website last year, which enables customers to communicate with a consultant, Murray says that revenues have increased substantially.

"The escalating virtuous circle of rising consumer expectations", in Don Peppers' words, is pushing companies to seek new ways of attracting customers in a saturated marketplace. Gateway's network of shops offer a complementary range of services from free software training and guest speakers to classes on digital photography.

Meanwhile, back at San Jose airport, the Expedia Cafe is just one of the company's three "offline" initiatives aimed at enhancing the consumer experience and awareness of the brand. Alongside the company's travel-orientated radio network and travel magazine, the Expedia Cafe is a symbol of the new face of commerce. As Kozloff puts it: "We want to be all things to all travellers everywhere."

Perhaps it is all a sign that the distinctions between the new and the old economy had been over played. These companies are neither "new" nor "old". They are simply trying to find the path to the profitability, or the path to greater profitablity.

Copright The Telegraph Group Ltd