There may not be a retailer in North America that has not given some thought to what impact the Internet is going to have on their business. We have faced many changes over the years in retail, from the movement of our business out of the downtown cores to the suburbs, then to power centers, category killers, big box retailers, consolidation of entire categories and the birth of entire new categories and the movement of retail back to downtowns.

The frightening part of the Internet is not that it is here, but that it appears to be happening so fast. Most of the changes that we have faced in the past in retail have taken place over ten to fifteen years and gave many retailers time to prepare. Today, faced with "Internet Time" many retailers are wondering if they will face the same fate as Barnes and Nobel did with the threat of Amazon.com.

There appears to be five emerging factors that retail executives should consider. The five factors are timing, distribution / inventory, marketing, returns and taxes.

Timing

What is likely to happen to many retailers as our customers move to shopping on the net? Well, the first thing to consider is that despite the apparent speed of customers moving to Internet shopping the movement in many categories will not happen over night. This does not mean that we have ten or even five years to prepare, but for many categories we do have at least three. Even using very optimistic estimates of how much retail will be done on the Internet by the year 2003, we can predict that only about 10% to 15% of total retail sales will be done on the Internet. Although this may not seem like a large percentage, how many retailers can afford a 15% sales decrease? Retailers would be wise to check with Internet research companies to determine if their category is one of the more vulnerable (i.e. books, music, travel, flowers, computer equipment etc.)

Distribution/Inventory

There are many issues that we will have to face in this brave new world of Internet retail and so far only the retailers that have catalogue operations have been able to solve the first problem which is how do we serve customers one at a time and pick, pack and ship in eaches. Catalogue retailers have mastered this method of distribution which has not been a requirement of traditional brick and mortar retailers. But even the catalogue retailers have found that they must maintain a separate inventory if they also operate retail stores and no one has yet found an elegant or profitable solution to this problem. Often our best selling items are selling well in the stores as well as in the catalogue and now the Internet. How do we allocate merchandise between these very different demand structures? Will we always be forced to carry two inventories and at what cost to our companies?

Marketing

Soon the Internet will no longer be the domain of the CLUMPS (computer literate upwardly mobile professionals) and will move into the domain of middle class Canada. When this happens, which companies do you think that these consumers will trust? Will it be Sears, Canadian Tire, The Bay, or will it be some "virtual" retailer that they have never actually seen? Our best guess is that the market of the future for retailers is brick and click. The mass market, coming late to technology will trust the same retailers that they shop at on Saturday morning and can see on their way to and from work. These traditional retailers will have the advantage over the virtual retailers with the majority of consumers. In addition, brick and mortar retailers have spent years understanding customer service, assortments, pricing, promotions, visual presentation as well as all the other disciplines of retail. Our virtual cousins are new to this game and it is far easier to learn technology than to learn customers and retail. The "first mover" belief by Wall Street is simply wrong. Brick and click retailers who run a great store and invest in the technology to run a great Internet site will win the day. However, the brick and click success will only happen if those retailers leverage their retail knowledge and make the investment in technology.

Returns

The "dirty secret" of the web is one that catalogue retailer have been aware of for some time. Customers do not always like what they get when they buy something on the Internet and will often return that item for a refund or replacement. Most retailers would only experience return rates in their stores of 1% to 3% while it is not unusual in catalogue or Internet retail to have returns from customers in the 12% to 20% range. This not only is costly in terms of double handling of the merchandise, it requires very sophisticated forecasting systems to include the high return rates in the overall merchandise forecast and in essence buy your returns in your product ordering requirement.

Taxes

"Tax the Net!!" Retailers must lobby for the end to the tax holiday that Internet retailers have been receiving. It is not a level playing field when we have to remit sales taxes and support the communities where we have invested in stores and people and the Internet retailers are able to avoid this. Lobby government. And whatever you do, avoid the temptation to set up your Internet store as a separate entity to avoid charging customers sales tax. The consumer will destroy you when they try to return or exchange items and you have to tell them that they cannot do this. Keep one company and one message for your customers.

The future of retail is bright. The Internet will not only prove to be a tremendous boon to consumers but also to the brick and click retailers who combine the best of both worlds for their customers and offer the customer the choice of shopping that they want. The successful retailer of the next century will be the one who has followed the age old truth "It is not how we want to do business with our customer, but how our customer wants to do business with us."

Prepare now, get on the Internet, but start with product information and never begin selling until you can assure your customer that you can deliver the same level of service on your Internet site that you can also give them in your store.