‘Clicks-and-Mortar’ Not the Only Winning Internet Strategy, Experts Say

WASHINGTON—It appears that the main advantage to being a pure-play Internet retailer—the elimination of costs associated with bricks-and-mortar stores—is now considered a drawback by some on Wall Street.

“Over the long run, we’re not expecting to see any pure-play Internet retailers,” Seema Williams, a retailing analyst at Cambridge, MA-based Forrester Research told Business Week Online. “They’re going to come under tremendous pressure from bricks-and-mortar firms as those migrate to the Web.”

But natural products industry experts believe that more than one Web strategy will win in the long run and that the so-called clicks-and-mortar approach, which combines both online and store-based retailing, may be better executed through partnerships than acquisitions.

Howard Diener, president and COO at Washington-based HealthQuick.com, the deep-discount online vitamin retailer founded by Herbert Haft earlier this year, disagrees. “The comment that the survivors are going to be the combinations is off-base,” he says. “The implication is that if you don’t do both, you won’t make it as an Internet company.” Diener, who has worked for both bricks-and-mortar retailers and pure-play e-tailers, says that the two are very different businesses, and whichever gets the most focus from management—retail or e-tail—will perform best.

One of the difficulties that clicks-and-mortar companies face involves pricing and incentives, according to Diener. Are they the same or different for the two channels? If they are different, what is the customer’s perception of that difference? And if they’re the same, is the company only cannibalizing its own sales?

Glenn Zweig, president and CEO of San Francisco-based Healthshop.com, agrees with Diener. “It’s hard to get the core [of a bricks-and-mortar company] organized around the dot com,” he says. “[And] I think it would be just as challenging for a dot com company that does it right to roll out a bricks-and-mortar [business].”

One company that has set itself up as a clicks-and-mortar through a partnership is San Francisco-based More.com, formerly Greentree.com, which in late summer entered a partnership with Bergen Brunswig and its network of Good Nature Pharmacies (see Natural Business, August 1999, pg. 11).

“What more could we get if we purchased a network of regional stores?” asks Eric Budin, co-founder and VP of corporate development at More.com. “We wouldn’t be able to focus on

providing the best shopping experience online.”

Budin says that More.com did not choose to go clicks-and-mortar because the company thought Wall Street would like it. “We chose it because we thought it would enhance our value proposition,” he says.

Budin also says that through the partnership with Bergen Brunswig More.com has gained the ability to deliver immediately to customers products such as drugs, as well as More.com gaining access to Bergen Brunswig’s 300,000 SKUs and purchasing power.

Yudi Bahl, an analyst in the Minneapolis office of U.S. Bancorp Piper Jaffray, thinks that a clicks-and-mortar strategy offers an advantage and that more companies will need to adopt it. However, he says that doesn’t mean that every company that does not become a clicks-and-mortar will fail. The long-term key, in Bahl’s opinion, is what e-tailers offer on their sites and how effectively they brand their companies.

“At the end of the day,

[e-tailers] are competing against a trip to the drugstore or health food store,” says Budin. “If you’re not creating a fundamentally easier way to buy, [customers] will go back to what they are used to.”