Saks Shops for Customers Online

SAN FRANCISCO (08/21/2000) - Few things match the Saks Fifth Avenue experience: the elegant stores, the solicitous salespeople, the selection of designer attire. It's pure luxe.

Last week Saks Inc. became the latest upscale department store to stake its claim online. Its 12,000 items run the gamut from US$7.50 DKNY socks to $1,340 Dolce & Gabbana shearling jackets.

Department stores could use a boost; in recent decades they've been losing customers to declining mall traffic and increasing competition from specialty retailers like the Gap Inc. And the brick-and-click model is being hailed as the future of online retailing, the model that will last even as pure-plays tumble like dominoes. But shopping at tony department stores is as much about the experience as it is about about buying; how can Saks and its like translate what makes them special to the Web?

That challenge is exactly why executives at luxury chains Neiman Marcus, Nordstrom, Bloomingdale's and Saks say that they have no illusion that the Net will transform their business. Some even admit that the only reason they decided to open their doors on the Internet was that everyone else seemed to be doing it. All of which raises a rarely asked question: Should stores like Saks and Neiman Marcus bother with Web commerce at all?

The retailers themselves are still trying to figure out what they're doing online. Neiman Marcus, for one, has been exceedingly cautious about leaping into the digital world. When Neimanmarcus.com launched last October, the site offered only 500 products; now it boasts more than 2,000 items, but it continues to struggle to define an online strategy that meshes well with its 31 stores.

Bloomingdale's has approached e-commerce more aggressively. Its online operation, launched in the fall of 1998, features 200,000 items from all the Bloomie's departments - from women's fashions to home furnishings. That compares to 2 million in Bloomingdale's flagship New York store. Susan Harvey, senior VP and managing director of Bloomingdales.com, won't reveal how the site is doing, declining to share figures for revenue, sales or traffic. She is, however, unfailingly optimistic about the future of e-commerce for Bloomingdale's. "We see no boundaries," Harvey says.

When it comes to unbridled enthusiasm for the Net, it's hard to find a store executive who comes close to Dan Nordstrom. "It's been a huge and critical opportunity," says the president and CEO of Nordstrom.com. "We've been the most aggressive [department store] by a lot."

Great-grandson of the founder of the shoe store that grew into a national chain, Dan Nordstrom launched his site at the same time as Bloomingdale's, in the fall of 1998. The Nordstrom chain takes a different approach from its competitors and their parent companies, which retain full ownership of their Web operations. Acting more like a pure-play, Nordstrom sought the financial support and counsel of venture capitalists; Benchmark Capital committed $15 million and Madrona Investment Group kicked in $1 million. Nordstrom.com offers so many different items, known as SKUs (stock keeping units), that Nordstrom says "we've stopped counting." He estimates the number to be in the hundreds of thousands - with an emphasis on shoes, naturally - comparable to what you'd find in any Nordstrom store.

Like the other department stores, Nordstrom won't provide revenue figures for the site, saying only that last year its catalog and Net businesses together brought in $210 million; its 73 stores took in $5 billion.

It's little wonder that Nordstrom .com generates just a small portion of the chain's business. Luxury clothing and accessories - the stock in trade of stores like Nordstrom, Saks, Bloomingdale's and Neiman - don't easily lend themselves to online shopping. The Saks site, for example, sells an Oscar de la Renta embroidered wool jacket for $4,400 ("Exquisite open-front wool jacket, richly detailed with folkloric floral embroidery and finished with leather whipstitch trim"). How many women will shell out that kind of money without trying on the jacket first? And, given that haute chic lines like Jil Sander are unforgiving of any but the most sylphlike figure, the retailers can expect plenty of returns - the bane of all e-commerce.

Of course, the skepticism surrounding high-fashion apparel sales online may be misplaced. Other categories that have sold well on the Web weren't greeted with universal encouragement, either. "We always thought about the experience of buying a book as you sit down, you thumb through the book, and you get a sense of what it is," says Jeetil Patel, a retail analyst with Deutsche Banc Alex.

Brown. "Lo and behold, we've crossed that chasm nicely - pretty rapidly. That could happen with apparel."

Sites have wrestled not only with what to sell, but how to sell it. Squirrelly technology has brought more than one site to its knees - Boo.com being an infamous example. Saks says it waited to launch its site until it was certain that the technology - enlarge and zoom functions, along with easy checkout and payment - would work. "We spent a tremendous amount of time making sure that no one would ever have to use the Back button," says Denise Incandela, the COO of Saks Direct, which oversees the store's e-commerce offerings.

Technology has proven to be a major stumbling block for all the upscale department stores online. In its effort to launch with a large number of products, Nordstrom paid too little attention to its checkout and search processes. Customers complained that the search function was too limited and that paying was cumbersome and took too many steps. And until recently, though Bloomingdale's offers a wedding registry online, friends of the bride and groom could make purchases only over the phone or in stores.

Vendors are another problem. Two years after its launch, Nordstrom.com is still trying to convince designers to let the store sell their merchandise online.

Kate Spade, for example, won't allow her handbags to be sold on Nordstrom.com.

In fact, 20 percent of the brands available at any Nordstrom store won't be found on Nordstrom.com.

Neiman Marcus has hit the same wall. Karen Katz, president and CEO of Neiman Marcus Direct, which manages the company's catalog and e-commerce divisions, says NeimanMarcus.com is not permitted to sell Giorgio Armani, Chanel and Estee Lauder because those companies are in the midst of sorting out their e-commerce strategies. But Neiman's site does get the blessing of Kate Spade, even while Nordstrom.com is Spadeless. This inconsistency mirrors the brick-and-mortar world, where designers often favor one chain over another, usually to avoid oversupplying the market.

These challenges, though, are nothing compared to the two biggest problems facing high-end retailers as they move to the Web. The first is service:

Attentive salespeople, on-site tailors, personal shoppers and the like are the hallmarks of stores like Nordstrom and Saks, and customers expect to be pampered. How do you replicate that online? Some of the solutions are obvious, if lacking the degree of coddling store customers expect: Saks, like its competitors, recommends accessories to go with various articles of clothing - like the perfect Calvin Klein polished cutaway slingbacks to go with that Michael Kors one-shoulder dress. Neiman Marcus has instituted a popular personal-shopping service: Five personal shoppers based in the company's Dallas flagship store field over 500 messages from online customers each week. They respond by name and occasionally develop an e-mail or phone correspondence. One personal shopper describes how a colleague has developed a relationship with a woman in Fort Worth, Texas who, with her boyfriend, regularly spends between $2,000 and $4,000 every two weeks.

Most important, no Web site can match the sheer fun of spending an afternoon at Saks with a friend. For many people, shopping at a Nordstrom, Neiman, Bloomie's or Saks is about the experience. It's about being with friends and trying stuff on.

That's something that nags at Lawrence Marcus, the 83-year-old son of Neiman Marcus co-founder Herbert Marcus. He revels in the sensory pleasures of his family's stores. "A smell, the rustle of the taffeta, the touch of the silk - that will never, I suppose, never happen via the Internet," he says. "And those are the qualities of life that are pleasant and useful that the Internet can't provide."

This problem, more than any other, has left the department stores unsure how to craft a Net strategy - and even how badly they might be hurt without one.

Neiman executives admit they felt pressure to go online, period - even if their site was thin. "We had to kind of get on out there," says Jo Marie Lilly, senior VP of advertising and creative services at Neiman Marcus Direct, explaining why the Web site could manage only a few hundred products at launch, but forged ahead regardless.

Should the retailers even try to replicate the store experience? Dan Nordstrom doesn't think so. "We think about a customer base of people who have an affinity for Nordstrom," he says, explaining why a Web presence is crucial for the company. "For that customer base, at any particular moment of time, they're going to be in different need states." Not everyone wants to shop for fun, he says. Some people want to buy what they need fast and leave. He's talking about reaching a different customer from the social shopper.

With Saks' launch, almost all the major upscale department stores are now selling their wares online. One holdout is Lord & Taylor, which recorded $2.1 billion in sales last year. Its site, LordandTaylor.com, allows viewers to locate a store and buy gift certificates of up to $500, but no merchandise is available online. "Our primary objective is to draw people into the store," says Sunny Lebowitz, publicity director for the chain. Lord & Taylor has not ruled out expanding into online sales, but has no plans to do so in the near future.

The real success stories among online department stores are less upscale companies like JCPenney. Though Penney's brick-and-mortar stores are struggling, its online division reported sales last quarter of $47 million. But while many industry watchers expect the luxury department stores to do decently online, they agree that a company like Saks hasn't lost much, if anything, by waiting until now to launch. "The damage they have done by not going online is almost nothing," says Mike May, a senior analyst at Internet research firm Jupiter Communications.

Certainly, their powerful branding gives them a leg up, especially in the current Net climate that has cooled to pure plays. But surviving online isn't the same as succeeding.

Susan Orenstein, Eric Young and Joshua Hallford contributed to this story.

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