Brick-and-Mortar Co.s Take Different Online Paths

BOSTON (06/13/2000) - On the same day that video-store chain Hollywood Entertainment Corp. announced plans to close the e-commerce operations of its Reel.com unit, electronics retailer Best Buy Co. yesterday launched a new Web site that will offer all the products sold at its 350 stores.

BestBuy.com's business plan has some similarities to the one that faltered at Reel.com, which burned through $55 million worth of Hollywood Entertainment's money over the past 18 months. For example, Best Buy spokeswoman Laurie Bauer said the BestBuy.com site initially won't be sales-driven.

Instead, Bauer said, BestBuy.com will provide detailed product information and entertainment reviews in an attempt to lure customers who may buy online or eventually shop at one of the company's brick-and-mortar stores.

Minneapolis-based Best Buy sees the Web site and the physical stores "working in tandem," she added.

Reel.com tried a similar tack by selling videos online and providing content about movies. But Mark Wattles, chairman and CEO of Hollywood Entertainment, said in a statement yesterday that finding customers who wanted to buy movies via the Internet "required large losses and significant cash funding" - to the point where Reel.com's losses were overshadowing sales and profit growth at the Portland, Ore.-based company's 1,800 stores.

David Cooperstein, an analyst at Forrester Research Inc. in Cambridge, Massachusetts, said brick-and-mortar companies "are really going to own the e-commerce world at the end of the day." But Hollywood Entertainment didn't have a wide enough product offering to thrive online, he added.

"There wasn't that much of a market there for them," Cooperstein said. "I think people were actually just using (Reel.com) for research more than anything else."

Reel.com faced a much more difficult online selling proposition than Best Buy is likely to, agreed Harry Wolhandler, an analyst at ActivMedia Research LLC in Peterborough, New Hampshire. "How many people buy a video as opposed to renting them?" Wolhandler said. "And when it comes to renting (via the Internet), bandwidth hasn't caught up the way we thought it would . . . two or three years ago."

Best Buy first entered the online marketplace in 1997, selling videos and compact discs on the BestBuy.com Web site. That initial launch "was a test for us more than anything else," Bauer said. Even now, with the full complement of the products sold in its stores available via the Internet, the company only expects 25 percent annual revenue growth from BestBuy.com, she said.

Wolhandler said Best Buy's deliberate approach to online retailing was a prudent one, given its widespread brick-and-mortar presence. "Companies like Best Buy essentially (can) come online and cherrypick," he said. "They don't have to be first, because they've got brand-name (recognition). All they had to do is learn the game."

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