How to Succeed in E-Commerce

Some creative, brick-and-mortar retailers are using digital technologies to reel in new customers.

We all know how this story is supposed to end. The Internet, that Great Disrupter, spells doom for traditional retailers as consumers shift their habits and opt to shop from the comfort of home.

Already there has been carnage. wiped out Borders Books, Netflix has dusted Blockbuster, Circuit City is gone, and RadioShack is in serious decline.

But not all retailers are losing out in the Internet age. In fact, some North Texas companies bear scrutiny for their creative response to the digital revolution. They are succeeding by using new technologies to build on their brick-and-mortar strengths and reel in new customers.

In high-end fashion, Neiman Marcus has built a billion-dollar e-commerce business, emerging as a leader of the “omnichannel” approach that integrates buying and distribution operations for stores and websites. Online sales have grown to about 25 percent of the company’s revenue, boosted by a global push. The Dallas luxury brand now offers shipping to more than 100 countries, reaching wealthy consumers in Canada, Japan, Australia, the Middle East, and China. Forty percent of its online customers are located in markets where it doesn’t have any stores.

In home furnishings, CEO Alex Smith engineered an impressive turnaround at Fort Worth-based Pier 1 Imports by initially shutting down web sales and working to improve store merchandising first. Since relaunching two years ago, e-commerce has gained traction, reaching 4 percent of revenue in the holiday quarter with a goal of reaching 10 percent by 2016. Under its “1 Pier 1” approach, shoppers can order products online and pick them up at a Pier 1 store, or place an online order inside a store if the product they want isn’t in stock. The company plans to quadruple the number of products offered online.

“We’re becoming less and less concerned about where the sale originates—we let our customers choose,” Smith said during an April conference call. He believes Pier 1 can grow substantially without adding many more stores.

Perhaps the most intriguing local company to watch, however, is GameStop. Like Blockbuster and Borders, the huge Grapevine-based chain of video game stores faces the imposing task of watching its primary product go digital. And many observers think it may see a similar decline. But GameStop has many advantages, including a history of innovation.

And so far it has defended its turf. It created stores that became neighborhood hangouts for gamers, staffed with well-trained “advisers” who can answer questions and recommend new games and equipment. It pioneered the used video game business, buying up inventory from customers and giving them credit or cash to help them buy new stuff. It expanded this “buy-sell-trade” model into iPhones, iPads, and other devices, building a billion-dollar business with profit margins north of 40 percent.

To bolster its brand and tighten ties with customers, GameStop publishes its own magazine, Game Informer, and has a loyalty program called PowerUp Rewards. Last year, Game Informer was the third-largest magazine in the country with a circulation of more than 7.6 million, and the company had 27 million PowerUp Rewards accounts.

And now GameStop is diversifying with two small electronics chains: Simply Mac, which sells Apple products, and Spring Mobile, which operates AT&T stores. It plans an aggressive expansion and will add as many as 400 of these “technology brand” stores as it trims its network of 4,200 U.S. GameStop stores by 2 to 3 percent.

How’s it all working?

Last year, GameStop recorded profits of $354 million as the industry benefited from new gaming systems led by Sony’s PlayStation 4 and Microsoft’s Xbox One. Revenues grew by 1.8 percent to more than $9 billion.

Although digital revenue from downloaded games is still relatively modest at $217 million in 2013, those sales are expected to grow 12 to 15 percent this year. And, interestingly, virtually all of those sales are occurring inside GameStop stores. Why? Because many customers need help finding and accessing the digital content.

Paul Raines, GameStop’s chief executive officer, says that a high level of service is critical for retailers to succeed in the Internet age, along with seamless technology to create “an endless aisle approach.”

So GameStop is investing in research. Earlier this year it established the GameStop Technology Institute with Texas A&M’s Center for Retail Studies to develop new interactive technologies. “We’re bringing the Internet into our stores,” Raines says.

Does he view e-commerce as a threat?

“We see everything as a threat,” Raines says.

Game on. 


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