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Retail chains venture into virtual worlds

By Nicole Maestri
Reuters
Friday, January 12, 2007; 1:56 PM

NEW YORK (Reuters) - It's a world where users pick their names, their sex, their clothes and even the time of day.

It is also becoming a world where users can stop by the Sears showroom to see how a new Kenmore refrigerator would look in their kitchen, or visit Circuit City to check out that sleek new plasma television.

Welcome to Second Life, a three-dimensional virtual world developed by San Francisco-based Linden Lab that has more than 2.5 million registered animated characters or avatars, an estimated 300,000 regular users, and its own economy and currency.

A number of real-world companies have entered Second Life in recent months, including Reuters Group Plc <RTR.L>, drawn by its rapid growth and pool of tech-savvy consumers. Retailers are determined not to miss what could be a chance to attract new customers and spread their brands.

This month, Sears Holdings Corp. <SHLD.O>, in partnership with International Business Machines Corp. <IBM.N>, unveiled "Sears Virtual Home," a showroom on Second Life. Circuit City Stores Inc. <CC.N> also built a showroom with IBM's help.

"Retailers have got to think outside the box because shopping as we know it is changing," said Britt Beemer, chairman of America's Research Group, which surveys consumers on spending habits.

But some industry watchers are warning that the popularity of the virtual world could provoke a backlash. Gartner Group analyst Steve Prentice said earlier this month that Second Life was "heading toward the peak of the hype cycle" and could face growing disillusionment some time this year.

SEARCHING FOR NEW SHOPPERS

In a market flooded with too many stores chasing too few dollars, retailers constantly struggle with ways to grab shoppers and stand out in the crowd.

While retailers have put millions of dollars behind their Web sites, they are realizing there are many more ways to reach out to potential shoppers, who may be elsewhere online.

Consumers are flocking to networking sites like MySpace and YouTube, while others sign on to virtual worlds like Second Life.

Similar to the original city-building game SimCity, Second Life is a virtual 3-D world where users create and dress up characters, buy property and interact with other players -- like a parallel universe that exists on the Internet.

More than a dozen companies have entered Second Life, including American Apparel, Sony BMG and IBM, which helped Sears and Circuit City build their virtual stores as part of its new focus on virtual worlds and 3-D Internet strategy.

"I think any retailer worth their salt wants to offer their products in the place and in the way that the consumer wants to buy it," said Danny Edsall, worldwide solution executive in merchandising and supply chain at IBM.

"In 1999, for those who actually had the vision, that was on the Web. In the year 2007, maybe that's in Second Life or another 3-D world," he said.

Up to $1.2 million in user-to-user transactions take place every day on Second Life, and its internal currency, the Linden dollar, can be converted into U.S. dollars through an open currency exchange, making it effectively "real" money.

Sears and Circuit City have set up basic showrooms in Second Life, where visitors can browse but not buy products.

The Sears showroom has a floor featuring its appliances, and clicking on one brings up a box describing the product or providing a link to Sears' Web site.

It hopes consumers will eventually be able to redesign areas of their own homes from the online showroom.

The real goal here is to introduce people to the brand and in doing so, increase people's level of awareness," said Paul Miller, senior vice president of direct commerce at Sears. "Does that translate into sales at some point? I think so."

CHALLENGES

But big-box retailers face challenges in these new worlds, especially from already established independent retailers.

A Second Life resident who uses the name Quentin Barnard said: "There's absolutely nothing wrong with commercial companies joining in the business side of SL (Second Life), but personally I prefer to support the individual sellers. I think there's a far greater spectrum of creativity to be had outside existing companies."

Barnard declined to give a real name, and that brings up another issue -- virtual life shoppers are under no obligation to be truthful about who they are. Women sign on as men, and men sign on as women.

"How do you decipher that, and do you allow yourself to start making decision based upon data that people are inputting?" said Beemer from America's Research Group, who is skeptical of how much retailers can learn in these virtual worlds.

Circuit City's Chief Information Officer Bill McCorey said its showroom lets it observe virtual world behavior and get feedback. He said it could be upgraded to let browsers purchase a virtual big screen TV with Linden dollars for use in their Second Life virtual home.

"One great thing about Second Life, much like retail in general, is we can visit other retail stores, gain ideas, test thing very quickly, get feedback very quickly," he said.

For Circuit City, the virtual store is virtually risk free, since McCorey said IBM has paid for the showroom. IBM declined to comment on the arrangement.

"Right now, for us, it's just a trial," McCorey said. "We're really just looking to see what lessons we can learn."

(Additional reporting by Adam Pasick in London)

© 2007 Reuters