By Leslie Walker
Washington Post Staff Writer
Thursday, October 21, 1999; Page E01
I can't pinpoint exactly when, but at some point during the "e-retailing '99" convention this week I sensed the Internet universe entering a new era, one in which Dot-Com stars seem less twinkly and far away, and more a part of ordinary life on earth.
The 1,700 attendees--nearly five times last year's turnout--included many traditional retailers who were suddenly commanding new respect from their Web-only rivals. Both talked of their need to form alliances and tap each other's expertise in order to survive in a world where stores are accessible from the Internet and the Internet is accessible from inside stores.
Maybe it was hearing the president of J.Crew's e-commerce division say his company dropped the ".com" from its Web name last week. "We decided Jcrew.com was an address; J.Crew is the brand," Scott Gilbertson explained. (I'm sure he knows the buses are still carrying "Jcrew.com" in big bold letters all over Manhattan.)
That was one day after BarnesandNoble.com chief executive Jonathan Bulkeley championed the "clicks-and-mortar" philosophy that has become the mantra of electronic retailing. The ability to reach out and touch customers both in and out of cyberspace, the theory goes, will make or break future retailers. Bulkeley proudly described how over the next six weeks, Barnes & Noble stores will distribute 9 million bags with discount coupons inviting customers to shop at BN.com. Others talked of piping ads for their Web sites over in-store speakers and allowing people to return merchandise purchased online to stores.
I got a jolt of the new attitude when the founder of toy e-tailer BrainPlay.com described his reason for marrying KB Toys rather than pursuing a public stock offering. "This was driven by a fundamental belief that pure-play e-commerce is passe," said Srikant Srinivasan, chief executive of KBKids.com, the joint venture the two firms launched in July.
Equally startling was hearing Egghead.com's leader say what the future might hold after his company merges with Internet competitor OnSale next month. It is "not implausible," said chief executive George Orban, that the company that closed all its retail software stores nearly two years ago could wind up taking a bricks-and-mortar partner: "I personally believe the biggest threat to online companies is from more traditional companies."
The notion of Egghead coming full circle to bricks and mortar helped me see how fast and furious the relationship is evolving between Internet companies and bricks-and-mortar retailers. Rivalry is yielding to alliances that seem to be accelerating with the approach of the all-important holiday season.
Behind the new partnerships is a tacit admission that most old-line retailers can't cope in cyberspace alone because they move too slowly and their executives don't understand Internet technology. At the same time, Internet start-ups are acknowledging the value of big retailers' high-volume buying power, brand-name recognition and distribution facilities.
A stunning number are doing the mating dance. FAO Schwarz inked a deal with FamilyWonder.com, and PETsMart formed a 50/50 joint venture with a tiny Idealab Web start-up. Sony and Time Warner invested in Internet music store CDNow, planning to merge it with Columbia House. Web electronics seller Cyberian Outpost and offline Tweeter Home Entertainment Group recently agreed to let Outpost.com customers return purchases to Tweeter stores.
And in a move signaling a new kind of hybrid company, three offline players (Neiman Marcus, Williams-Sonoma and Crate & Barrel) teamed with Amazon.com last month to invest in online start-up Della & James. Founded by students at Stanford Business School last year, it collects gift registries from big-brand retailers at a single Web site.
At the same time, the venture capitalists who have been bankrolling Internet start-ups are extending financial lifelines to traditional companies. In the past month, Benchmark Capital helped Nordstrom start a Web shoe store and said it will help Procter & Gamble create an Internet-only brand of custom-made women's products. Benchmark also invested in ToysRUs.com, only to see that partnership crash last summer over how much control the retailing parent would surrender to its Web division.
This week, a new Internet incubator opened whose sole mission is to help traditional companies create their own Web commerce operations. Called Online Retail Partners, the firm has raised $62 million to help brick-and-mortar companies create Dot-Coms by providing them with shared technology expertise. The incubator will soon launch a Web store for children's toy retailer Zainy Brainy.
Online Retail Partners wants to help bricks-and-mortar companies participate in the stock market riches that Internet start-ups are enjoying by pushing them to do what seemingly contradicts the partnership trend--"spin out" their Internet divisions into stand-alone public companies. Nordstrom and Barnes & Noble are two high-profile retailers that have let their Dot-Coms loose on Wall Street. More will follow.
Still, some bricks-and-mortar companies do not cotton to the idea of setting their Web children free, especially if it means losing voting control--a demand many venture capitalists make. Skeptics question whether the spin-off's advantages--giving the Internet operation more money, speed and independence--are worth the price of cutting out what could become the heart that keeps the parent company alive in an Internet-everywhere world.
While Bulkeley doubted he could compete without his BN.com Internet stock currency, Gilbertson said J.Crew opposes a spin-off: "It doesn't make sense to us. We are a multi-channel retailer." Because the Internet's power for retailers lies in customer data collection, he contended the best merchants will need to control all their channels to integrate data about how the same people shop in stores, catalogues and Internet sites. As traditional companies agonize over this spinoff issue, some fear they are choosing between KillYourselfNow.com or KillYourselfLater.com.
But Egghead's remarkable transformation makes me think that for Web start-ups and big business alike, there will be many surprising rebirths and inevitable deaths along their cyberspace journeys. The Dot-Com way of doing business eventually will be so pervasive that every business will be a ".com" and the phrase--as J. Crew decided--won't have the same cachet.
© 1999 The Washington Post Company