SURVEY OF INTERNATIONAL TELECOMMUNICATIONS (24) - EARLY DAYS FOR RETAILERS.
(c) 1995 Financial Times Limited. All Rights Reserved
With too much browsing, not enough buying, poor security and technical hitches, virtual shopping on the Internet is still a non-event - Virtual shopping - Downtown on the Internet is a little dull, reports Monica Horten.
If you walk into Toys R Us, you expect to see toys. An obvious statement, surely. Yet if you were one of the many visitors to the store's Internet outlet in recent months, you would have been disappointed - only a small selection of computer games and CD-Roms, but no cuddly bears and train sets. And, as likely as not, you left without buying.
Not to pick unfairly on one store, one can find many other similar examples on an Internet shopping expedition. There are some 30 virtual shopping malls listed on the Internet, each of which has a number of stores attached to it. I looked at several at random. I found that with a couple of notable exceptions, they had a meagre selection of goods in their virtual displays. Take Hammacher Schlemmer, a well-established US-retailer specialising in unusual gift items. Its Internet store contains a mere 18 items. But somewhere in the on-line small print, we learn that there are 'hundreds' of items in its stores and in its conventional mail-order catalogue. The reason is that retailers worldwide are still learning when it comes to online shopping. They are struggling to work out what their customers want from an on-line service, as well as how they can best deliver it, given the constraints of today's telephone technology.
The Hammacher Schlemmer virtual store is located on the Internet Shopping Network: a third-party company based in Menlo Park, California and a subsidiary of the large US retail group Home Shopping Network.
The Toys R Us on-line store is located on BarclaySquare, co-ordinated by Barclays bank in the UK. BarclaySquare was set up as a way for the bank and UK retailers to begin to get to grips with on-line opportunities. According to Roger Alexander, managing director of Barclays' emerging markets unit, more than 160,000 people have browsed its stores, although actual sales numbers are closely guarded.
Simon Hochhauser, chairman of start-up on-line services company Video Networks, is more outspoken: 'If you look at examples of Internet shopping, it is a common complaint that people browse but they don't actually buy anything.'
The first issue faced by retailers is a technical one. Many stores illustrate their on-line offerings creatively - usually their logo, a colour picture of the product and other graphic images to jazz-up the virtual store.
For the customer, downloading all that over an ordinary telephone line on to an average PC takes time: an entire store catalogue would take days, if not months. So the retailers have been selective in the number of goods offered, and in doing so they have created an effect that is rather like walking into a near-empty store in the former Eastern bloc.
One view emerging in the industry is that it is better to offer a larger range at the expense of on-line visuals. This may work well where the product is already well-known, and customers just want a simple way to order. The main attraction of the Internet Shopping Network is a catalogue of 25,000 computer products.
On BarclaySquare, Blackwell's bookstore has put its entire catalogue of some 130,000 books on offer. However, it has compromised on graphics and on information. One is simply searching a catalogue, with no background available on any of the titles. The result is visually boring, but it has proved a little more successful than the selective approach.
Others take the view that the impersonal nature of online shopping may be the reason for the small numbers of purchases. Hochhauser points to the lack of 'selling pressure'. When a customer walks into a real-life store, there are a number of tactics used by the store to try to make that customer buy. When one goes shopping on-line, there is no personal contact, and no means for the retailer to exert any pressure on the customer to buy.
Video Networks is working on ways to introduce sales pressure into an on-line shopping environment. Possibilities include the back-up of real sales people who could talk to the customer over the same phone link as the on-line store. The company will put its ideas into a commercial environment with an on-line shopping service in Hull, set up jointly with the local phone company, Kingston Communications, and retail groups.
But even when purchases do increase in volume, the retailers' conundrum will not end. Security is a problem they are only just beginning to address, as is distribution to a potentially global market.
The Internet today is not sufficiently secure for the handling of financial transactions. And, in the on-line environment, there is no guarantee that either the vendor or the buyer is genuine.
The on-line retailers are clear about the physical security when they ask for payment - a message appears on screen, informing the customer the transaction may not be secure and that they may wish to use an alternative, such as conventional telephone.
An assurance that the other party is bona fide may, according to Mr Alexander, be provided in future by a trusted third party. The third party organisation would control both sides of the transaction, and be responsible for all the necessary credit checks.
The Internet Shopping Network is an early example. Customers must sign up as 'members' and give a credit card number before being allowed to buy from any of its stores. When they make their purchase, they are warned that memberships will be checked and those which give a 'bad address' will be cancelled. Barclays is also positioning itself for this third-party role in the longer term.
Serving a global customer base will pose an even greater challenge. According to Mr Alexander, the telecom facilities are in place to offer the retailer a potential worldwide market, but commercial reality means it will not happen so fast - 'BarclaySquare is open to people worldwide. They have to take a decision if they wish to make their goods available in other countries. And in doing so, they have to consider the tax implications as well as distribution.'