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Future Synergistic Benefits: Where Clicks and Mortar Meet

Throw out the "early mover advantage" (EMA) buzz; there is a new concept and its ready to change the very idea and face of e-commerce. I like to call the new concept FSB, short for future synergistic benefits. This phenomenon will take place when traditional bricks and mortar companies are able to leverage their offline assets such as their customer base, buying power, and brand names, in order to compete and grow their onlineretail "channels."

The very idea that e-commerce could become just another distribution channel rather than a new paradigm for business, signals potential disaster for the pure plays of e-commerce like Amazon.com.

There are three essentials to becoming a successful online etailer: 1) a market presence, 2) fulfillment capabilities, and 3) quality customer service. Online, Amazon.com (AMZN) is racing to become the established-category leader. Offline, Wal-Mart (WMT) is already there.

Will the movement of successful bricks and mortar retailers to the web change the early mover advantage status of upstarts like Amazon? Investors can get a sneak preview by looking deeper into Wal-Mart's offline success. The question is whether or not Wal-Mart will be able to replicate the same services and success online.

Market Presence

Over 100 million people shop each week at Wal-Mart's stores making it the world's largest retailer with $139 billion in annual revenues. The company also has enormous buying power. In 1998, Wal-Mart spent roughly $110 billion on goods from over 91,000 suppliers in the U.S., giving it the ability to obtain products at a substantially lower cost than competitors who cannot command such volume discounts.

Another advantage: WMT's well-established brand name. Wal-Mart enjoys the global brand name and reputable image online e-commerce players are spending billions to establish. By "monetizing" its physical store customer eyeballs, through in-store signs and newspaper circulars, Wal-Mart will be able to leverage its well-established offline market presence to help promote their online enterprise at extremely low cost.

Fulfillment Capabilities

Being online should mean being direct. Early on, companies such as Amazon.com were considered unique because of their direct order system and lack of inventory. Unlike traditional retailers, etailers had no overhead! But the strategy hasn't worked: to retain its lead, Amazon.com has had to invest billions of dollars in distribution centers across the U.S. All of a sudden, etailers face the traditional retailer's dilemma: How much do I inventory for holiday sales? The answer to that question could spell profits, or massive losses.

Everyone knows Wal-Mart can manage inventory. The company is regarded as a leader in information technology and supply-chain management solutions. Some analysts suggest that the technology to make Wal-Mart a full-scale e-commerce success has been in place for years and the only thing missing was a simple web "face."

Indeed, Wal-Mart has made substantial efforts to tie in all of its suppliers worldwide and has given the suppliers the necessary integrated software for free. But can Wal-Mart convert its 1,821 discount stores, 650 SuperCenters, 453 Sam's Clubs in the United States and 850 stores overseas into effective web-consumer distribution centers?

Quality Customer Service

OK, on the web there's no opportunity for Wal-Mart's famous "give me a W, give me an A" chant or "ten-foot rule" where employees are required to speak to a customer within ten feet of them.

Online customer service for etailers means taking care of a consumers every need, whether it be answering a question, helping to find a product and/or streamlining the convenience and purchasing experience. Possibly the greatest advantage for click and mortar companies will be their ability to offer in-store pick-ups and returns. Same day pick-ups for things like books, groceries, and medication, have two consumer advantages: immediacy and cost savings. It is this very convenient, online, yet hands-on approach that could make Wal-Mart a big winner.

In Conclusion

Let's face it, Amazon.com has enjoyed the "early mover advantage". The company is spending close to $300 million per year in marketing to build its brand and the results have been stellar: In it's recent third quarter earnings call, Amazon.com reported quarterly revenues of $356 million, 2.4 million new customers (bringing gross customer accounts to 13.1 million) and -- perhaps most importantly -- acquisition costs dropped, all signs that the brand is building.

And, in an magnanimous holiday gesture, Wal-Mart has delayed its new full feature web site until early next year. Good news indeed for etailers, especially Amazon.com, which is expecting an explosive "e-Christmas."

But the delay might be a Trojan horse. Taking the time to analyze the game and shore up its resources may prove in the long to be Wal-Mart's wild card. The company should now be well positioned to leverage its offline resources, fulfillment capabilities and quality customer service in order to build a formidable online presence and distribution channel.

For e-tailers, the biggest fear is that Wal-Mart might just become the Wal-Mart of the Web!