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Online Merchants Advised to Expand to Real World

Internet retailers should consider opening real world stores to market their products and attract customers, a venture capitalist said in a recent Bloomberg Forum interview.

Arno Penzias, a venture capitalist with New Enterprise Associates, acknowledged the efficiencies of the Internet, but said those advantages are generally offset by other challenges unique to online businesses. Relatively unknown Internet merchants must spend heavily on marketing and developing their sites while facing stiff price competition.

"It will be more and more of a mistake to trash bricks-and-mortar and say that Internet-only retailers have some kind of sustainable economic advantage," said Penzias, former chief scientist with Lucent Technologies Inc. "Just sticking to raw e-commerce in the long run is likely to lead to very, very low margins because this really is about consumer empowerment."

Penzias, who won the Nobel Prize for physics in 1978, points to Charles Schwab Corp., the largest discount and online brokerage firm, as a company that has successfully integrated its online and traditional operations.

"When Charles Schwab opens a store in an area, their Internet business in that area goes up," Penzias said. "The successful business will be somebody who can offer a multiplicity of channels to serve the entire market."



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