Retailers Flocked to Internet, But Where Were Shoppers?

Christmas sales slowed by fuzzy graphics, concerns about security

THIS holiday season, retailers hit the Internet, hawking everything from specialty cheesecakes and women's wallets to books and records.

But despite all the hype about the global computer network - and apparently slow sales by traditional retail channels this Christmas - consumers did not flock to the "virtual malls" of cyberspace. And they probably won't next year, either, marketing analysts predict.

"They are not perceiving a clear benefit to shopping on-line yet," says Karen Burka, analyst with SIMBA Information Inc, a Wilton, Conn., firm that tracks sales on the Internet and other on-line services.

Cyberspace retailing isn't taking off because of consumer concerns about security and technological limitations. Analysts predict it will take at least two years to sort out these issues. So annual on-line sales aren't expected to top $1 billion until 1998 - still a blip in the $2.2 trillion retailing industry in the United States.

For the most part, retailers don't seem to mind the delay. "We don't have any perceptions that it's an overnight process," says Stuart Spiegel, vice president and general manager of QVC's new interactive shopping service, called iQVC. "You'll see some serious business in five years."

In the meantime, retailers are learning the sometimes surprising rules for how to sell in cyberspace. For example:

*Ignore women; sell to men. Although more women buy from catalogs, the Internet and other on-line services are for now a male domain. So the mainstays of catalog shopping - such as clothing and fashion accessories - usually don't sell well in cyberspace. Computer software, electronics, and gadgets do.

*Stock small items, the things people currently buy sight unseen. There's "a resistance to real high price points," says Emily Green, senior analyst with Forrester Research Inc., a technology forecaster in Cambridge, Mass. Consumers tend to buy less-expensive items - flowers, books, and compact discs - that they're used to ordering over the phone.

*You can't sell plaid on-line. Today's computer screens are just too fuzzy to make some things, especially clothes, look good on-line. And it takes too long for today's modems to download photos that even approximate the quality of a color catalog. "The experience of on-line shopping is poor," explains Ms. Green. "Low speed translates to low interest in the shopping space."

Besides technological hurdles, the biggest obstacle to Internet shopping is security. Consumers are leery about giving their credit-card numbers on-line. "That is absolutely the No. 1 concern everybody has on the Internet," says David Harris, president of the Internet systems division of SBT Corporation, a publisher of electronic business applications in San Rafael, Calif.

Until the industry develops a secure, widely used method of transferring payments, on-line retailers have to find other ways to collect money. Some are avoiding the Internet in favor of more secure, though smaller, on-line services run by the likes of CompuServe and America Online. Other retailers register their users so that their credit-card information never goes over the Internet.

"A lot of consumers prefer to have that membership number," says Laura Plevyak, spokeswoman for CUC International Inc., based in Stamford, Conn. The company, which sells annual memberships to its Shoppers Advantage buying club, collects all the credit-card information off-line so that members only need to send their membership number.

In the long term, analysts are bullish about on-line shopping. By 1998, they expect marketeers will have adequately addressed the limitations they're bumping up against today. They also expect the audience to have broadened beyond today's upscale males. (CompuServe users have an average household income of $92,000, according to SIMBA.)

There are signs of change in the gender balance. While at least 8 out of 10 on-line users are believed to be male, 4 out of 10 users of the Prodigy on-line service are female. QVC, better known for its home-shopping television program, reports a healthy balance of men and women on the interactive service it launched Dec. 9 on the Microsoft Network.

Another sign: While many upscale retailers have failed to attract a following on-line, discount-minded CUC registered a 50 percent increase in annual on-line sales this year.

And after five years with on-line membership stuck at about 100,000, the company saw membership almost double this year. That's still small for a club with 3 million members, most of whom shop via the club's toll-free telephone service.

"Sometimes we call [phone shopping] our interim business," says Ms. Plevyak of CUC. On-line shoppers work with the same database that the company's telephone operators use without incurring the extra operating costs. "Eventually, you're going to see a lot more consumers being interested in this way of shopping," Plevyak predicts.

The prospect of discount marketeers in cyberspace scares some retailers, says Green of Forrester. On-line, "it might be the case that the only way to sell effectively is to sell at rock bottom."

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