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MAKING BRICKS AND CLICKS WORK TOGETHER

WILL EPICENTER COLLECTION’S GRAND PLAN TO MELD ONLINE AND IN-STORE SALES SUCCEED?

By Joel Groover

Just as retailers have striven to get a grip on Internet sales, some Internet merchants deem it imperative to open brick-and-mortar stores. But now developer Sheldon Gordon, who conceived such icons as Forum Shops at Caesars, in Las Vegas; The Pier at Caesars, in Atlantic City, N.J.; and Beverly (Calif.) Center, is about to make it easier for retailers to embrace the Internet and brick-and-mortar retail simultaneously.

Convergence is not just a buzzword for the media, technology and communications sectors, where once-separate devices are coming together in all-in-one gizmos like Apple’s new iPhone. The retail world, too, is experiencing blurred distinctions. Nordstrom, Macy’s and other brick-and-mortar chains will spend hundreds of millions over the next few years on bids to become top-notch Internet retailers. J. Jill began as an Internet-only retailer and then opened stores. Even online pure plays such as Amazon.com and gift retailer RedEnvelope.com have turned to catalogs and direct mail.

“The greater opportunities you give your consumer to be able to shop your brand, the more successful your brand is going to be,” said Stuart H. Kessler, partner and president of Clear Thinking Group, a Hillsborough, N.J.-based consulting firm. “You can’t be singularly focused; you’ve got to be multichannel.”

All channels are not created equal, however. Before Harry & David, Sharper Image and other catalog retailers could launch their brick-and-mortar operations, they had to brace themselves for the costs associated with signing leases, hiring store employees, designing and building in-store environments creating new inventory-control systems and the like. In short, they had to be willing to reinvent themselves as mainline retailers.

The Epicenter Collection, the new retail concept launched by Gordon, chairman of Greenwich, Conn.-based Gordon Group Holdings, aims to capitalize on this trend toward retail convergence by making it easier and cheaper for catalog and online merchants to move merchandise at the mall. If the concept catches on, Gordon says, it will give developers yet another option for handling vacant department store space. “The whole idea here is that we are creating living catalogs,” said the veteran developer. “The only difference is you can touch and feel the merchandise.”

The first Epicenter Collection is set to open in mid-2008 in the former Lord & Taylor store at General Growth Properties’ Christiana Mall, in Newark, Del. Epicenter Collection’s parent, Convergent Retail, plans to fill the 181,000-square-foot space with storefronts by about 60 catalog retailers, online merchants and others not normally found in malls. (Macy’s Group is leasing the space to Convergent Retail in exchange for a stake in the venture.)

These storefronts will be unusual, to say the least. They will have neither a sales staff nor any store inventory in the traditional sense. To buy an item on display, shoppers will simply scan using a handheld device called a SpreeGo. The retailer will ship the order later. “By just flashing this handheld device onto a piece of merchandise, it tells you all about that merchandise — the sizes, the ranges of color,” Gordon said. “You are virtually never out of stock, because the order is fulfilled out of the company’s central warehouse. It is exactly like shopping on your computer, except you can touch and feel and try on the merchandise if necessary. Someone will be there to answer your questions, but it obviates the need for you to get in line at a cash wrap or talk to a store employee.”

In their pitch to catalog and Internet retailers, Epicenter Collection’s founders emphasize the ways the concept can help them slash costs relative to the traditional brick-and-mortar model. Each storefront will operate essentially as a department store concession demarcated by partitions, says Gordon. At Christiana Mall, retailers will be able to take communal advantage of the former Lord & Taylor’s existing air conditioning, bathrooms and other infrastructure rather than pay for new systems. A few roving employees will take care of shoppers’ needs, so retailers will have no need to hire sales staff.

Epicenter also plans to sell an electronic systems package that enables retailers to put out their merchandise, plug in their electronic systems and open for business without having to develop such retail processes from scratch.

Among the biggest selling points is Epicenter’s promise to eliminate the headaches associated with old inventory, says Antony H. Lee, Convergent Retail’s CEO. Epicenter’s retailers will be able to stock up on select, hot-ticket items so that shoppers can scan a product label, get a receipt from a kiosk and leave the store with the product and receipt in hand. But much of the merchandise will be display-only, which saves an immense amount of space (and therefore rent dollars) and enables shoppers to see whole catalogs’ worth of goods at a glance. Markdowns will be a thing of the past for Epicenter brands, Lee says. “Retailers hate inventory because when you open a retail store, you fill it with inventory but you don’t know what people want to buy, you don’t know who is going to buy it, and you don’t know when they’re going to buy it,” he said. “It is this giant game of chance.”

The success of Epicenter Collection will depend on the synergy of the retailer mix the concept can woo to Christiana Mall, says Sucharita Mulpuru, a senior analyst at Boston-based Forrester Research, an independent technology and market research firm.

Lee described retailer response to the idea as “overwhelming” but declined to name any specific retailers Epicenter Collection has either targeted or signed. “We’re in discussions with about 100 tenants right now,” he said. “They’re all the names you would expect from the catalog world, the e-commerce world and from the world of brands.” The goal is not to sign tenants willy-nilly, but to create a magnetic mix, in part by making sure that most of the retailers will have been hitherto unavailable in malls, Lee says.

Execution, too, will be key, says Mulpuru. “A lot of the pure plays are not necessarily known for being great merchants. They’re just great executers of online delivery or of providing mass selection,” she said. “Store merchandising is about visual merchandising. It is about seducing a person once they come into a store. Online is more about functionality, so it will be interesting to see how some of these retailers are able to translate their skills into another channel.”

Within their own channel, online retailers clearly have sharpened their skills enough to score a big hit with consumers. Total online sales are expected to hit $259 billion this year, according to a Mulpuru report released in May and titled The State of Online Retailing 2007. Last year, for the first time in the history of e-commerce, online shoppers in the U.S. spent more on clothing than on computers as sales in the apparel, accessories and footwear category climbed to $18.3 billion. That is expected to reach $22.1 billion this year, with 10 percent of all clothing sales occurring online.

Lee sees this fierce competition as being good news for Epicenter Collection, which says it hopes to open about 100 stores in the coming years if the Christiana Mall unit succeeds. (The mall, anchored by Macy’s and JCPenney, with a two-level Nordstrom set to open in 2011, will soon undergo a renovation and expansion with 200,000 square feet of specialty retailers and restaurants.)

“There is tremendous price competition in the e-tail segment, and marketing is very expensive,” Lee said. “[Online retailers] are saying, ‘OK, we have to grow, and we know that multichannel consumers spend more than single-channel consumers. [Brick-and-mortar] retail is where 94 percent of all dollars are spent anyway, so how do we get into that channel cost-effectively and without very onerous lease obligations?’ ”

But Epicenter isn’t just targeting catalog and Internet companies. Gordon says there may be a place within the retailer mix for certain big-box stores and other conventional plays. An inventory-free approach would allow some of these chains to get into new markets with a minimal investment, Gordon says. “We just had a meeting with a very well-known big-box tenant,” he said. “The idea here is a big box that uses 35,000 or 40,000 square feet of space, by displaying just one of each item, could take their entire inventory and put it in 6,000 or 7,000 square feet and afford to come into a mall, where they are no longer a pure destination that people have to drive to separately,” Gordon said.

“In the mall in which we’re opening the first Epicenter, they could put all their merchandise in front of 20 million pairs of eyes. And so we’ve given the big-box user the holy grail: impulse purchasing, which they don’t have sitting out in the parking lot.”

Convergence is now the buzzword in retail, with big boxes becoming small boxes and e-tailers moving into the mall. Now Gordon is waiting to see if consumers converge on Epicenter Collection.