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Shop.org goes traditional
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May 7, 2001: 3:36 p.m. ET
Online trade group's members elect brick and mortar retailers to 2001 board
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Internet retail trade Group Shop.org elected a new board of directors Monday. But most of the new board members work for familiar names like Target, Bloomingdale's and J.C. Penney.
That representatives of traditional retailers make up the majority of board members in an online trade association reflects a new understanding -- survival for Web retailers means partnering with a "brick and mortar" company.
"It is representative of the industry at large," Shop.org Chairman and co-founder Elaine Rubin said. "About 12-to-18 months ago, there was this common belief amongst retailers that in order to have longevity and a long-standing business, we all need to be considering multi-channel operations. This is what consumers are going to demand of us."
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 THE SHIFT IN
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Ten of Online retail trade group Shop.org's 11 new board of directors members work for traditional "brick and mortar" retailers. Last year, five of 12 board members came from traditional retail. The change is the latest sign of the burst tech bubble.
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There were 12 retail members on Shop.org's board of directors a year ago. Two others were associates, including Rubin. Of the 12, five were traditional retailers.
This year, all but one of the organization's 11 retail board members is a traditional bricks-and-mortar company. Fashionmall.com is the lone pure-play holdout.
New members are Neiman Marcus online, Target.com, Bloomingdales.com, JCPenney.com, Eddie Bauer Interactive Media, Williams-Sonoma, Toysrus.com, EsteeeLauder.com, L'Art de Vivre, and Hallmark.com.
The burst tech bubble made many e-commerce companies realize that trying to turn a profit on razor-thin margins was not a viable business model. Last week, the government reported U.S. companies slashed 166,000 jobs, most from the technology sector, representing the third straight month of 100,000-plus job cuts.
The tech-heavy Nasdaq, though it has been rebounding, is down roughly 40 percent in May from a year earlier.
"This has been a trend for some time. Pure plays have been going by the wayside for some time as those with a physical presence or catalog operations leverage the Internet for acquiring and retaining customer," said Alan Alper, an analyst with e-commerce research firm Gomez Inc. "Pure plays are the pioneers that ended up with the arrows in their backs."
Shop.org saw its membership shrink by more than 100 as one after another of its member dot.com companies either folded, or were bought out, Rubin said. The loss is what prompted the organization's merger in January with the National Retail Federation, retailing's main trade group.
"Our merging with the NRF is indicative of the times too," Rubin said. "We actually were negotiating this agreement with NRF 12 to 18 months ago. We realized that the world was converging, and in order for Shop.org to remain powerful and lucrative, we were looking for a more traditional partner as well."
Just another sign of the times
Rubin helped found Shop.org in 1996, just as the buzz over online retailing was heating up and super-confident entrepreneurs armed with loads of venture capital financing and an Internet domain name were positive the days of traditional retailing were over.
Turns out they were half right.
Internet retailing has transformed the way many consumers shop for gifts, clothing, books, electronics and other items. In fact, a Boston Consulting Group survey conducted last week for Shop.org indicates online sales jumped 66 percent in 2000 and are expected to grow 46 percent in 2001.
But the high cost of marketing and advertising swallowed most of that revenue up, leaving many "pure-play" retailers with little or no profit. In addition, suppliers were reluctant to offer such untried retailers the same favored prices it charges established chains such as Wal-Mart Stores Inc.
As their venture capital dried up, investors were reluctant to continue funding them and many went bankrupt.
Among the best-known examples of these are etoys.com, Pets.com, and Garden.com.
Within the last year, partnerships between Web and traditional retailers have grown. Most notably, Amazon.com Inc. (AMZN: down $0.64 to $16.92, Research, Estimates) has entered two agreements with toy retailer Toysrus.com (TOY: up $1.37 to $27.51, Research, Estimates) and book retailer Borders.com (BGP: down $0.13 to $19.17, Research, Estimates).
Traditional retailers have learned to better leverage their own established brands and to take full advantage of their existing supply and inventory systems.
"They learned that there's synergy between the two," Alper said. "They learned you don't have to spin off a dot.com. You always want a shared back end."
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Rubin believes partnerships between traditional and pure play retailers will become more common in the near future as Web retailers look for ways to cut costs and traditional retailers look for the expertise in e-commerce.
"You're going to see many more partnerships, and for a number of different reasons," Rubin said. "The underlying reason is that we're getting smarter and more competitive." 
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