From the September 2001 issue of Entrepreneur

In the traditional realm of business, you open a retail store first and then eventually launch a Web site. But now that we've experienced the dotcom revolution-and counter-revolution-many of the surviving dotcoms that skipped that first step are starting to realize the benefits that come from opening a brick-and-mortar location.

For some, branching out at the right time offered the chance to extend their life spans. "We realized very early that we could not exist purely as a dotcom," says Sal Perisano, 50-year-old co-founder, chair and CEO of iParty Corp., a publicly traded retailer of party supplies. "We knew we needed some terrestrial link, some other reality other than a virtual company, to bolster what we were doing."


50%
of fast growing tech firms have aquired at least one company.
Price Waterhouse Coopers

So last year the Boston company, which started out as a pure-play venture called iParty.com, moved to correct the situation: It purchased 33 Northeastern physical retail stores from the bankrupt Big Party chain, transforming itself into a multichannel retailer with retail stores, an Internet store and a printed catalog.

Smart decision: iParty is now celebrating success. During the fourth quarter of last year, the retail stores it acquired during the third quarter made sales of $18.6 million. Online division sales totaled $395,000-a 194 percent increase over the fourth quarter of 1999.

Multiple Channels

Among the reasons for a dotcom to open a physical store, one in particular stands out: It gives your customers more chances to interact with you.

"Ultimately, the more points of presence and the more distribution channels you have, the better chance you have to play an important role in a consumer's purchasing behavior," says Elaine Rubin, executive director and chair of Shop.org, a trade association for Internet retailers.

Moreover, having multiple channels increases your chances of obtaining loyal customers-something most pure-play dotcoms fail to establish. According to Rubin, "Customers who are engaged with a retailer in more than one channel usually have greater average sales and greater customer loyalty to that particular retailer."

Another plus: Having physical stores gives dotcom retailers a greater opportunity to acquire new customers. "One of the biggest challenges dotcom companies have is capturing or acquiring customers at a reasonable cost," says Chris Merritt, a principal at the Atlanta office of New York City-based retail consulting firm Kurt Salmon Associates. "Owning a store, however, offers a natural traffic flow into and out of the store, which allows an entrepreneur to gather names and begin direct-to-consumer marketing programs, advertising [either] the site or the store."

Perisano agrees. "The cost of acquiring customers online is going to make any pure-play business model extremely difficult, if not impossible," he says . "It's always easier to drive people to your Web site if you already have stores."

Physical stores also give your customers a more convenient way to return goods and try out products-two options analysts say are sorely missing from Net stores.

Getting Physical?

Of course, opening a retail store-or buying an existing one-brings significant challenges to someone who only has experience starting a Web site. "There are significant differences between running a store-based business and running an online business," says Rubin. "Staffing, customer service, inventory issues, real estate, leases-all these things could be fairly foreign to [a netpreneur who's] absolutely great at creating an incredible customer experience online."

Not to mention, opening a retail store is an expensive proposition. "You can spend, on average, $800,000 to open one store," says Merritt. "You have to pay for employees, the property and the inventory you put into the store-those are the three big buckets of cost."

For those of you who lack the funding needed to open a retail store right now, try renting a kiosk in a local shopping mall. You can even feature Internet terminals allowing customers to interact electronically with your Web site.


35%
higher than estimated: the ROI from online ad campaigns, measuring branding value instead of click-rate metrics
Jupiter Media Metrix

"Kiosks have short-term leases, and they're not as expensive as a retail store to launch, but they allow you the opportunity to get your brand out there," says Merritt. "Kiosks also allow you the ability to measure demand and see whether or not consumers are interested in shopping with you. This information can drive your decision about whether or not you should open a store."

If you do want to set up shop, you should do whatever you can to learn about launching and running a traditional retail business before you do so. Get help from people who have experience operating brick-and-mortar establishments, for example.

Of course, if you already have physical retail experience, you probably have greater chances for success. Perisano, for instance, had established a background in retail prior to launching iParty Corp. In fact, he actually started Big Party, left the company-which later went bankrupt-and then bought the stores back.

Your best bet is to determine ahead of time whether a multichannel strategy is a good move for your dotcom. Because the dotcom-only model hasn't done too well, Perisano says multichannel is the way to go: "Anyone who has just a Web site, that wants to make a business out of it, needs to connect it to a retail reality. Anyone that has a business plan with a goal of e-commerce needs to augment that business plan with a retail reality. Unless you do that, you're not going to succeed."


Melissa Campanelli is a marketing and technology writer in Brooklyn, New York.