Consumers around the world are moving to online retailing to buy consumer technology products and the move by JB Hi Fi to roll out a national online buying network will hurt arch competitor Harvey Norman whose Chairman came out swinging against the Internet this week.

Overseas consumer electronic stores like Best Buys and Circuit City in the US and Dixon’s in the UK are investing millions in online operations and the move by JB Hi Fi will not only build online sales but drive more traffic to their stores. It will also allow them to build a relationship with a consumer even before they have walked through the door of a store.

Overseas experiences reveal that consumers are researching online for product information and of those consumers who nominate to transact online but want to pick up the goods at a local CE store some 60% actually buy another product while in-store.

 The key advantage that JB Hi Fi has over Harvey Norman is that they own their own retail stores unlike Harvey Norman who operate a franchise model.  This has two distinct advantages. Firstly JB Hi Fi management can make a decision quickly about what happens in these stores and secondly they do not have to worry about any revenue or profit share with a franchise operator.

The Harvey Norman structure creates profit split problems as Tony Gattari a former Harvey Norman General Manager found out some years ago when he attempted to take Harvey Norman online to sell IT gear.

For example if Harvey Norman own the web site and a customer places an order from an area managed by a franchise who gets the sale from the online transaction Harvey Norman or the franchisee who has just lost an in-store sale to Gerry Harvey?

In an an interview with the Sydney Morning Herald Gerry Harvey, the chairman of Harvey Norman said that his retail group would not invest heavily in an e-commerce sales channel for many years, citing concerns about online profitability and “cultural” differences in shopping between Australian consumers and the e-retailing boom under way in North America and Europe.”I have been trying to get e-commerce running for 10 years and it’s never worked,” Mr Harvey told the Herald. “There is no growth in our sales on the internet. They’re the same as they were 10 years ago. We might do $30,000 a week and it’s not worth having. It’s a waste of time. The sort of products we sell in Australia people don’t want to buy on the internet.” he told them.

Another big advantage to a CE retailer  is that Australia is a big Country and neither JB Hi Fi or Harvey Norman are in every City as a result rural Australia is turning online to shop for goods that no one stocks in rural stores.

For example, in May 2007 the Digital Home web site which JB HI FI has just acquired from 4Square Media publishers of SmartHouse Magazine achieved 65% of their sales from rural Australia. Research showed that the majority of consumers who made a purchase either had no CE store to go to or they lived so far away from a major town that could support a low margin CE store that online was their best option for shopping.

For major retailers a good online site that is constantly being updated is critical to any retail operation. For example more women than ever before are online and in most cases they have time restraints. So, to be able to go online and research the availability of a product or services saves them time.

In December 07 more than 19.5 million people went through the Circuit City online store in the US this was a jump of some 20% on the year before according to Nielsen Net Ratings.  More than 23 million went through Best Buy.

A big problem for bricks and mortar retailers who have gone online is how to keep their store managers in stores supportive of the online operation.

At Best Buy more than 700 stores share in the credit for online sales transacted through online sales, Senior Vice President of online stores and marketing at Best Buy Sam Taylor said. When Best Buy executives informed store general managers about the expanded credit policy, “we got a standing ovation,” Taylor said. “That’s been the single most important thing to get channels working together.”

How it works is that each Best Buy store gets a scorecard that shows the extent of online sales credited to it from BestBuy.com, letting store managers see how well they’re performing in multi-channel sales.

Store allocations are based on a formula that includes postcodes of customers to associate them with their nearest Best Buy store. Key to the success of working out that formula was including store managers in the planning stage, Taylor said.
The credit-sharing policy has brought multiple benefits, Taylor told SmartHouse. Store managers have become more aware of the value of BestBuy.com and have initiated effective in-store merchandising programs using web analytics data gathered from Best Buy.com and segmented by types of shoppers.

When a Denver Best Buy store manager learned that shoppers within a customer segment who like Star Wars video games also tend to like games related to professional wrestling, the manager drove up store sales with a new end-cap display that cross-merchandised Star Wars and wrestling products. “The store got a 70% sell-through and boosted revenue from the promoted products by 198%,” Taylor said. “We’re now making that a best practice for other stores.”

The JB Hi Fi business model will allow the Company to implement this type of initiative far easier than Harvey Norman who are forced to negotiate margins and cost allocation with franchise operators of Harvey Norman stores.