FUTURE RETAILING MUST ENTERTAIN

DAN ALAIMO

UNIVERSAL CITY, Calif. -- The growth of the Internet is forcing retailers to add entertainment to their customers' shopping experience, said media analyst and consultant Michael J. Wolf, senior partner, Media & Entertainment Practice, Booz-Allen & Hamilton, New York, speaking at the EPM Entertainment Marketing Conference here last month.

"Shopping is going to be much, much more about something to do than something to buy," he said.

Because of the practice on Internet sites of providing some entertaining content along with a marketing pitch, consumers have come to expect free entertainment on the Web and in retail stores. Paraphrasing the old show tune, Wolf said, "There's no business today without show business." Describing the phenomenon as "entertainmentization," Wolf estimated the total volume of all businesses involved in entertainment in even a peripheral way, such as Stew Leonard's, the Virgin Megastores, themed restaurants and shopping malls, to be $1 trillion.

"The influence of entertainment has spread and it is transforming nearly every consumer business. You are competing in an environment where nearly everybody is in the entertainment business," he said. For example, in New York City today more people are employed in entertainment-related businesses -- using Wolf's loose definition -- than in financial services. Also, the fastest growing economy in the world is that of Las Vegas, which is based on entertainment, he pointed out.

While technology has brought many consumers to the Internet and television, and created an "endless appetite" for entertainment, people still want to get out of the house, he said. "There are many more out-of-home experiences. Shopping has become an entertainment experience unto itself," he said. Admissions to theatrical movie theaters are up, as well, he noted.

"People go out to shop, but the shopping experience is more important today than the merchandise and the prices," Wolf said.

Consumer spending on entertainment, as a percentage of income, is on the rise, Wolf said "People are spending a higher percentage of their income today on entertainment than they are spending on medical care, housing or household goods." They also are spending more time on it. "We've become a nation of fun-focused consumers," he said.

Because of this, the line between selling products and giving away free entertainment content is blurring. For instance, on the Pepsi-Cola Web site, people can download video and music, while getting concert information, he said. Other examples are Internet sites of 1-800-FLOWERS and Joe Boxer. "These companies are becoming entertainment companies and they are providing competition for valuable consumer time, as well as providing things for the consumer entertainment dollar," Wolf said.

"Consumers have more choices than they ever did before. They also have the ability (through the Internet) to influence their environment," he said.

Wolf also addressed the impending shake-out of Internet merchants, which he said "is going to be quite extensive." Many of these companies are spending so heavily on advertising and inventory during this Christmas selling season that they will either succeed or fail. "They are losing money on practically every sale and they are not making it up on volume," he said.

However, because so many of the founders of these Internet companies have amassed large fortunes through stock offerings, he expects more of them to cut their losses and merge than go out of business. "We will see a huge amount of merger activity right after the Christmas season is over, although there are some that will just go away," he said.

All of this marketing and entertainment activity is leading to "an environment of media gridlock," he said. "There are going to be more and more entertainment options, more information options, more competition for people's attention. This continued battle for the consumers' entertainment spending is going to get to be a very dirty battle. There are going to be some huge war chests that will be spent and even if the new competitors don't create a viable business, that does not necessarily mean they won't hurt other traditional businesses. They may go out of business, but the damage will have been done," Wolf said.