HOME SHOPPING CHANNELS

CHRIS O'LEARY

Unfazed that home shopping has not yet delivered the goods in terms of sales, retailers continue to invest money and energy to find the right formula.

The strategies vary widely and shift continually, but trends taking shape now may foretell what tomorrow's home shopping economic model might look like. Retailers have tracked patterns in home shopping orders to learn more about what customers want, and experimentation is centering around three key areas:

Perishable Power: Produce and meats top home shoppers' lists, despite conventional wisdom to the contrary, and retailers are expanding their offering and taking pains to ensure freshness upon delivery.

Less Is More: Efficient assortment turns out to be as important, if not more important, in the home shopping arena as it is for store shelves. Retailers are taking cues from their counterparts in gourmet food gifting with an emphasis on high-margin items.

Turning Up the Technology: Computer-centric affluent shoppers are receptive to new technologies, so retailers are quickly adding a computer-ordering function while exploring compact disk-based systems as well as ordering over the Internet.

"We're surprised at how high a percentage of users are pulling up our home shopping program through the Internet," said Dale Riley, president and chief operating officer at Byerly's, Edina, Minn. "It's about 30% of the orders."

"I would predict the largest percentage of users for home shopping will eventually be through the Internet," he added.

Shaw's Supermarkets, East Bridgewater, Mass., launched home shopping earlier this year and the computer-ordering component has allowed it to capture new customers in Boston, where the chain has no stores.

The chain has a World Wide Web site that users can log on to and download home shopping software, which is also available on diskette. About 20% of Shaw's home shoppers order groceries by computer.

"We've found that 40% of our [shop-at-home] customers are new customers who have probably never been in a Shaw's," said Bernard Rogan, a spokesman. "They're obviously using it as a convenience.

"We have no stores in the city of Boston or its immediate environs," he added. "But our stores virtually ring Boston and are utilized now as order-fulfillment stores. Each one has a [delivery] radius of 10 to 15 miles, which encompasses new marketing turf for us."

Since it began offering home shopping in 44 of its stores this January, the retailer has seen solid results in both sales and customers. "We're achieving our goals ahead of schedule," Rogan said, adding that the average purchase is about $100.

"If we can assume the industry average [in-store purchase] is around $25, our home shopping average is almost four times that," he said. "We didn't envision it being achieved this early."

Other better-than-expected results are presenting themselves in the area of perishables. The category was initially viewed as a potential liability to home shopping because pundits believed shoppers wanted to select their own meat and produce. However, perishables are now seen as a driver and retailers are responding in kind.

Jewel Food Stores, Melrose Park, Ill., and Byerly's, for example, are tracking healthy sales in perishables. Wade's Supermarkets, Christiansburg, Va., expects similar results when it makes home shopping available over the Internet in the next few months.

"I see people ordering primarily perishables through home shopping, contrary to popular wisdom," said David McIntyre, director of retail technology, Wade's. "When you look at your total store mix, a large percentage of your mix is in perishable items or direct-store-delivery items -- items subject to rapid and repeated consumption."

Riley at Byerly's said perishables are at the top of home shoppers' lists because the chain has a well-established reputation for product quality and freshness.

"People have come to trust our name in the Twin Cities, and they trust us to select their perishables," he said. "It's a bit like when our grandparents used to shop; they trusted their local merchants."

The vote of confidence for perishables is not unanimous, however. One industry observer said home-delivery services may actually discourage shoppers from buying perishables. He said shoppers may be inclined to buy low-margin dry goods in bulk via computer and do their higher-margin purchasing elsewhere.

Retailers are struggling with the question of which items to offer and what mix of low-margin and high-margin products is best for home shopping and delivery.

For one major retailer, which is now planning an Internet-based home shopping program, creating a virtual store may allow it to stack the deck in favor of high-margin or heavy rotation items.

"If you can build your grocery store on the Internet, which is relatively cheap, you don't have to offer 45,000 items," the retailer said. "You can offer 5,000 or 6,000 items that have gross profit in them.

"If a customer wants products delivered to their house professionally, those products are going to be items that we make 25% to 28% gross profit on," he said. "For us to sit there and offer generic green beans, on which we're losing 2%, is the wrong way to go about it."

The retailer suggested one possible strategy is to charge vendors of slow-moving or unprofitable items for being included in its home shopping service.

Wade's McIntyre said the successful home shopping program will have to leverage such opportunities to keep the cost of operations as low as possible.

"It costs money to take the orders, pick the orders, make sure they're available at the right time and guarantee exemplary service," he said.

Independent Grocers Alliance, Chicago, contends that its home shopping program, which will be piloted this year, will enable its independent retail members to level the competitive playing field against stronger chains.

"We know more and more people are going to want this option," said Kevin Burkum, director of communications. "Commerce on the Internet is a reality."