Braving the Waters of Cross-Channel Marketing

Rei Launches japan.rei.com

Matt Hyde, vice president of online sales for REI

The Japan Direct Marketing Association's current report shows negative growth in catalog sales, with direct sales estimated at ¥2.18 trillion (down 0.9%). By contrast, sales on the Internet doubled to ¥40 billion. A report in the Nihon Keizai Shimbun noted, "According to (JDMA) association officials, catalog sales are stagnant because many of the firms offer similar products. Exploring new marketing methods such as the Internet is crucial, officials said."

Mail-order catalogs, particularly from foreign retailers, have been the great equalizer for Japanese shoppers hungry for new products. But the trickle that began in the late '80s is now a deluge of imported and domestic printed matter. Retailers like REI are betting that what Japanese consumers want now is something that will put a little snap, crackle, and pop back in their arm-chair shopping experience. What they want is the cyber-shopping buzz of the Internet.

REI is a serious sports retailer. This privately held company was founded in 1938 by a group of Pacific Northwest mountaineers who turned it into a leading retailer of outdoor gear and clothing for climbing, camping, bicycling, paddling, and winter sports. The company is a role model for successful cross-channel marketing. In the U.S. their business encompasses: REI retail stores (including the flagship 80,000-square-foot property in Seattle complete with 65-foot climbing crag, rain room to try out rain gear, indoor hiking trails to test boots, and outdoor mountain bike course); REI mail-order catalog sales; the REI catalog website (rei.com), an online outlet for bargains in clothing and gear (rei-outlet.com); and REI Adventures, a full-service adventure travel agency. The website is their largest marketing venue. Says Hyde: "Our biggest store has about 11,000 products, our catalog has about 600 products, and our Internet sites have 14,000 products."

The company is targeting Japan with a similar marketing mix. In September, REI kicked off a Japanese-language, full-service website stocked with 2,500 items. Like rei.com, site features include: searches by category, price, and brand; detailed product specifications; photos; localized community resources; and bulletin boards. There's also Gear Mail, a free e-mail service with information on products, sales, and activities. Japanese consumers account for about half of REI's international Internet orders. "We know that the Internet market in Japan is still young," admits Hyde, " but this is an opportunity for us to get established, and when you're early in a market like this you have the opportunity to make a lot more changes and format around what your customers want." Right now e-commerce in Japan is only about 1/20 the size of the U.S., but it is growing. DSA Analytics projected Japanese business-to-consumer e-commerce will reach $8 billion by 2001. Japanrei.com site traffic in the second month of operation was up 40% from the first, though browser-to-buyer conversion rates are still slow. "They are doing some shopping. The conversion rates are lower than the U.S.," notes Hyde, "but again, the conversion rates are almost exactly what they were in 1996 (when REI launched the U.S. site)." It took about three years before rei.com turned a profit, and the company expects the evolution of their Japan e-business to proceed at a similar rate.

At this time transactions are dollar-based, and product is shipped from the States. Japanese online orders are paid by credit card, but the company is considering other options in preparation for yen-based operations. "We're watching the online/convenience store payment trend very carefully," says Hyde. Fulfillment should be speeded up once REI opens their first retail outlet here this April. Located in Machida, the store promises to be the largest outdoor gear/clothing emporium in the country (yes, it will also have a climbing crag). Its warehousing facilities will allow for faster shipping and delivery. Matt Hyde dismisses the current cyber-fear of cannibalization through too successful e-marketing: "What we try to do strategically is allow our customers to shop any way that they want and do a good job with all the different ways. In fact, in the United States our tag line is 'shop three ways'-on the Internet, call the 800 number, or come into the store. That's the best thing we can do for our customers. There is cannibalization across all the different channels, but ultimately that's good for the customers and it's good for REI."

Land's End, which has mail-order and online order systems as well as a Japanese catalog and website, through their wholly owned subsidiary Land's End Japan, admits that 40% of their operating costs are spent in creating and mailing catalogs. One of the lures of e-tailing for mail-order companies is the Web's potential to cut operating costs. E-mail orders take much less time and money to process then the phone-in variety, but the online catalog is-at least initially-not cheap to produce. Hyde believes, "Pieces of it (e-commerce) are cost effective, but generally the profitability of Internet commerce is overstated. To do a good job with an online store is an expensive proposition. Technology is expensive, advertising is expensive, content is expensive. But what is powerful about and distinct about online commerce is that the cost per transaction is very, very low. If you can get to a high enough volume then it becomes a profitable business."

Driving traffic in the right direction is essential. During September REI held a promotion in conjunction with Realplayer to give away several trips, through their subsidiary, REI Adventures. A pop-up window on jpreal.com gave shoppers a chance to "Download Realplayer, go to Alaska." The company maintains a "fairly good" presence on Yahoo! Japan-including banner ads. Hyde feels the promotions have been a success, "We definitely see a lot of opportunities to form some synergies with Japanese websites." On top of that they are using traditional print media and planning a direct mail campaign to spread the word. This spring will see advertising tie-ins with the opening of the REI retail store. The combination of these ventures will move people onto the REI site-keeping them there takes a different kind of marketing.

Japanese e-retailing is all about creating relationships with the customer. The evolution of the Internet in Japan goes beyond "cheaper prices/ faster shipping." Todd Chambers, regional director of Ogilvy and Mathers, comments: "I think outdoor companies that specialize in leisure and casual clothing are going to do exceptionally well; I don't think there are a lot of Japanese stores that address it as well. You're going to have companies coming in that have this down-partnerships with the client, different kinds of discounting techniques. It's a relationship generating with the store. They become a part of the whole process rather than just some faceless entity."

He could be describing REI. Their relationship with their shoppers is an integral part of the business. They run America's largest co-op with 1.6 million members (anyone can shop but a $15 membership fee provides voting privileges and a share in company profits through an annual patronage fund). In Japan, co-op members number 86,000. Bulletin boards and community resource features keep members connected. "The whole community piece is very important on our U.S. site. I think it's even going to be bigger in Japan," says Hyde. In the U.S., "Our customers literally helped us build the website. They gave us hundreds and hundreds of e-mails with feedback, and we listened to that. That helped a lot in the States and it will in Japan."

Mont-Bell, The North Face, Patagonia, Timberland, and Eddie Bauer have all opened stores in the Tokyo/Yokohama area. A black parka from The North Face was last winter's hot-ticket item for young Japanese men who've never climbed anything steeper than subway stairs. As popular as these brick and mortar outlets have become, they are limited to a few urban locations. REI's cross-channel clout gives them added marketing muscle, but ultimately they are appealing to a slightly different consumer profile. REI is, the company believes, a lifestyle product reflecting much more than just a customer's shopping preferences. "We think there's an incredible parallel between the U.S. and Japan on this," says Hyde. "The lifestyle piece (of the sales equation) is always going to be there. There'll be peaks and valleys-just like any market. 'The outdoor boom is over with,' I've heard. We didn't ever intend to go into Japan with the 'outdoor boom.' Our focus is more on providing (a) unique value proposition, great expertise, (and) products. That's sustainable. Booms are never sustainable."