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Online Or Brick & Mortar In The 21st Century

December 10, 2007
Last year in March, Portland’s Norm Thompson Outfitters was sold to Golden Gate Capital, a San Francisco investment firm.  Here was a company that started selling fly fishing equipment on the web, and soon the web was the biggest part of its business.

I bring this up because Restoration Hardware is in the process of being sold to Catterton Partners of Greenwich, Connecticutt.  Sears Holdings, parent of Sears and Kmart, subsequently made an offer higher than the initial Catterton bid.  

What prompted the comparison to Norm Thompson was this information in the press release: 

Restoration Hardware reported revenues rose 10.6% in its third quarter from the comparable period last year because of its booming consumer-direct segment.

Revenues came to $173.7 million in the latest quarter, with $97.2 million in the direct-to-consumer segment, mainly from catalog sales, and $76.5 million from stores.

The article points out that Restoration Hardware lost over $12 Million in the third quarter and the net loss in the 39 weeks was $36.9 million, compared with a loss of $10.4 million in the previous year.

Restoration Hardware had successfully implemented an inline strategy,  but it was losing big sums of money somewhere.  It points out to me, one more time, the disparity between online sales versus brick and mortar.  Today, Amazon and eBay have combined sales of $20+ Million , yet the market value of the two companies is over $84 Million.  Macy’s and Sears (including K Mart) with over 5,000 stores in the U.S., have combined sales of $78+ Million and a combined market value of $ $29 Million.  Wall-Mart on its own has revenues over $370 Million and a market value of $227 Million.  Clearly, investment money has valued online retail higher, because that’s where the growth in sales is taking place.  However, it is extremely cut-throat!

Michel de Guilhermier wrote last year:

Let me just make a harsh statement : segment by segment, all things being otherwise equal, I believe that in most cases e-commerce will probably be less profitable than its brick & mortar counterpart.

A new book out this October may answer some of the questions about shopping online or in the mall.  Entitled Brick & Mortar Shopping in the 21st Century, the editor Tina Lowrey

...explores how traditional retailing operates in the new competitive environment of a combined e-tailing and brick and mortar marketplace.”  

I haven't read the book, but it may answer why people will get up at 4:30 AM to visit the mall on Black Friday and may tell us how safe we feel at the mall. 

Thoughts???  Email me at landfair3554@comcast.net.

Posted by Mike Landfair on December 10, 2007 | Comments (0)