Jul 3, 2011
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Chains ramp up stores even as e-commerce soars

Jul 3, 2011

NEW YORK (Reuters) - Several major retailers plan to keep opening new stores even as e-commerce gathers steam, arguing that physical locations go hand in hand with their websites.

At the same time, these retailers acknowledge that their websites need overhauls so that both lines of business can feed one another, rather than eat into each other's results.

Lululemon Athletica Inc (LLL.TO) (LULU.O) now operates 82 U.S. stores and eventually wants 300, but the Canadian yogawear maker and retailer also plans to build up its e-commerce capability.

"E-commerce and stores don't compete, they work together," Lululemon Chief Financial Officer John Currie told the Reuters Consumer and Retail Summit this week.

"Lots of customers like to browse online and come into the store, so we don't see e-commerce cannibalizing the stores."

Conversely, bricks-and-mortar stores make a brand more visible to shoppers and help websites attract traffic.

"Having a strong name, I think the customer feels very comfortable buying online from us," said Children's Place Retail Stores Inc (PLCE.O) CEO Jane Elfers. Her chain is planning to open 85 new stores this year.

Elfers said online sales should continue growing quickly and that they have not hurt business at the stores.

Leasing space and keeping stores attractive can be costly, so a large store expansion can make it hard to compete against an online-only rival like Amazon.com Inc. (AMZN.O)

"An aggressive roll-out of stores can be appropriate," said Patti Freeman Evans, a director at Forrester Research. "But the capital expenditure and the long-term commitments can mean the risk is significant."

For all of the headlines touting e-commerce's growth, Evans said it makes up only 10 percent of overall retail sales, meaning it is also dangerous to neglect stores.


Retailers including Ulta Salon Cosmetics and Fragrance Inc (ULTA.O), Children's Place and Lululemon Athletica all said that a successful website can also spur sales at stores.

Ulta CEO Chuck Rubin does not see the Internet as a threat to Ulta's store strategy. Women like to try make-up and other beauty products in-store before buying, he said.

Ulta is planning to open about 600 new stores in coming years, bringing total store count to roughly 1,000.

Rubin said Ulta's website needs work and one area of focus will be its database of 8 million active customers so Ulta can mine data and tailor online marketing.

Toys R Us TOY.UL is maintaining its store base even as it delves deeper into online shopping.

Yet Toys R Us CEO Jerry Storch said a major drawback of an online-only retail strategy is the cost of shipping products, whether it is borne by the retailer or consumer.

"Whether or not there's free shipping, someone has to pay for that," Storch said. "The most expensive thing is to order from home and deliver to your home."

Lululemon has had a website for two years, and it too will get an overhaul. But even a no-frills website has helped the company map out its expansion plans.

"E-commerce, coupled with the showrooms that we put in markets where we don't have stores yet, are a great indicator of when a market is ready for us to start rolling out stores," Lululemon's Currie said.

(Reporting by Alistair Barr, Phil Wahba; additional reporting by Martinne Geller, Dhanya Skariachan, Jessica Wohl and Helen Chernikoff; editing by Matthew Lewis)

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