As customers, we are completely spoiled. The advance in technology and the stress on service has led us to expect nothing less than top convenience, high speed, and an abundance of choices when shopping.

For retailers, it is no longer enough to have the right merchandise at stores with good locations or to print and mail flashy catalogues.

Customers expect to be able to browse products on the Internet and then go to the store, check their selection “offline” and make a purchase. They also expect to be able to place orders through the Internet, mail, or telephone, regardless of the venue through which they chose the product.

According to a recent survey of the National Retail Federation’s Shop.org and comparison-shopping site BizRate.com, 50 percent of the surveyed consumers have researched gift purchases online before buying them through stores or catalogues. About 45 percent of the shoppers have researched offline and then bought online.

Most importantly, the majority of these customers made the purchase with the retailer they have researched. And not surprisingly, more and more merchants adopt multi-channel strategies.

Traditional retailers like Sears (S) are decisively entering the catalogue and Internet businesses. Partnerships with KBToys.com and HarryandDavid.com, as well as the acquisition of Land’s End, are transforming the company into a real multi-channel retailer.

Sears is making its apparel available on its website by the end of 2004. To help customers buy clothes without trying them on, the company will be using cutting-edge technology that allows shoppers to create a personalized online model of themselves. Sears also intends to boost the information and resources for appliances.

Companies that have already mastered both catalogue and store sales are offering new online clickable catalogues. Such companies include Williams-Sonoma (WSM), Bombay Co. (BBA) and Brookstone (BKST). Williams-Sonoma is offering certain items for sale only through its web site and catalogue channels.

Staples (SPLS) is enjoying higher profitability, partially due to the expansion of its direct-mail catalogue and delivery business. E-commerce sales reached $1.6 billion in fiscal 2003, accounting for 53 percent of overall North American delivery volume, compared to 45 percent a year ago.

InterActiveCorp (IACI), formerly USA Interactive, gave up its entertainment business to become a multi-brand interactive commerce company transacting business via the Internet, television and telephone. A behemoth in home shopping through electronic media, now the company owns US ticket retailer, Ticketmaster, and Citysearch web-based city guides. Famous online travel firm Expedia is already a wholly owned subsidiary of InterActiveCorp.

Of course, the transition towards multi-channel retail is not painless. The greatest cost and the greatest risk in online retail is not the web site itself, but establishing the process through which inventory is stored, managed, and delivered.

For the retailers used to serving customers at their stores, accepting and fulfilling deliveries is a whole new ball game. Building the structures to support online sales is an expensive process. Part of the control is often handed to suppliers and shipment companies. If anything goes wrong, the risk is the brand name.

But one group of retailers easily incorporates the Internet in its business model. In terms of online sales, catalogue retailers have a huge advantage - they are already experienced at handling distant shopping and have built the infrastructure required. For them, being successful on the Internet, most often means building a web site and cutting costs for printing and mailing catalogs.

The Sportsman's Guide

The Sportsman's Guide (SGDE) is a perfect example of how powerful tool the Internet can be for catalogue retailers.

Just several years ago the company used to be a troubled catalog retailer of discount outdoor gear. Now Sportsman’s Guide reports rising revenues, improved margins, and healthy cash flows each quarter.

In 2001 the company began transforming its entire business model, trimming its catalogue mailing list and shifting sales to the Internet, thus allowing for greater profitability. In the autumn of 2003, Sportsman’s Guide established a marketing deal with Amazon (AMZN).

The strategy is working well - Sportsman's Guide has reported year-over-year growth in revenues in four quarters. In the third quarter of 2003, the company enjoyed a 12.2-percent jump in revenues, higher margins, and an EPS of $0.13, compared to $0.05 a year earlier.

The rising profits are mainly due to the fact that 36 percent of the sales were conducted through the Internet, compared to 30 percent a year ago. Web sales do not carry the burden of printing and mailing catalogues. The best part of this growth story is the fact that the Internet expansion did not require heavy capital expenditures, thus keeping the balance sheet clean of debt and the cash flow strong.

A Not-So-Easy Transition