Finish Line, HHGregg step up their e-commerce strategies

October 12, 2011

Indianapolis’ publicly traded retail chains, The Finish Line Inc. and HHGregg Inc., are making big upgrades to their e-commerce offerings—efforts aimed at stoking sales and strengthening relationships with customers.

Sam Sato, president of the 646-store Finish Line chain, put it this way: “It’s truly about being there for our target customers whenever and however they want to interact with us.”

And, increasingly, that’s online, through smartphones or via social media. The company’s target customers, 18-to-29-year-olds, are immersed in the digital lifestyle. “This is at the core DNA of who they are,” Sato said.

sato-sam-mug.jpg Sato

HHGregg’s customers skew older. But many like to research or buy online. And HHGregg can offer something online heavyweights like Amazon.com cannot—the immediate gratification of being able to visit one of its 204 stores to pick up what they just purchased.

“By having this enhanced website and a large number of stores, we give consumers the best of both worlds,” said Jeff Pearson, HHGregg’s vice president of marketing.

Many brick-and-mortar retailers are following a similar evolution, said Richard Feinberg, a professor of retailing at Purdue University. A decade ago, executives at traditional retailers often had no Internet strategy, and five years ago they might have been fuzzy about what it was. Now, they’re seizing the opportunity.

“I think what these retailers are understanding more clearly now than ever before is that an e-commerce site is their largest store—it is maybe 10 or 20 stores rolled up into one,” Feinberg said.

HHGregg in August launched a new website with tools that allow consumers to easily search for products and compare features and prices. The company—which differentiates its stores from rivals’ by using highly trained salespeople—added a wealth of educational features to the site, including product videos.

pearson-jeff-mug.jpg Pearson

Another key change: HHGregg is finally able to show online consumers its lowest prices. Product manufacturers set minimum advertised prices, and the old site couldn’t list prices any lower, even if the product actually was cheaper in HHGregg stores. The new site reveals the lowest price to customers who create an online account.

The retailer wouldn’t disclose how much it has invested in the new site, nor how much sales it generates online.

Finish Line was more forthcoming, saying it’s spending millions on its digital efforts, with the goal of doubling sales over three years.

Digital sales represented 9 percent of the $332 million in revenue the company generated in the fiscal second quarter, which ended Aug. 27. That compared with 6 percent of sales in the same quarter a year earlier.

The company relaunched finishline.com last fall and recently rolled out apps for Android phones and the iPhone. It’s drawing traffic through online advertising as well as marketing relationships with such firms as Google and Facebook.

About 14 percent of digital traffic comes from mobile. Customers on the go can view inventory by store. And those who sign up for a GPS-based Google service will receive promotional offers on their phone when they walk into Finish Line stores.

Jefferies & Co. analyst Taposh Bari called Finish Line’s digital efforts “a force to be reckoned with,” though he said the business has not yet reached critical mass.

He said in a report that he thinks it could reach a tipping point by late 2012. By then, digital sales may be as much as 20 percent of sales, and investments will have begun translating into higher profit.

The digital efforts are one reason Bari has a “buy” recommendation on Finish Line’s shares, even though they’re already up nearly 20 percent this year.

Analysts are more muted about HHGregg’s prospects, in part because it’s weathering a harrowing year. Weak sales of TVs and other consumer electronics have pushed the shares down 50 percent in 2011.

But the website upgrade “is an important step in the right direction,” William Blair & Co. analyst Mark Miller said in a report last month.

“More than 50 percent of purchases from HHGregg’s website are picked up in the store, according to management, which highlights the desire for immediacy of pickup for many customers and the opportunity for the company to cross-sell accessories to those customers,” Miller said in the report.•


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