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Net shoppers wooed by in-store deals

This holiday, some retailers are changing the thinking that the best bargains are found online. Though discount coupons are gleaned from the Net, good luck trying to use them there.

This holiday season, the best online shopping may be found off the Web.

Several major retailers, including Gap and Kenneth Cole, are using online coupons to funnel customers to their brick-and-mortar stores instead of to their Web sites--a 180 degree change from the conventional wisdom that the best bargains are usually found online.

Online deals have swept through the Internet in recent weeks, getting passed along liberally to friends and family members via e-mail or by being posted on online message boards such as FatWallet and MyCoupons.com, sites that trumpet the latest great deals. But a surprising number of the coupons forced Web surfers to hit the "print" button and grab their car keys.

Gap offered a 30 percent off online coupon good for one weekend that could only be used in an actual store--not at Gap.com. Shoppers say the stores were packed with customers, many clutching the printed coupon. Accessory designer Kate Spade also offered a 30 percent off online coupon that could only be used at a store.

Fry's Electronics, which has been promoting its newly acquired online store Outpost.com in recent newspaper ads, was offering "best buys" in the newspaper--up to $100 off some products--that were not available through the Outpost Web site.

Many retailers have been hit hard by the economic slump. Last week, Gap reported sales that were down a whopping 25 percent in November, compared with the same month last year for stores that have been open for more than a year. Circuit City said its same-store sales were down 4 percent in the third quarter, compared with the same time last year.

But in the midst of a recession, retailers cannot afford to worry whether customers are spending money on the Web or in their stores, said Jim Sterne, a marketing consultant at Target Marketing.

"Retailers are saying: 'I don't care how you buy from me just so long as you buy,'" Sterne said.

Plus, many retailers typically have more products to sell in their stores than they do online, and the thinking is that customers can scan more items in less time if they are in a store. The coupons also help retailers beef up their mailing lists, because most ask customers for personal information including names, physical addresses, and e-mail addresses.

"Retailers thrive on warm bodies browsing and buying," Gomez analyst Alan Alper said. "Retailers need people in the stores. There is definitely an effort to drive traffic into the physical world stores."

Kenneth Cole was initially offering an online coupon for 30 percent off goods either online or at its stores. Within a few days, the company removed it and told customers they could only use the coupon at its retail stores. Even with the switch, it kicked up considerable interest at the Kenneth Cole store near Union Square in San Francisco, where business was up about 50 percent this week. Many of those customers had the online coupons in hand, said Nina Stein, the store's general manager.

"It's definitely bringing people into the store that might not have come in," Stein said.

Washington, D.C., lawyer Anish Sheth said the online coupons he received from Gap, Kenneth Cole and Brooks Brothers inspired him to go shopping at those stores this past weekend. Despite the discounts, Sheth said he walked away from the shopping trip empty-handed.

"Unfortunately, I couldn't find anything," Sheth said. "Everything still seemed too expensive."

Some retailers have gone beyond just promoting their offline stores--they are scaling back their online operations. Federated Department Stores said last month that it would stop selling merchandise on its Bloomingdales.com site and would cut some of the selection from Macys.com.

Fry's, on the other hand, largely sat out the Internet gold rush of the late 1990s, instead selling inventory only through its 19 stores and using its Web site to sell high-speed Internet access and to direct visitors to the locations of its stores. Although Fry's acquisition of Outpost last month was seen as a major step toward getting into online retail, Fry's clearly remains focused on its traditional business.

Do clicks count?
"We think that it's still the bread and butter of our business and the way we will attract the most customers, which doesn't mean we're not excited about our new online arm," company spokesman Manuel Valerio said.

Retailers are also still trying to determine whether customers spend more online or in stores and if they are more sensitive to convenience or to lower prices.

"A lot of multichannel retailers are still trying to figure out the dynamics; do they want to drive customers online or to their stores?" Jupiter analyst Rob Leathern said. "The consistency between the stores and the Web sites--that's still an issue they haven't figured out yet."

Fry's, for example, ran a joint newspaper ad with Outpost that touted the new business relationship, urging customers to "go online now" and "shop at your convenience" at Outpost.com. But the fine print said the prices in the newspaper ad were "not available online" at Outpost.

Outpost simply does not carry some of the products in the Fry's ad, such as a Toshiba 1GHz notebook and an AIWA 700 Watt stereo system. Other products sold for $10 to hundreds of dollars more on Outpost than at Fry's. For instance, Fry's was offering a Hewlett-Packard G55 multifunction printer for $249; Outpost offered the same printer for $379.97.

Fry's plans on making everything that is available in its stores available through Outpost, said Daryl Peck, former chief executive of Outpost, now director of direct merchandising at Fry's. However, just three weeks into the merger, the company has "a lot of work to do," Peck said.

Peck said Fry's is not worried about Outpost stealing business away from its retail stores, saying that Outpost competes with other Web retailers, not with Fry's.

Some retailers hope that giving customers more options to shop online or in stores--or some combination thereof--will work. Amazon.com and Circuit City have a deal whereby customers can shop online and then pick up their purchases at their local Circuit City store. Customers can also return purchases from Amazon's electronics store to any one of Circuit City's 600 stores nationwide.