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E*Trade outreach program a bit shaky

Analysts are questioning the value of the company's financial centers: Not one of them has someone who can actually take a deposit, cash a check or give investment advice.

    SAN FRANCISCO--E*Trade Financial's swank new downtown customer center has 16 Fujitsu 42-inch plasma televisions, 12 smaller Samsung LCD (liquid-crystal display) TVs and more than 35 workstations with flat-screen monitors.

    The New York center sprawls across a whopping 30,000 square feet on Madison Avenue, with an entire floor devoted to day traders, a gourmet food market, and a shop where you can buy E*Trade pens. The other financial centers aimed at attracting more affluent investors--think Charles Schwab or Merrill Lynch--are in Beverly Hills, Calif., Denver and Boston.

    Not one of them has someone who can actually take a deposit, cash a check or give investment advice.

    "E*Trade needs to remind investors that it's more than just a Web site; but when you go to these centers you find they're just a marketing kiosk," said Dan Burke, an analyst for research firm Gomez. "Over time, they're going to need to add more capabilities that can be done at the branch."

    Increasingly, analysts are questioning the value of E*Trade's financial centers, at the heart of the company's "touchpoint" strategy aimed at drawing more affluent investors and convincing current customers to invest more of their money. The company expects to have 20 financial centers nationwide within three years.

    It's all part of an effort to counter the lingering effects of the stock market's downturn, felt by all online brokerages as investors trade less often and account balances shrink. E*Trade has watched the average balance of customers' accounts decline along with the markets, slumping from $18,530 at the end of 1999 to just over $13,000 earlier this year.

    And while E*Trade has played the role of the hip "not your father's brokerage house" in television ads with puppets shown during the Super Bowl and has catered to the Internet-savvy, newly rich stock-holding dot-com generation, it is now trying to cut a more serious figure.

    etradecus E*Trade has launched a campaign to diversify beyond simple online brokerage services and its online bank. In the last year, E*Trade has teamed with Ernst & Young to offer financial planning and advice, bought market maker Dempsey so it could execute E*Trade customers' trades internally, opened an online mortgage service and started offering car loans.

    Other online operations have tried to revive their business models with an offline presence. Some opened brick-and-mortar stores, while others, including Yahoo, eBay and Pets.com, tried publishing self-titled magazines.

    While Yahoo Internet Life is still going strong, eBay killed its magazine in late 2000, and Pets.com's magazine was put to rest at about the same time, when the online pet-supplies retailer closed shop.

    PC maker Gateway was initially the most successful at making the switch offline. Gateway Country stores, which Gateway began opening in 1996, boosted the company's sales and became integral to its sales strategy.

    Similar to E*Trade's centers, Gateway originally didn't sell out of the stores, using them instead as showrooms that directed customers to order PCs over the phone or online. But with its sales and market share dropping in recent years, Gateway reversed course and began stocking the stores with computers. Meanwhile, the company has closed about 50 of its 326 stores over the last 18 months and promised to scrutinize the success of the others.

    Gazoontite.com opened a store in San Francisco before going out of business, and online brokerage house Webstreet opened several stores before it was acquired by E*Trade.

    In fact, four of the five E*Trade centers--all but the New York flagship store--are former Webstreet stores.

    Where is everyone?
    E*Trade spokeswoman Connie Dotson said the centers are doing "very well."

    "It's all about the fact of giving the customer options," she said. "Some customers want something that they can see and touch and feel."

    But customers and analysts are lukewarm on the centers, which appear to have little foot traffic on any given day--evidenced by local television shows that do regular stand-up financial reports from the sparsely populated E*Trade center in San Francisco.

    "I haven't seen too many people in them," said Justin Hughes, a financial analyst with Robertson Stephens.

    E*Trade customer Steve Meiselman said he passes by San Francisco's E*Trade center on his way to work every day, but only recently went inside. After logging in to his account and surfing the Web, he left without making any trades or doing any transactions.

    "It's a nice service," he said, but "most everything I could do in there I could do on my home computer."

    Another E*Trade customer, Hsifeng Chen, agreed. He stopped by to clear up a problem with his account. A Taiwan native studying at a local college, Chen needed to show documentation of his address. Having cleared up that problem, he said he didn't think he would return.

    "I can trade on the Internet, so I don't need to come here," Chen said.

    And while the E*Trade centers give customers a physical location instead of a virtual turnout on the information superhighway, they don't necessarily have what more serious investors want--someone who can look them in the eye and give them advice about their account.

    "People are not particularly willing to take large chunks of money and send it off somewhere," said Eric Wasserstrom, a financial analyst who covers the e-finance industry for UBS Warburg. "They want to sit down with someone and get the sense that their money is well cared for."

    More services in line
    Dotson said E*Trade is considering adding services such as financial advice to its centers.

    E*Trade has also been targeting a different group of investors with scores of small, modest E*Trade branches in Target stores around the nation. But scratch the surface and the small Target stores offer the same services as the swank city offices: They both have ATMs that can take deposits, workstations where customers can access their accounts, and people who can't take deposits or give advice.

    Just as with the E*Trade centers, the service that people in the Target branches can give is limited to helping customers with basic account problems and walking them through the Web site.

    E*Trade also has 36 branches within Target stores in nine states, including New York, Minnesota and Georgia. The company plans to increase its number of branches to 43 by the end of the year and eventually to have a "couple hundred," Dotson said.

    Additionally, the company has a network of 11,000 ATMs and will inherit 20 retail locations set up for active traders from its pending acquisition of Tradescape, an online brokerage that caters to active stock traders.

    But it isn't the volume of "touchpoints" that matters, critics say; it's offering more sophisticated services in those locations.

    "They have a long ways to go and are lacking in having the human advice aspect of that business," said Raj Dhinsa, a financial services analyst with Jupiter Media Metrix. "Especially with the way investors have suffered the last few years, they are more cautious than ever.

    "This is a big problem for E*Trade," he said.