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Sony e-tail plans could shake up industry

The electronics giant, which has been slow to embrace the Internet, is preparing a major initiative to sell its products directly to consumer and corporate customers on the Web.

Sony Electronics, which has been relatively slow to embrace the Internet, is preparing a major initiative to sell its products directly to consumer and corporate customers on the Web possibly by the end of this year.

If successful, the long-anticipated move by the electronics powerhouse could validate the Web as an important sales channel for mainstream consumers--possibly prodding other large manufacturers to follow suit. The shift could have huge ramifications for online and offline retailers alike.

Sony already sells its personal computers on the Net, as well as some accessories for products such as video cameras, but it has been reluctant to expand its Net offerings until now. Speaking with a small group of reporters this week, Sony Electronics president Teruaki Aoki said the company spent the past year talking with retailers about the sensitive subject.

As a result of those discussions, Sony authorized six retailers to sell Sony's audio and video products over the Internet late last year. Now, for the first time, Sony is clearly stating that it intends to take the next step--selling its own products directly to consumers.

Aoki said that the company has decided to gradually begin selling more products on the Web. He would not provide any details on the company's pricing policy or specifics on what products would be included. Audio-video products certainly would seem to be high on the list, and the possibility exists for Sony to sell other non-consumer products, such as its professional broadcast equipment which includes video cameras and other studio equipment, somewhere down the line as well.

"Retailers don't like us to sell (our) products over the Net," Aoki said. "But from the customer's viewpoint, if they want information about Sony products, it's very natural for them to come to our Web site."

Aoki added that consumers who want to buy directly from Sony will soon have that option; for those who want to buy from a local dealer, Sony will continue to offer a dealer-locator feature on its Web site.

"We cannot neglect the customers' viewpoint. We have to be prepared for that," Aoki said.

Analysts agree. "I don't think that any man can afford to sit out the Internet; it's just too integral a part of shoppers lives to ignore it," Forrester Research analyst Lisa Allen said. Forrester is predicting that online sales of consumer electronics goods will reach $11.7 billion in the United States alone by 2004. In comparison, total consumer electronics goods sold in 1999 totaled around $80 billion, according to the Consumer Electronics Association.

Sony products are already available from other

Sony
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HQ: Tokyo, Japan  
Chairman: Norio Ohga  
CEO: Nobuyuki Idei  
Employees: 151,000  
Annual sales: $56.6 billion  
Annual income: $1.5 billion  
Ticker: SNE  
Exchange: NYSE

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Source: Bloomberg 1/27/00

online stores, although there are differing levels of warranty support if a dealer isn't authorized to sell Sony products. Dealers also must meet certain requirements for customer service, product presentation and product availability.

With all the talk of how the Net has changed whole industries, Sony's decision seems like a forgone conclusion. Nevertheless, the company has moved with considerable deliberation on Internet sales. As experience has shown, moving quickly hasn't always been advantageous to old-world companies that are trying to sell products both direct to consumers and through retail chains.

For instance, PC makers such as Compaq and NEC have found that retailers balked at their plans to sell direct while de-emphasizing those companies' products in their stores, to the detriment of the manufacturer's overall sales.

Sony will attempt to walk a fine line to avoid problems with its retail partners. The new site will still offer links to authorized online sites and other features, Sony said.

Sony is also working on a program that will assist smaller retailers in developing Web sites, although Aoki would not provide any details on what this would entail. The company late last year organized a new Internet services division that is developing strategies for this area.

With the company's drive to increase service offerings, the organizational change could serve as a starting point for fee-based services ranging from Web page building and hosting to an online Sony boutique site that points customers to specific local retailers, analysts said. No such plans in this area have been announced, however.

"Many manufacturers in the consumer electronics space have been cautious about embracing the Internet," said Ken Kassar, digital commerce analyst with Jupiter Communications. The main worry: Sales or prices will drop because of the ease with which consumers can comparison shop.

Kassar said manufacturers have been uncertain how to deal with the online sites of traditional retailers, as well as online-only retailers. The key issue is balancing the desire to increase sales through the new outlets while booking sales on their own sites.

"(Direct sales) could potentially be a real big issue--but the overwhelming majority of consumer electronics manufacturer's business comes through the retail dealer channel," and companies like Sony aren't going to risk losing their main source of revenue, said Dan Hodgson, senior vice president of merchandising for Crutchfield Electronics. Crutchfield is a catalog and online retailer that is one of the six companies authorized to sell Sony's products online.

Sony would be unwise to compete against retailers on price, so Crutchfield will have to compete against it by offering better customer service, Hodgson said, which he said the company has already successfully done against brick-and-mortar retailers.

In any case, Hodgson doesn't think the issue of online vs. bricks-and-mortar has the emotional resonance it used to, because more companies have figured out ways to make their Web sites complement their existing business. At Crutchfield, Internet sales have already reached 27 percent of revenues, up from 15 percent a year ago, but that is the result of the company's strategy is to use the site to provide more in-depth information, not as a tool for more efficient ordering and fulfillment.

Retailers' attitudes toward direct sales may be shifting, which just might be as important as Sony's decision itself. Hodgson said the fears about the Net replacing retail stores echoed similar fears about people shopping only from home. That never happened, and Hodgson figures the same will happen with the Net.

"I hope that Sony's move is taken as evidence that the Internet as a channel is for real, and that it offers a real potential to drive sales not only to bricks-and-mortar stores, but online merchants as well, and that they are all perfectly viable channel partners to work with," Kassar said.