February 28, 2000
By BOB TEDESCHI
Coming Soon to a Coffee Shop Near You: Parcel Pickup
recent deal between Starbucks and the urban delivery
specialist Kozmo.com -- in which Starbucks will essentially set aside
space in its coffee shops for Kozmo -- may be the first example of
an established retailer offering its floor space and personnel to
an e-commerce company. But it is unlikely to be the last.
Industry executives and analysts predict that such agreements
will come rapidly in the next few months, as Internet retailers
struggle to address two of their most glaring vulnerabilities --
customer acquisition costs and returns -- while continuing to close
the gap between virtual and traditional stores.
The agreements will take many forms. The convenience-store chain
7-Eleven, for instance, plans to install Internet-ready ATMs, which
might eventually let customers order goods from Web retailers and
have them delivered to the store.
Jack Manning/The New York Times
David Williams of Kozmo.com, an urban delivery service, outside a Starbucks in
Manhattan. Kozmo customers will be able to return merchandise like rental
videos to boxes in Starbucks around the country.
And in such arrangements, customers might also be able to return
Internet goods to the stores. Package handling companies like Mail
Boxes Etc. are already starting to handle returns and exchanges on
behalf of Internet retailers. Other national chains, like
drugstores and gas station convenience marts, might also add such
services as a side business.
Indeed, any retailer with a national presence and a strong
distribution and warehousing system is a prime candidate to join
with e-commerce sites, analysts predict. Customers who enjoy the
convenience of the Web might also prefer knowing that if anything
goes wrong with a purchase, they can find a real person at a real
store to make it better.
"The need for this is huge," said Tim Washer, director of
interactive research with NFO Interactive, a market research
company. "What it's about is reducing the risk of shopping online.
Offering a retail presence will really facilitate that."
Kozmo executives stressed those points in announcing the deal
this month. "We'll be able to ride on Starbucks' coattails, and
give our customers an incredible sense of confidence," said Joseph
Park, chief executive of Kozmo, which offers free one-hour delivery
of goods purchased on its Internet site.
Kozmo, which operates only in Boston, New York, Washington,
Seattle and San Francisco so far, specializes in delivering videos,
books, food and convenience goods.
Under the deal, Kozmo will pay Starbucks $150 million over five
years for the right to place return boxes in Starbucks stores. The
boxes will initially be used for rental videos, games and DVDs, but
will eventually be available for other products, as well, like
disposable cameras ready for processing or defective items being
returned for a refund. In addition, Starbucks will promote Kozmo
and train its sales staff to answer questions about the Internet
company. Kozmo, in turn, will deliver Starbucks coffees and teas by
the pound -- and eventually perhaps hot beverages, too.
The partnership, which is to include joint marketing, will
immediately raise Kozmo's credibility with consumers, predicted
Chris Vroom, e-commerce analyst with Credit Suisse First Boston.
And it will also give Kozmo an efficient way to reach new
customers, he said.
Vroom said Internet retailers typically spent about $100 to
acquire each customer -- an exorbitant amount, because the average
customer will spend only about $200 at a given site in a lifetime.
A $30 million annual outlay to Starbucks will swell Kozmo's
customer acquisition costs in the short term, he said, but in the
long term it could pay off, given Starbucks' huge clientele.
"Starbucks can put a Kozmo logo on coffee cups that 10 million
customers a week will buy," Vroom said. "That's a powerful
Perhaps more powerful is the ability of such partnerships to
provide e-commerce customers an easy way to return goods -- not
simply rental items, but, more important, goods deemed
unsatisfactory by the customers. Internet merchants have been
widely criticized for their failures in this regard, particularly
as return rates have reached roughly 30 percent -- a rate slightly
higher than in the catalog industry.
Retailers with stores online and offline, like Gap and
Federated's Macy's, have had an edge at least in part because their
customers can return goods to a store whether they were bought
online or off. And though e-commerce companies are loath to open up
stores for this reason alone, they are clearly in the market for
help from companies that can help streamline returns.
"As I speak, there are four or five people from e-commerce
companies in this building talking to us about it," said James
Amos, chief executive of Mail Boxes Etc., speaking from his office
in San Diego.
Amos estimated that 300 other companies had asked Mail Boxes
"for access to our 4,000 stores" in the last several months.
"We're in discussions with just about everyone that'd come to the
top of your mind," he said.
Amos said the deluge began late last year when the company
agreed to provide customers of eBay auctions with help in
inspecting and returning items bought online. Since then, Mail
Boxes has begun installing satellite dishes in franchise stores, in
hopes of connecting all of its business partners in a single
The satellites will not only provide high-speed Internet access,
the company said, but will link the stores' cash registers directly
to the corporate office and to the company's e-commerce partners.
That setup, in turn, will allow the company to plug into the
back-office systems of Internet retailers -- so that if a customer
of an Internet-only merchant wanted to exchange an item at a Mail
Boxes store, the replacement item could be sent to a Mail Boxes
location. The customer could then simply drop off the old item,
pick up the new one and not have to deal with packaging, postage or
coordinating delivery times.
Noting that the first e-commerce partnerships will be announced
after the satellite system is completed next month, Amos said,
"We're basically going to be a bridge between the virtual and the
Naturally, Mail Boxes will have plenty of company in that
regard. United Parcel Service, which recently announced plans to
expand its network of drop-off centers by testing storefront
locations in suburban areas, might use those stores to support
e-commerce companies. "We're definitely going to contemplate it,"
said Mark Rhoney, president of UPS eVentures, the business UPS set
up to help e-commerce companies fill orders.
Kenny Kurtzman, chief executive of Ashford.com, an online
jewelry and luxury goods retailer, would welcome a partnership with
an offline company "if that would help give customers an easier
way to return products," he said. "We'd look to partner with
someone like FedEx or UPS to do that."
In exploring its own partnerships with e-commerce companies,
7-Eleven has not been approached by online jewelers, "but we have
had some bizarre offers," said James Keyes, chief operating
officer. "I don't think someone will pick up their living room
furniture at our store."
Keyes said that by this summer, 7-Eleven would test ATMs with
Internet access. Besides getting cash, customers would be able to
cash checks or obtain money orders or get directions from Web
sites, for instance.
Initially, the ATMs would not include Internet retailers, he
said, but that might change eventually.
"If you wanted a new videogame, you could preview it and order
it at the store, then have it delivered to the store on the day of
the release," Keyes said. Just such a service is already available
in Japan, he said, as the result of an agreement between 7-Eleven
The company would also welcome the chance to take returned
merchandise for Web retailers, "as long as the goods make sense in
our environment," Keyes said.
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