The reality is a year away. But if this new vision pans out, Epicenter Collections could revolutionize the economics of retailing for direct response marketers.

By Jack Gordon

Picture this: The setting is a high-traffic regional shopping mall. In an anchor location formerly occupied by a major department store, there is now a cluster of roughly 50 smaller shops. Their design is unusual and striking--like a cross between mall boutiques and walk-in exhibits at an upscale trade show. Each is distinctly branded with its merchant's own signs, logos and color schemes. The mini-stores display a variety of wares, but they rarely stock much inventory. Shoppers sometimes might buy an item and carry it away, but more often they use a wireless handheld device, about the size of a Blackberry, to purchase merchandise and have it shipped to their homes.

The merchants in these shops are direct response marketers whose goods have never (or rarely) been available at retail locations. They are gathered here, in what's called an Epicenter Collection, because it is far less expensive and easier to open and operate an Epicenter store than a traditional retail venue.

The concept is still in the planning stage. The developer, Epicenter Holdings Inc. of Greenwich, Conn., doesn't expect the first actual location to open before late 2006--and isn't sure yet where in the United States it will be. But it's just possible that the next big innovation in retailing will also be the next step in multi-channel marketing for the direct response industry. 

For e-commerce vendors, specifically, Antony Lee, CEO of Epicenter Holdings, goes so far as to call it "the first true example of 'convergence' between offline and online channels." He suggests that the same principle applies to all DR marketers, from catalog companies to direct response radio and television advertisers, who have hesitated to add brick-and-mortar retailing to their mix because of the expense. Lee claims that a merchant's build-out costs for an Epicenter store would be one-fifth to one-tenth that of opening a traditional retail location. And thanks in large part to technological innovations, operating costs would be far cheaper as well. 

Epicenter Holdings is scouting high-traffic regional malls throughout the United States for potential anchor locations that are from 150,000 to 250,000 square feet.

THE PITCH TO DIRECT RESPONSE MERCHANTS
The Epicenter concept is the brainchild of Sheldon Gordon of Gordon Group Holdings, a shopping center developer whose projects include the Forum Shops at Caesar's Palace in Las Vegas and the Beverly Center in Los Angeles. Epicenter Holdings was formed as an affiliate to pursue the idea, and Lee signed on as CEO in 2003. 

Consolidation and other forces in the department-store industry have created a problem for the owners of regional shopping malls, Lee says. When an anchor tenant closes a store, what does the mall do--not just with all that empty space but to pull in new shoppers? Epicenters were conceived as an answer. Lee says his company is scouting high-traffic regional malls around the United States for likely anchor locations from 150,000 to 250,000 square feet. Those spaces would accommodate 40 to 60 Epicenter merchants. 

Polaris Fashion Place in Columbus, Ohio, was targeted as the first of what eventually might be 100 malls to host an Epicenter Collection. But though Polaris is still in the running, Lee says the selection process was thrown open again in September when federal regulators granted approval for Federated Department Stores Inc. (Macy's, Bloomingdale's) to acquire the May Department Stores Co. (Marshall Fields, Lord & Taylor, and others). "Federated announced that it will close about 75 stores, so the market has generated a great deal of potential interest," Lee says. 

That explains the attraction to mall owners. As for DR marketers, the promise is of an easy and inexpensive way to let shoppers see and touch products they have only encountered on television, in catalogs or online. "Consumers have proven that they will adopt new ways to buy things," Lee says. According to Commerce Department figures, U.S. e-commerce transactions totaled almost $118 billion in 2004. Lee says that "web buying" averages $1.5 billion a week outside of the Christmas season. "But the fact remains that the biggest reason why online shopping carts are abandoned on the web is because buyers can't see or touch the merchandise." The same applies to radio, TV and catalog products, he says. Let consumers see and touch the goods--especially "brand-name" DR goods that they already recognize--and you close the loop.  

It is only the expense and complexity of brick-and-mortar retailing that has prevented DR merchants from closing that loop on their own, Lee suggests. He promises to reduce both. "Three-quarters of the traditional build-out cost for a store is in infrastructure that buyers don't see--heating, air conditioning, lighting, stock rooms and so on," he says. In an Epicenter Collection, with nine-foot walls (rather than floor-to-ceiling ones) separating the stores, utility costs would be split among 40 to 60 merchants. If a seller's goal is to show buyers only a few flesh-and-blood examples of each product they can order, stock rooms are unnecessary. "And we're not asking for 10- or 15-year leases like regular developers; we want three years," Lee says.

He pegs the typical build-out cost for a traditional store at $250 to $500 per square foot. In an Epicenter, the square-foot cost would be $50 to $100, with individual merchants picking up the whole tab only for their own fittings and signage. Lee's group would hire and train the "shopping assistants" who could serve multiple stores. And the Epicenter would provide all necessary point-of-sale technology, linked to each merchant's inventory and shipping systems. "Opening a traditional store involves a large capital risk," he summarizes. "An Epicenter store could be funded out of cash flow." 

When shoppers enter the Epicenter, they will be handed a BUYpad, which is a wireless device that scans the bar code on the tag of the desired merchandise.

OFF THE GROUND?
Lee expects the first Epicenter to be up and running no later than early 2007. "The reason the first one is taking a long time is that it's complicated to open; the real estate angle is complex," he says. Once the initial venture is off the ground, "it will be easier to open new ones."He foresees 10 Epicenters in U.S. shopping malls by 2009 and up to 100 within perhaps seven years. 

Lee claims that "a number" of direct marketers already have signed up for the ride, including "some great names." As of October, however, only one had "given us permission to name them." That is Paul Fredrick MenStyle, a catalog and web retailer of men's clothing and accessories.

Allen Abbott, chief operating officer of Paul Fredrick, likes everything about the concept. "Epicenter is providing all the potential rewards of opening a store--greater visibility among consumers, increased revenue and company growth--with a significant reduction in risk," he said in a September announcement. "The lease term is much shorter, the technology and store infrastructure will be provided, and we don't have to make major capital investments up front." Also, he said, "the built-in rollout strategy is very appealing, as we wouldn't have to strategize about locations or timing."  

Lee says other direct marketers already on board offer products ranging from gifts and housewares to women's fashions. Without confirming whether any are in the bag or merely prospects, he suggests that "this is perfect" for home shopping channels, such as QVC, HSN and ShopNBC. An Epicenter, he says, would be "a wonderful showcasing environment for direct-TV sellers who change merchandise regularly." Likewise, he suggests the concept will appeal to individual, well-known brands that sell on the home shopping channels, as well as for established DRTV advertisers and catalog sellers.

HIGH TECH, HIGH TOUCH
Epicenter merchants may choose to stock and sell certain goods directly from the store. For instance, Lee suggests, as Christmas approaches, a store that sells men's sweaters might want to put a lot of them on the shelves to accommodate last-minute shoppers. Shopping assistants will be able to handle cash transactions.

For the most part, however, he expects that Epicenter merchants will stock and display only samples of the items they sell. At its heart, Lee says, an Epicenter will be a "highly IT-enabled shopping experience."

Buyers entering the location will be offered patent-pending handheld devices tentatively called BUYpods or BUYpads. Lee notes, "Weve hired consultants about the name; right now we're leaning toward BUYpads."  

These wireless units are equipped with a high-resolution screen and a scanner. Using a BUYpad, a shopper can scan the bar code on the tag of any item in any store in the Epicenter Collection. The screen will show "all the same kinds of information they'd get from an e-commerce site on the web: price, availability and details," Lee says. 

Antony Lee, CEO, says an Epicenter is  a highly IT-enabled shopping experience for consumers. In addition, first-time visitors can walk up to the kiosk to enter credit card information and other data into the store's computer system. The shopper then receives a password and PIN number.

The first time a shopper visits the location, he or she can use a kiosk in any store (or enlist the aid of a shopping assistant) to enter credit card information and other data into the Epicenter's computer system. The shopper receives a password and a secret PIN number. "From that point on, you're in the database," Lee says. Henceforth, you can use a BUYpad to purchase anything from any Epicenter store, and have it shipped to you, without interacting with another person at all. If you want to carry an item out of a store, any shopping assistant can confirm the purchase by scanning your BUYpad with another handheld device, and print out a receipt from a unit clipped to his or her belt. 

Can't make up your mind about a shirt, a home-exercise machine or a crystal bowl? Go home and think about it. Then get on your computer and go to www.epicenter.net. The web site will recognize your password and PIN number, Lee says. All the data from items you scanned in the stores will be available on the site. You can complete the purchase from home. 

And, of course, the personal information that shoppers feed into the Epicenter database also will be available to the merchants, who can follow up with mailings, e-mail, etc. 

Cool idea? "The technology is just the enabler," Lee says. "People go to the mall to buy stuff, not to use technology." For consumers, he says, the real appeal of an Epicenter will be: "Here is an unbelievable collection of items never before available at retail. Here are things you've seen on television or in catalogs or online, but now you can touch them."   

Jack Gordon is editor at large for Electronic Retailer. We would appreciate your feedback. To submit comments, please point browser to casestudydec.marketing-era.com.