Doug Pate of Isle Surfboards

From Store Aisle To Information Superhighway

More than ever, retail shops are closing down. But they aren’t necessarily hanging up "Going Out of Business" signs. Today’s retailers are shutting their stores and breaking ground on the Internet instead of a new physical location, as a way to slash overhead costs, reach a broader audience, and to meet demand from consumers who favor online shopping all together. More brick-and-mortar retailers are embracing the trend because of its results — Robust sales volumes.

Indeed, online retail guru Amazon.com and auction site eBay have dramatically changed the way consumers buy — and sell — products. In 1999, Bloomberg figures show online sales were hovering around $10 billion. In 2004 those sales rose to $19 billion, and last year they went up to $21 billion. These days, Bloomberg data shows that online sales have soared to nearly $24 billion.

"Our sales have increased by about 300 percent from one year ago," says Doug Pate, who founded San Diego-based Isle Surfboards, which sells its own line of surfboards and surfing accessories including surf leashes, surfboard bags, surf traction, and wetsuits on the Web at www.islesurfboards.com. Pate says he went completely online three years ago because "no one in the industry was taking advantage of a sport that was becoming more mainstream. No one sold surfboards [online]."

Equally important, proximity played an important role in launching the site. Pate noticed that many landlocked places such as Michigan are home to a lot of surfers but not many surf shops. "There are surf shops up and down the West Coast, but not along the Great Lakes," says Pate. "Where are those surfers supposed to turn to if they need something?"

Not all retailers are created equal, however. Some go exclusively online to spend more time at home and operate on their own terms. One year ago, Samantha Suter transformed her Leucadia toy store Kids Unplugged, which specializes in wooden and natural toys, into a virtual reality by starting www.kids-unplugged.com. Running the physical location, which opened in December 2004, "proved to be too much for me and my two boys who were becoming increasingly unhappy with our weekly schedule," she said in a message to her customers on the Internet.

"I have now turned Kids Unplugged into an online business and I’m thrilled to be able to bring this Web site to you and your family where you will find high quality wooden and natural toys," Suter added.

Business Online Is Music To Some Ears
While even major retailers from Wal-Mart to Bloomingdale’s have capitalized on the Web’s influence, some have had to learn the hard way. Tower Records, the iconic record chain, was recently sold in bankruptcy court, forsaken by consumers who have turned to digital music downloads and discounts at big-box superstores. Its financial faltering — this is its second bankruptcy filing since 2004 — signals not only corporate problems but also a shift in how people shop. Locally, Tower Records has locations in San Diego and La Jolla.

Taking advantage of online commerce, however, is Vivendi Universal, the world’s biggest music company. In August the company signed a deal to make its entire music catalogue available on a free legal downloads service through entertainment site SpiralFrog. Under the agreement, SpiralFrog will offer Universal’s songs for free online in the U.S. and Canada. Of course, there is a catch. Users would have to regularly visit the SpiralFrog Web site to view ads before continuing to listen to the music downloaded for free. The service, to be launched in December, experiments with a new business model that is funded entirely by advertising, as opposed to the pay-per-song model of Apple Computer, Inc.’s market-leading iTunes music store.

While the idea of free, legal downloads will likely appeal to consumers, record industry executives say it remains to be seen whether SpiralFrog can attract enough advertising revenue to pay record companies for their catalogs. The site also needs to sign on other major labels, such as EMI Group Plc and Warner Music Group Corp., to offer enough songs to attract strong user traffic. Both record labels said they were in talks with New York-based SpiralFrog, which intends to share advertising income with its partners. SpiralFrog’s profits remain to be seen, but others will likely use their outcome as a means to further bring the physical retail world online. — Jennifer Valdez, photography by Damien Garcia