By Steve Lee, APR

Just a year ago, the media was sounding alarms for the future of U.S. "bricks and mortar" retailers. Internet-only ("pure-play") companies were stealing their customers and their sales at a rapid rate. The times were clearly changing and the retail landscape looked to be the proving ground for a new digital age. Then something amazing happened -- reality struck.

Simultaneously, two important things happened. First, major brands like the Gap, Toys "R" Us, Staples, Home Depot, and Merrill Lynch repositioned themselves into "clicks and mortar" organizations -- offering both the traditional business services as well as Internet-based services. And secondly, the money ran out. Or, more pointedly, investor's patience with waiting for the return-on-investment ran out.

You see, what the dot-com-onlys have is great Internet presence, but limited business understanding. They have no history of serving and satisfying customer needs and seemingly little knowledge of who the customer is and what they want. In their rush to the market they assumed that the world had changed, that the Internet had ushered in a brave new world of commerce where the rules were different. What they misunderstood is that people are still people and business is still business. Consumer expectations haven't changed -- just our shopping patterns.

This turn of fortunes has left many Internet-only companies scrambling to find their place. In a special e-commerce report in The Wall Street Journal Interactive Edition, Ted Dintersmith, a partner with the venture-capital firm Charles River Ventures, is quoted as saying, "These [Internet only] companies are like pilots flying into a canyon and suddenly finding they can't climb fast enough to get out and there's no reverse."

The record shows that "click and mortar" companies are making more sales on the Web than their Internet-only competition:

But why has it taken traditional American businesses so long to embrace the Internet? In a Forbes article entitled "The E Gang," Jack Welch explained his Internet reluctance saying "I was afraid of it, because I couldn't type." Then he spent a weekend at the keyboard, and General Electric has never been the same. The big old guys are going to beat the daylights out of the pure-play dot-commers, says Welch. "Old companies thought this was Nobel Prize-type work. This is not rocket science. It's just like breathing." Carly Fiorina, CEO of Hewlett-Packard says, "People who concluded in the first couple of years of the Internet boom that the large companies would fail and only the new ones would succeed fundamentally misunderstood the true transformational power of the Internet."

Obviously, the Internet has changed the dynamics of how we shop. Information is much more freely available and dependence on retail experts (salespeople) has all but vanished. But no matter how much information we now have, shoppers' expectations haven't changed. Value and service are still in high demand and the retailer who delivers these will ultimately win.

Companies' senior managements glibly talk of "exceeding expectations," but customers are delighted when their expectations are just met. Forget exceeded!

In dealing with "bricks and mortar" companies, customers know what to expect and there is comfort and trust in this familiarity. Let's face it, consumers want their expectations to be met, but they don't like to be surprised. At one time, Holiday Inn used the advertising slogan, "The best surprise is no surprise." The "line" may have disappeared, but travelers still know what to expect when they drive into a Holiday Inn.

The equity that has been built in major brands communicates much more than just a name; it tells consumers what level of quality, service and value they will get when they shop, either online or in a "real" store at Blockbuster, RadioShack, Toys "R" Us or other major retailers. Having an established relationship with customers in the physical world makes it much cheaper to relate to them online. Boston Consulting Group says it costs Internet-only retailers $82 to acquire a new customer, compared with $31 for store-based retailers to get an online customer and just $11 for catalog-based retailers. There is a natural synergy between retail stores and web sites, if the company only knows how to leverage the two to work together.

Consumers with incomes high enough to excite retailers usually like to buy recognized brands. They like bargains, but they don't want to spend the time necessary to "shop around." Established "click and mortar" companies understand this and use their brand names to attract well-heeled prospects. They are experienced enough to know that their stores and their brands are their greatest assets. They use their Internet sites to fend off the competition, using the philosophy that "If somebody's going to sell on the Internet, it may as well be us."

The managements of the "pure-play" companies often are young and inexperienced. Their enchantment with technology overshadows their belief that the customers' needs will be met or the customer will go somewhere else. Even though surveys constantly point to customers' demand for complete information, clear graphics, on-time delivery and personalized (human-based) customer service, the lack of customer understanding, coupled with a complete lack of physical presence (stores) often makes dealing with an Internet-only company frustrating. If it sounds like the pendulum has swung and now the dot.coms are out of hope, don't believe it. Who would have foreseen the changes we've watched cross the business landscape in just the past few years? The full impact the Internet will have on our daily lives remains to be seen. We've only experienced a small part of what is to come.

For businesses, the Internet is both curse and blessing. On one hand it speeds time-to-market tremendously and allows you to have a direct dialogue with the customer -- while on the other hand it exposes your flaws and gives the consumer a very loud voice when aroused. In the end, the basic tenants of business don't change. Deliver a quality product in a timely and convenient manner, price it competitively and back it with good customer service. Those are the attributes that Stanley Marcus used to build Neiman-Marcus, and they're the attributes that make companies successful today, on and off the Internet.