The e-tailer's secret weapon: General retailers use their expertise in a few core categories to attract customers, but over the Web they must offer more. Enter the on-line category manager.

Most general retailers have made huge investments in their on-line businesses but are still struggling to make money out of the World Wide Web. Yet their perseverance is more than justified. While off-line retailing is a mature, slow-growing business, the on-line market--albeit still fairly small--is expanding at double-digit rates. Moreover, customers increasingly demand an on-line presence from retailers.

The search for ways to make the Web profitable is therefore on. It is a considerable challenge, calling for skills that go well beyond those required to run an off-line business successfully. General retailers have always succeeded by striking a carefully calibrated balance between offering a wide choice of goods and the opportunity cost of offering each additional category. But customers in the savvy new generation who shop both on- and off-line have different expectations of Web-based retailing: they want greater depth of inventory as well as rich and relevant on-line product information.

For many pure e-tailers--and even for some retailers with substantial offline expertise--the cost of trying to provide that depth and content has proved insupportable. But help is at hand from an established off-line strategy: category management.

How category management works

General retailers tend to be masters at managing only three to five core categories. When a general retailer has established a loyal base of customers for those core products, it must determine which additional categories will make the most of its valuable shelf space--a decision that calls for sophisticated brand analysis and focus-group research. J. C. Penney's mainly middle-class customers, for instance, are not at all likely to shop for expensive Raymond Weil watches, unlike customers of Saks Fifth Avenue, at the luxury end of the retail market. The equally high-end customers of Neiman Marcus wouldn't expect to find compact discs (CDs) there, but the value-driven customers of Wal-Mart love the idea of buying them in its stores. Too often, retailers offer a wide product range to increase their share of overall customer spending without knowing enough about the noncore categories they stock.

This is the opening for category managers: wholesalers that develop specific expertise in managing stocks of a given type of product--snack foods, sneakers, CDs, or the like--for the stores they serve. A category manager decides what mix of brands a retailer should carry in a …