Gone are the days when a starry-eyed management consultant could pick an obscure category, such as socks, and try to revolutionise it by selling through the Web. Just how can an e-tail business model work in the local climate of today?
The early mistakes of e-tailers principally revolved around price and measuring the value of a customer. It didn’t take long to discover that spending upwards of $100 on acquiring a customer was a bad idea. Similarly, getting them to buy $80 worth of goods that cost you $90 to purchase when you factor in logistics is likewise futile. On top of that is the fact that, in all likelihood, you won’t be seeing that customer again.
In essence, the early problems can be summarised into the areas of marketing, logistics and customer service.
Old world retailers, with a significant offline presence, have a definite competitive advantage in marketing. As evidenced by the likes of David Jones and Myer Direct, offline promotion through their existing customer base and store outlets has allowed them to build an initial set of users for a small capital outlay.
Pureplay Wishlist.com.au has been able to replicate some of the offline efficiencies through its logistics and distribution partnership with BP. Under the agreement, Wishlist.com.au signs are now apart of every nation-wide BP service station.
As well as the marketing benefits, Wishlist.com.au is able to achieve delivery efficiencies by minimising the cost of the so-called ‘last mile’ and allowing consumers to pick up their gifts from any BP station. Because of the great number of BP stores, customer convenience is not damaged in any significant way.
Wishlist.com.au’s approach is similar to Amazo’s in Japan – where consumers are able to pick up their purchases from any 7-11 store.
Another interesting deal by Amazon.com is its co-branded Toysrus.com site. Under the agreement, Toys ‘R’ Us Inc handles the buying and management of inventory and Amazon handles Web site development, order fulfilment and customer service for the new site. All inventory is be processed through Amazon’s warehouses and distribution system.
Although similar Old and New Economy partnerships have been formed (albeit mainly with high profile VC firms), none have displayed the success of Toysrus.com. Over the two month Christmas period, the company sold $US124 million worth of toys. The success of the mix is accentuated by pureplay eToys’ Christmas failure – missing sales targets by around 50% and subsequently sacking 70% of its workforce.
Local companies have no choice but to strike partnerships to achieve a profitable result. That might mean funnelling external business through their in house systems (ala Country Road and Wishlist.com.au) or outsourcing part of the business to third party providers (ala dstore and e-fill).