E-Tailing: Looking for a Proprietary Model
David Ricci, Research Analyst, William Blair & Co.
Interviewed by Dale Buss
After working for 12 years in consumer products, retailing and direct marketing, including stints at Procter & Gamble and Bain & Co., David Ricci knows a thing or two about retailing. As an analyst for the brokerage William Blair & Co, he's trying to sort out which Internet-based and traditional retailers are going to be winners in e-commerce. The Internet Analyst recently spoke with him about how he sees the new world of e-tailing taking shape.
[THE INTERNET ANALYST — DALE BUSS] What signals to you that a retailer, traditional or Net-based, is going to be a winner in e-commerce?
[DAVID RICCI] I'm looking for a proprietary model, which can be based on different things: proprietary merchandise, proprietary cost structure, or a proprietary form of retailing — which is what EBAY (EBAY) is doing. Particularly compelling is the use of the Internet to create a competitive advantage from a customer standpoint, vis-à-vis the alternative options.
It's nice to be a 24x7, convenient place to shop, but more significant is where you can fundamentally change the commerce process and make it a superior customer experience — as EBAY is doing versus traditional classified ads or flea markets. AMAZON.COM (AMZN) and BARNESANDNOBLE.COM (BNBN) are doing this with books and catalog retailer WILLIAMS-SONOMA (WSM) has begun doing it with its online gift registry.
[DB] Who's got the edge so far in the race to "proprietariness," the pure online retailers or brick-and-mortar stores that are going onto the Internet?
[DR] There are traditional retailers that are better positioned to succeed online than an online player is — those that have proprietary control over development and distribution of a product. So if you wanted to buy some home furnishing items, for example, would you rather buy a highly proprietary item from a retailer you know, like Crate & Barrel or Pottery Barn, or from an unknown retailer that's online and doesn't have the resources to develop a proprietary product?
[DB] What else do traditional retailers have going for them as they eye the Net?
[DR] Those with large advertising budgets already in place can create a huge competitive cost advantage, compared with new Net companies trying to build an identity. CVS (CVS) is a good example of that. It just bought Soma.com and now will use its $200- million advertising budget to create awareness for [the online drug retailer].
[DB] So watch out, online retailers?
[DR] Well, actually, watch out both online retailers and brick-and-mortar retailers, because the companies that really are best-positioned for the Net are direct-marketing companies like WILLIAMS-SONOMA, LANDS' END (LE), INTIMATE BRANDS' (IBI) Victoria's Secret unit, and CHEAP TICKETS (CTIX). They already spend a high percentage of revenue on advertising, have highly developed fulfillment mechanisms and have databases of people who are comfortable with purchasing sight-unseen. As they migrate customers to the Net, they're reducing costs from their call-center operations
because customers are placing orders electronically. Cataloguers are uniquely positioned to go between online and traditional "brick-and-mortar" retailers, and not have to initially worry about how the business is scaled.
multex.com |
