Part 3 of an unknown number of parts.
A second paradigm for e-tailing
Given the plethora of inventory problems associated with non-commodity goods I outlined, I think it follows that inexpensive, multiple SKU retailers can only be successful if they do not need to discount in order to attract sales. This leads me to believe that significant deviation from the Dell paradigm can be successful, but only under limited circumstances.
I have no exact company in mind for this paradigm, but scores of such companies exist. The company must deal with a relatively low demand, hard to find specialty item. This ensures that demand will be relatively inelastic, and that good margins can be maintained. The problem with this kind of model is that it is really a hybrid between traditional brick and mortar retailing-- fairly complete inventories need to be held, and e-tailing. In this case the e-tailing is an adjunct to the physical store. Inventory turnover will not be great, A/R will still be miniscule, and ROIC will be relatively low because this model lacks the operating leverage of other e-tailers. On the other hand, margins should be substantially higher than discounters. I think this model works best when superimposed upon an traditional retail operation. Effectively, it is an electronic catalog system, but, through the magic of proper internet advertising, it can generate a highly focused and effective marketing effort.
-- more to come -- |
