Article 3 of 200
BUSINESS/EDGE
E-tail fountain drying up 'Internet' newness wears off, no longer
guaranteeing merchants make sales
Jonathan Rabinovitz
12/21/98
The Star-Ledger Newark, NJ
FINAL
Page 063
(Copyright Newark Morning Ledger Co., 1998)
Toby Lenk, an Internet impresario who wants his Santa Monica, Calif.-based
eToys to dominate sales of Barbies and Hot Wheels the way Amazon .com
peddles books, has a secret weapon.
It's a warehouse.
Sure, his site has wowed venture capitalists with its selection of 8,000 toys,
children's videos and books and its state-of-the-art search engine, which will
find Laa Laa the yellow Teletubby even if you misspell the name.
But what Lenk boasts is not elegant software or new technology. It is a big
building in the city of Commerce, the industrial heart of Southern
California, where toys are stored.
"If you're going to be a competitive company in toys, you need a
warehouse," Lenk noted, because the name of the game is having products at
your fingertips and getting them quickly into customers' hands. "That's the
only way to be a serious retailer. You can't just hang a shingle in
cyberspace."
Roughly four years after the birth of the virtual mall, Lenk's warehouse is
emblematic of a new chapter in the widely touted - some might say
overhyped - effort to sell items over the Internet.
As e-tailers push into new niches - toys, sporting goods and baby equipment -
they have realized that the "bricks and mortar" behind mail order and
traditional retail stores play as big a role in their success as having a really
cool Web site. The easy industries for Internet sales - books, CDs and
flowers, for instance - are taken. And the new ones don't have the same
wholesale distribution networks to tap.
This next wave of Web merchants must still provide an enticing online
experience with the kind of depth and service that keeps users coming back.
But they also have to devote substantial time and resources to establishing
relationships with myriad suppliers, opening warehouses and figuring out
how to pack and ship everything from bibs to Zamboni machines.
"How do you get a crib from somewhere in Massachusetts and get it set up in
someone's nursery across the country?" said Matthew Glickman, whose San
Francisco-based start-up, BabyCenter Inc., is trying to sell baby products
online. "That's the killer app."
Things were simpler in the early days of online sales.
The trailblazer was - and still is - Amazon .com, the Seattle-based company
that offers a selection of 3 million books. It is the standard against which
other e-tailers measure themselves.
In a little more than three years, Amazon changed the way the people buy
books. It stayed open around the clock, developed user- friendly ordering
systems and provided an array of reviews and information on titles that no
bookstore could match.
Today, Amazon dominates the online book market with projected sales of
$450 million this year and has moved into CDs and computer games.
Although Amazon has yet to turn a profit, its market value is $5.8 billion
compared with $2 billion for its rival.
But Glickman, Lenk and others trying to take online retailing into new
territory face a vastly different landscape than the one Amazon encountered
when it opened in July 1995.
Amazon was able to draw on the strong wholesale network for books that
already existed, which meant the company didn't need a big inventory to
start with. Part of the reason Amazon picked Seattle as a base was to be
close to the world's largest book wholesaler, based in Oregon.
Indeed, before Jeff Bezos established Amazon , he determined that books,
videos, computer software, computer hardware and CDs were the easiest
products to sell online. An online company could offer a wider selection of
those items than traditional retailers, who face physical space limitations in a
store.
While Amazon last year added a warehouse in Delaware the size of five
football fields, Bezos began the business out of his garage, and then moved
shipping into a 20-by-20-foot space, where employees knelt on the floor
wrapping books. It was almost two years before he began using a large
warehouse in Seattle.
" Amazon came into existence at a unique time in the history of the
Internet, at the right moment on Wall Street, in a distinctive industry with
unique people behind it," said James McQuivey, an analyst in online retail
strategies at Forrester Research Inc. in Cambridge, Mass. "None of those
variables are as favorable for anyone else."
Despite the changes, optimism about e-commerce remains high.
A survey by CommerceNet, a Palo-Alto, Calif., based trade association, and
Nielsen Media Research found that the number of Internet users who said
they had purchased something on the Web doubled in the last nine months, to
an estimated 20 million.
Forrester Research projected that retail Internet sales to consumers would
quintuple in the next four years, increasing from an estimated $4.8 billion
this year to $25 billion in 2002. Still, the amount is a drop - a fraction of 1
percent - of total retail sales, which amounted to $2.6 trillion in 1997.
Contrary to e-tail proponents who maintain it's less expensive to do business
online because there are no real estate or store personnel costs, Jerry Storch,
an executive at the Minneapolis-based Dayton Hudson Corp., which operates
the Target and Mervyn's chains, argues that it costs more. For an Internet
sale, every package needs to be handled individually and shipped, while
traditional stores ship and handle their goods en masse.
"If you had a transporter, like in 'Star Trek,' and could distribute goods that
way, then it would be like everyone thinks it is," said Storch, president of the
company's credit and new businesses division.
Figuring out how to create that transporter is the challenge for the current
crop of online retailers, who are the settlers following a trail blazed by
pioneers like Amazon .
The task is even tougher now because financing from both private investors
and the public market has gotten tighter.
"It used to be that you said the magic word 'Internet,' and you got funding,"
said Stacey Bressler, CommerceNet's vice president for marketing. "Now it's
going to be more like the real world. People will need to have strong
business plans."
Caption: 1. Toby Lenk created eToys for those who want to escape the
nightmare of Christmas shopping: the crowds, the lines and the screaming kids.;
Photo: 1. ASSOCIATED PRESS |
