FEATURE ARTICLE
The E-Tail Bubble
Entrepreneur Roger
Chua speaks on the heart of Asian e-tailing as he discloses
the reasons behind the bursting of the bubble, as well
as lessons online retailers have learned and concrete
steps needed to reap the spoils of the e-tail phenomenon.
E-tail@Asia.Com
Elsewhere in the world,
especially in North America, e-tailing has proven to be
a powerful means of doing business. E-tailing was spawned
by the explosion of the Internet and later e-commerce
(which pertains to any electronic exchange of information
to conduct business) phenomenon in the mid '90s.)
E-tailing, also known
as Internet-enabled retailing or online retailing, encompasses
business-to-consumer (B2C) transactions. It is simply
the selling of goods and services online to the consumer
or the ultimate owner or user of the product.
With the runaway successes
of pureplay e-tailers like Amazon.com, Etoys, Epets, Ebay,
Buy.com, the massive euphoria towards e-tailing was played
up, which also encouraged promising start-ups to capitalize
on its exponential growth.
Yet last year, the
dot.com bubble burst and with it the drastic fall-out
of several e-tail companies that only previously were
the toasts of the world.
Some of those who went
bust included a list of the world's prominent names in
e-tailing. Pets.com, which had the distinction of being
the first publicly traded e-tail company in the US, closed
business in November last year. The company claimed financial
problems as the cause of its demise. Also in the US, we
see the rapid fall of several e-tailers like Eve.com,
an online retailer of beauty products, ShopLink.com, an
online grocery delivery service, and Furniture.com, an
online furniture retailer.
Elsewhere in Asia,
China saw the crash of Chinabooks.com, an Internet retailer
of books and music and Admart, considered to be the mother
of Asian grocery e-tailers, also collapsed after reportedly
losing US$120 million during the one and half years it
was in business. In Singapore, dstore.com, an Australian-based
online webstore also went under just months after its
launch.
And the rest are not
spared. The world's largest e-tailer, Amazon.com is losing
big bucks fast. It announced its fourth quarter 2000 loss
of US$545 million. The e-tail pioneer has also downsized
its staff and shaved its 2001 sales projection from a
forecast of US$4 billion to US$3.5 billion.
Behind the
bust
Many ascribed the e-tail's bust as part of the effect
of the bubble bursting on dot.com companies. Yet, the
short-lived euphoria for Internet-enabled retailing shed
light on specific shortcomings of e-tail companies that
eventually led to their downfall.
Industry experts believe
that under-capitalization was the major factor in the
e-tail downturn. To reach their current success level,
Amazon spent a huge amount of capital on advertising,
branding, and promotions - the kind of money that was
not available to the next player who wishes to emulate
them. The correction in the equities markets has seen
to that.
Secondly, start-up
companies became guilty of building their future on unsustainable
business models, having the wrong product mix, or over-confidently
head butting strong competition.
E-tail companies forgot
that e-tailing is fundamentally retailing, as such, the
key factors that make retail a success must be present.
E-tailers must have more than an adequate understanding
of their market niche and must provide superior products
with the right marketing mix to their clients. There must
be efficient and effective control over the supply chain
and order-fulfillment processes.
These, plus e-tailers
who sought to ride on the Internet hype, overspending,
banking on the mistaken belief of "if you build it,
they will come" mentality, investor impatience, and
the global economic slowdown only served to aggravate
this situation.
On the Asian
front
We should not be surprised that few Asian e-tailers have
seen the kind of success that US companies had in this
arena. Unlike the North American entrepreneurial landscape,
there is an absence of a homogeneous domestic market,
access to capital and human resources, and a government
generally supportive of business, and uniform taxes and
regulations in the Asian region.
With the exception
of Japan, Korea, Australia and Taiwan, the rest of Asia
is highly unlikely to contribute to significant revenues
and earnings to total e-tailing business in the region.
For one, differences
in economic and cultural development are big obstacles.
China, a nation of more than a billion people, suffers
unequal distribution of economic wealth. India has 24
languages and numerous other dialects, which for the most
part, are mutually incoherent. Singapore has financial
capital but lacks human resources. The Philippines has
sufficient human resources but lacks access to capital
markets. This results in the migration of a significant
number of talents that may hinder the development of e-commerce
initiatives.
Thus, many factors
need to be considered (customs regulations, tariff duties,
logistics and fulfillment facilities, number of credit
card owners, the population of Internet subscribers) before
local companies can expect e-tailing
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