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