Announcing its acquisition of ozbuy.com last week, Strathfield Group joined the ranks of bricks-and-mortar companies expanding their e-commerce strategies by snapping up emerging e-tailers.
Strathfield will add its products to ozbuy's existing range of computer and office goods sold online, but other than sharing certain infrastructure, it will operate as a separate entity. According to ozbuy managing director Mike Glezerson, Strathfield Group's current online service will continue to operate as is, selling its radio and electronics range.
Glezerson could not say how much money had changed hands or even if the deal was a cash transaction, but talk within the industry has put the sale price at less than $5 million. "This is a very good opportunity for us," says Glezerson.
"It gives us a physical front through which to market ourselves." Both he and fellow ozbuy founder Michael Smith will continue as principals within the wholly owned operation as well as being incorporated into the Strathfield executive board.
Despite rumours that ozbuy would not have been able to continue without a strong offline partner, Glezerson says that the company was "very close to turning a profit", and was "nowhere in the vicinity of burn, burn". However, he adds that Australia doesn't have the economy of scale to support online-only retailers. "We simply don't have the volume," he says.
Commenting on the deal, Strathfield CEO Andrew Kelly said the transaction is indicative of Strathfield's ability to adapt to the changing retail environment. This environment has seen a turnaround in the trend of real-world companies expanding online, and is now seeing online companies seeking synergies with real-world organisations.
According to IDC Internet analyst Brooke Galloway, while this trend may not necessarily spell doom for pureplay Internet companies, "multi-channel will probably be the winning model with companies partnering together rather than developing their own online or physical entities".
For some time the market has seen the bricks-and-mortar retailers like Harvey Norman, David Jones and Woolworths scrambling to expand into the online space but more and more pureplay Internet companies are expanding their presence into the real world by partnering with established physical companies, says Galloway.
Last week saw the partnering of Australia Post's distribution service Sprintpak and smartbuy.com and dstore has a standing arrangement with Rebel Sport that allows dissatisfied customers to return their products through the sport supplier's stores. "The essential principle of business is that you want to reach the most customers in whatever space is most convenient for them to make their purchase," says Galloway. "Most likely, the successful businesses will be those that have an online presence complemented by a presence in the real world."Galloway disputes the assumption that the current leaning towards clicks-and-mortar companies means that pureplay Internet companies are in danger of extinction. "It's such as complicated space there is not going to be a single business model that will work for everyone - it depends on the store and products that they are selling." She believes that purely Internet-based companies such as shopfast.com have been very successful in differentiating their services from competitors in terms of levels of convenience, customer service and quality of goods. "Shopfast gives its customers the option of payment on delivery for those people who are not comfortable with giving their credit details over the Web," says Galloway. "They deliver up to 11pm at night so people who work late can get late deliveries and don't have to stick to standard business hours, and the quality of their goods is very high. They have refrigerated trucks so if you order ice cream it is still cold when they drop it off."Galloway believes that despite e-commerce' profitability, or lack thereof, real-world businesses see it as an inevitability. "It is considered a necessary investment whether they generate any profit from it or not," she says.