E-tailer's shutdown a lesson in logistics

Australian e-tailers have warned Eisa's Shop.com.au closure is the natural outcome of unscalable logistics and the failure of throwing money at a poorly defined market.

Last week saw Internet service provider Eisa quietly closing down its computer retail initiative, Shop.com.au, "indefinitely".

And although Shop.com.au's Web content manager, Matt McEwen, commented the Eisa management were reassessing the site's "focus" and "target market", other e-tailers had more pointed comments to make.

"This is another case of companies trying to achieve success and relying on marketing to do it," said Stephen Spilly, managing director of E-Store.

"You need to iron out logistics and fulfilment before a Web site even gets turned on," he told Computerworld.

Spilly pointed to recent positive media reports of managing directors of e-tail operations driving product to customers, a situation he described as "horrendous".

Rob Fitzpatrick, marketing manager of ShopFast, agreed the key to successful e-tail is to "deliver on your promises to customers.

"Product is the first and most important advertising tool - customers will talk it up if it's any good," Fitzpatrick said.

John Giro, chief marketing officer of Greengrocer.com.au, an Internet company that delivers fresh fruit, vegetables and other perishable items, said the company has no room for mistakes in fulfilment of its wares.

"Fulfilment is the hardest part to get right."

Giro said e-tailers should ask themselves if they have the capabilities - both infrastructure and people skills - to handle the fulfilment side of the business.

"If the answer is yes, there needs to be a commitment to implement the infrastructure and resources that will scale," he said.

If not, Giro said "it is hard to find partners in Australia that provide the level of flexibility customers are demanding from e-tailers".

Greengrocer itself shopped around until the right third-party courier service was pinpointed.

Even then, Giro said "they couldn't offer the flexibility our customers demanded".

Greengrocer has since invested in a routing software optimisation package as well as a fleet of refrigerated vehicles.

E-Store has a different fulfilment model, partnering with suppliers, manufacturers and distributors.

"We don't carry any stock ourselves which keeps our costs down, but there is always stock available at partners' warehouses to fulfil orders," Spilly said.

"In some cases, we make sure one of our employees is on hand at the warehouses to look after our customers."

Shop.com.au will not be alone in its failure, the e-tailers predicted.

"In six to 12 months we will see similarly spectacular failures," Spilly said.

And Giro similarly warned "it will be the first of many".

Giro said business models which throw money at customers, but lose money when they scale up are the prime candidates for failure, adding "e-commerce is like any other business".

Meanwhile in a major setback for OzEmail-hungry Eisa, Fairfax's online arm, f2, last week ended its memorandum of understanding with the ISP, citing poor market conditions as the driving force behind the decision.

In April, f2 announced it would manage and provide content for the portal of the combined Eisa/OzEmail business.

However, Eisa's proposed $300 million to 350 million deal to acquire OzEmail has been hampered due to the so-called market correction in mid-April, which saw Internet stocks, including Eisa shares, drop dramatically.

Under the original deal, f2 was to pay $40 million to acquire a 5 per cent equity stake in Eisa at $2 a share. Since Black Monday (April 17), Eisa shares have dropped continually, recording an all-time low (at presstime) of 51 cents. Prior to the stock market crash, Eisa shares were trading as high as $3.18, before plunging to 93 cents on the morning of April 17.

Nigel Dews, chief executive of f2, admitted the market downturn had contributed to f2's decision to pull out of the deal, despite efforts to agree on new terms.

"We were unable to come to an arrangement on the deal in terms of what will work for shareholders," he said.

Dews, however, did not rule out the possibility of renegotiating a deal at some later stage should OzEmail be acquired by another player or should the market improve.

"OzEmail remains an attractive asset, so who knows? Our doors are always open for deals," he said.

According to Dews, f2 will continue to develop distribution deals through a number of different channels. "We will continue to work towards other options . . . portals are one of many options. This was one possible route," he said.

Eisa did not return calls before press time.

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