Article

Asian e-tailing ushers in a bleak new year

Several sustainable e-tailers will emerge in Japan, a country with sufficient transaction scale to justify the non-trivial up-front investment requirements. Otherwise, an uncertain and likely unkind future awaits most e-tailing concerns in Asia.

By Edmund Lin

Published on January 01, 2001
min read


Within the past 18 months hundreds of start-up e-tailing dotcoms have been launched with great fanfare throughout Asia. Aiming to be the next category killers in everything from flowers to furniture, the new leaders of the retail revolution launched major online and off-line marketing campaigns. The boom has been short-lived, and apart from a temporary windfall for the advertising industry, few have found a path to profitability. 2001 will be a tough year for Asian e-tailers. For most, Christmas sales have been uninspiring and cash balances are dwindling. The spigot is largely closed on the once free-flowing tap of private equity investment, leaving most e-tailers with few options for fuelling their once ambitious growth plans. Ultimately, the economics of e-tailing are unattractive for most dotcom players. Building up a customer base from scratch is expensive. So are the additional information technology and shipping charges which largely wipe out the savings of an online customer interface. It turns out that cash flow management for e-tailers is very similar to that of brick and mortar retailers û the cash needs of proper inventory management, maintaining customer service and funding product returns are very difficult to sustain. Ultimately, the margins of e-tailing dotcoms will be in line with the razor thin returns of traditional catalogue businesses and traditional retailers. The likely survivors will develop a hybrid model, leveraging existing brick and mortar infrastructure and assets û a large and loyal customer base, a trusted brand and reliable delivery capability. Winning players will exploit the full value of information, enabled by an internet interface, to further deepen customer loyalty and secure a larger share of the customerÆs virtual and off-line wallet. Several sustainable e-tailers will emerge in Japan, a country with sufficient transaction scale to justify the non-trivial up-front investment requirements. Otherwise, an uncertain and likely unkind future awaits most e-tailing concerns in Asia.

Within the past 18 months hundreds of start-up e-tailing dotcoms have been launched with great fanfare throughout Asia. Aiming to be the next category killers in everything from flowers to furniture, the new leaders of the retail revolution launched major online and off-line marketing campaigns. The boom has been short-lived, and apart from a temporary windfall for the advertising industry, few have found a path to profitability.

2001 will be a tough year for Asian e-tailers. For most, Christmas sales have been uninspiring and cash balances are dwindling. The spigot is largely closed on the once free-flowing tap of private equity investment, leaving most e-tailers with few options for fuelling their once ambitious growth plans.

Ultimately, the economics of e-tailing are unattractive for most dotcom players. Building up a customer base from scratch is expensive. So are the additional information technology and shipping charges which largely wipe out the savings of an online customer interface. It turns out that cash flow management for e-tailers is very similar to that of brick and mortar retailers û the cash needs of proper inventory management, maintaining customer service and funding product returns are very difficult to sustain. Ultimately, the margins of e-tailing dotcoms will be in line with the razor thin returns of traditional catalogue businesses and traditional retailers.

The likely survivors will develop a hybrid model, leveraging existing brick and mortar infrastructure and assets û a large and loyal customer base, a trusted brand and reliable delivery capability. Winning players will exploit the full value of information, enabled by an internet interface, to further deepen customer loyalty and secure a larger share of the customerÆs virtual and off-line wallet. Several sustainable e-tailers will emerge in Japan, a country with sufficient transaction scale to justify the non-trivial up-front investment requirements. Otherwise, an uncertain and likely unkind future awaits most e-tailing concerns in Asia.