The concept of e-tailing is as old as 1990’s since those days there have been pioneer in this business model and there are organizations who have also burnt fingers by entering into the e-tailing without ground work. This work is an effort to trace journey of two popular e-tailers of the history where one has come as winner all the way but another could hardly survive for couple of years.
Tesco:
In a quest to find new avenues in business, the leading retailer of UK decided to start supporting its brick & mortar business with online model. Lets see what were some of the key strength of this retail giant
1) A well established and Profitable brick and mortar business: A retail chain started by selling grocery from 1919, Tesco grew organically and inorganically over the time. Like its counterpart Walmart and Target , it started transferring the savings gained by volume purchase to its customer and gained instant popularity.
2) Amazing ground work: It was a very obvious observation for Tesco that to go online it customers should have access to net. Tesco decided to provide broadband services and soon become well known ISP. With this it became first retailer who was also an ISP. Tesco also did intensive analysis on the profitability of the business model.
3) Running pilot model first: Tesco started pilot model in one of the London store , a very basic website was designed and the model was a combination of telephone, fax and internet. After successful broadband business and encouraging results from its pilot project, Tesco started providing online shopping in many of its London based stores.
4) Efficient Operation: Once customer has ordered the merchandising, Items would be picked up from store by employees and delivered to the customer.
5) High focus on technology: Tesco was very clear that its technology has to be the best to provide amazing customer experience not only in terms of website navigation but also in terms speed .It went on to the extent to produce updated CD’s and supply to its customers so that they can add items to their basket and then connect to internet by dial up connection to just place the order.
6) Geographic expansion of e-Tailing : Tesco made sure that it sticks to the basic for expanding its e-tailing. It targeted places like South Korea, where Internet use is high and where high-speed Web connections abound, enabling the grocer's jam-packed pages to download quickly.
7) Going that extra step: Tesco went one step beyond when it enabled Tesco.net for visually challenged people. Blinds could now purchase online with the help of speech recognition systems. The system, which the company developed along with the Royal National Institute for the Blind (RNIB), uses technology that converts text to speech, describing products on the company's Tesco Direct Web site and guiding consumers through the buying process.
WebVan.com
Unlike Tesco , webvan is started as only an online retailer without having a support of brick and mortar stores. Louis Border started it with the help of several VCs in 1999. WebVan pioneered technology to serve its customer sand went on creating a huge infrastructure to the extent that after some time the expense of running business was much more then the cash inflow.
1) No Support : WebVan did not have any brick and mortar business to support, instead it developed its distribution centre from where it supplied to the custmomers.
2) Ambitious plans without any groundwork: WebVan went on an expansion ride without even looking at the feasibility of the business model. The plans were really ambitious involving expense of multibillion dollars in setting up infrastructure.
3) Ignorance to availability of internet : Even though webvan made a point setup its business in town with higher broadband penetration but still it over estimated the potential of online shopping in those days.
3)Huge Investment in automation : WebVan spent a fortune in automating its distribution centers. They were equipped with conveyor belts on which merchandising used to travel to reach to the picker trucks. It used refrigerator trucks to keep vegetables fresh. Webvan missed on the fact that for sustaining such kind of investment it would need huge customer base since very beginning
4) Misfit collaboration : In less then one year webvan decided to takeover one of its archrival HomeGrocer. HomeGrocer & Webvans business were running on entirely different business strategies. Webvans distribution centres were very high tech and automated whereas in HomeGrocer DC operations were manual.
5) Every thing can not be automated : Automation in webvans distribution centre was common for all the items and their was no way it can be customized for separate merchandising , specially for food items which were soft and come in delicate packaging.
Webvan was bankrupt by july 2001, Over ambition and high reliability on a niche segment caused closing down of webvan
Learning’s :
Looking over Tesco and WebVans ( and some other etailing ventures) we can have some key points about this business
Brick & Mortar Support: It is very difficult for an online grocer to continue without support of a brick & mortar business. Tesco , Walmart, Fabmart used online as a strategy for market development and became successful. Like WebVan Peapod also tried to be an onlibe grocer by simply collaborating with various superstores but after running into losses for long time it decided to build its own warehouses.
Internet Penetration : Tesco’s plan to become ISP was simply visionary and shows how serious they were about e-tailing. WebVan missed the actual numbers of internet penetration as well as prospective clients who would be using website for grocery shopping. IF we look the numbers for 8.5 lac customers Tesco was generating 2.5 Lac orders a week but WebVan was generating merely 15K orders for 7.5 lac customers.
Phased Investment in Hi tech infrastructure : Where Tesco kept it simple, Webvan went on building state of the art automation technology for its distribution centre. It would have been wiser to test the feasibility of business before getting into such a huge capital investment. Especially in the days when labour was much cheaper then such kind of high end technology. The investment made by Tesco was mostly for making customer experience better, which was the need of the hour.
Strategic collaboration: WebVans collaboration was also a misfit with its business model. It is necessary to have collaboration which can compliment the business model especially in the days of start up. Within 1 years of starting business was not a good time to merge with a business where one would need to spend money for major restructuring of business itself.
I would say one major takeway will be "Put technology and investment where it makes things easire for customer"
Also posted on Cool Avenues (http://www.coolavenues.com/know/system/saurabhs-it-1.php)
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