| BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| BUSINESS WEEK E.BIZ -- CUTTING EDGE
What's With All the Warehouses? E-tailers see they'll need bricks and mortar, too Once upon a time in the ancient World Wide Web, about two years ago, there lived a virtual retailer called Amazon.com Inc. (AMZN) Freed by the magical Internet from the need to build physical stores, Amazon focused on building a cool Web site and attracting millions of customers. No clerks, no big warehouses--just sheer opportunity as far as the eye could see. It was a nice fairy tale. And it was dead wrong. Now, over the squawks of investors who had hoped for a quicker path to profits, Amazon is spending $300 million to outfit more than 3 million square feet of warehouse space to store its books, CDs, and other products. E-tailers like eToys Inc. (ETYS) are joining the party, building their own warehouses. Soon-to-go-public online grocer Webvan Group Inc. is even paying Bechtel Group Inc. $1 billion to build a nationwide distribution system, including fleets of delivery vans. What gives? Mostly, it's one cold fact: The Net is not yet the frictionless marketplace that people like me keep insisting it will become. E-tailers that depend on hundreds of distributors and manufacturers to handle inventory and delivery face all sorts of problems. Products run short, they're delivered late, and multiple items from one order arrive days apart, making them costly for consumers to return if need be. Online superstore Buy.com Inc., which lets outside suppliers such as computer-products distributor Ingram Micro Inc. (IM) stock and ship all its products, caught flak from buyers earlier this year for charging credit cards before items shipped. These problems will hit virtual e-tailers like a ton of bricks and mortar during the holiday quarter, when online sales are expected to triple, to as much as $12 billion. Oh, I know plenty of e-tailers, such as Buy.com, are thriving despite the glitches. Even the world's largest retailer, Wal-Mart Stores Inc. (WMT), has hired Federated Department Stores Inc.'s Fingerhut Business Services unit to fulfill its online orders. And there's a good reason for some of these moves: speed. When you're trying to catch up to the e-leaders, it's faster to hire help than build a warehouse. But any merchant serious about building a lasting business online can't farm out such critical tasks for long. Savvy e-tailers know that if they want the kind of bulletproof customer experience that will keep buyers coming back, they must build and stock warehouses, pack the boxes themselves, and hire enough staff to handle customer calls and returns. Says Julie Wainwright, chief executive of pet-supplies site Pets.com: ''Almost every single smart e-tailer is moving to stocking more and more.'' It's counterintuitive, but building this stuff could prove the key to elusive profits. If Webvan can deliver, say, a lucrative Palm Pilot in the same van as a loss leader such as milk--at essentially no extra cost--suddenly the economics look sweet. PRECIOUS TIME. Controlling the back rooms of e-commerce also could provide the competitive advantage so lacking on the wide-open Web. If it can gather information across the demand and supply chains, Amazon can use detailed buying patterns to refine inventories and product offerings more precisely than other virtual merchants. If people in the Northwest, say, buy lots of DVD players, Amazon could route supplies to local warehouses--and perhaps stock more speakers, too. Says Jeffrey A. Wilke, Amazon's general manager of operations: ''That allows us to expand in terms of product depth and partnerships at will.'' Building state-of-the-art distribution facilities may even give startups some precious time to fend off newly awakened traditional rivals. Like other retailers, Sears, Roebuck & Co. (S) discovered its existing distribution network doesn't work for shipping to individuals. So it has to build a whole new one for online operations. ''If a customer wants a trailerload of toasters, we'd be happy to accommodate them,'' says Sears vendor management director Pete B. Rector. ''But if they want one, we have some work to do.'' Maybe the new companies forging just the sort of logistics networks lacking on the Net will prove me wrong. But I wouldn't bet my dad's Christmas gift order on it. For now, a basic rule of business and life still applies on the Net: If you want a job done right, you gotta do it yourself. ONLINE LINK Amazon operations chief Jeffrey A. Wilke explains the benefits of bricks and mortar at ebiz.businessweek.com. By ROBERT D. HOF Have a question or a comment for Robert Hof? Let him know at robert_hof@ebiz.businessweek.com _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
INTERACT E-Mail to Business Week Online | |||
