Web Retailing

Not Just Another Web Retailer


Two serial entrepreneurs are poised to launch an online marketplace for brand-name household items that boldly aims to compete not only with the likes of Amazon ( (AMZN)) and drugstore.com ( (DSCM)), but mega-retailers such as Wal-Mart ( (WMT)), Target ( (TGT)), and CVS Caremark ( (CVS)) as well. It's also up against something else that might be just as powerful: memories of past online consumer-goods debacles. On June 23, after a beta test period that was prolonged by tortuous negotiations with big consumer-goods makers, many of whom are still not on board with the venture, Alice.com will make its debut. The site will offer 7,000 products made by 55 manufacturers, such as Procter & Gamble ( (PG)), Colgate-Palmolive ( (CL)), and Clorox ( (CLX)). It is the brainchild of Mark McGuire and Brian Wiegand, who sold their last endeavor, online ad business Jellyfish, to Microsoft ( (MSFT)) for a reported $50 million in 2007. The pair readily admit to having absolutely no experience in retail. What prompted them to enter the stodgy, $350 billion consumer-products realm? "When we left Microsoft we wanted to swing for the fences," says Wiegand. Platform to Bypass Retailers No question, the odds seem to be running against success. Some previous attempts to deliver low-margin household goods online, most notably Webvan, blew up in spectacular fashion. Today there are plenty of well-capitalized competitors in related areas of : Amazon offers thousands of packaged goods like cereal, coffee, diapers, and detergent alongside its traditional books and electronics, but does not break out sales of those items. Drugstore.com has been around since 1998 and now carries more than 45,000 over-the-counter (nonprescription) products, but has struggled to turn a profit, posting a net loss of $8.3 million last year. Nearly 100 grocery chains also offer some form of online ordering through an e-commerce outfit called , which was founded in 1999. "The competition is broader than they think," says Mike Spindler, a director at MyWebGrocer. Alice's founders claim it is different. "We're not a retailer," says Wiegand. Rather, Alice provides a platform for consumer-product makers to bypass traditional retailers and go directly to shoppers. Average Purchase Around $50 Instead of buying the goods from manufacturers, marking up the price to make a profit, and then selling them—the traditional retail model—Alice makes no money on the sale of the goods. The manufacturer sets the price, while Alice handles fulfillment and customer service, passing along those costs, which are about 35% of the selling price, to the manufacturer. Shipping is free, and the company pledges to offer low prices that are competitive with discount retailers like Wal-Mart. "On average we are at or slightly above [the prices at] big-box retailers," says McGuire. To get around the issue that it's tough to make money by selling one tube of toothpaste at a time—a lesson e-commerce pioneers painfully learned—shoppers at Alice.com are required to purchase at least six items before checking out. In beta testing, the average purchase on Alice.com came to around $50 from 11 items. "It's a pretty interesting idea," says Neil Stern, senior partner at retail consultancy McMillan Doolittle, adding that Alice's model still could be challenged by shipping bulky items like paper towels for free. Suzanne Clarridge is skeptical of Alice's claims. She runs My Brands, an online consumer packaged goods site featuring 11,000 products, many of which are made by small and midsize manufacturers that do not have full national distribution at retail. Clarridge has been in business for eight years, and requires that shoppers buy at least four items, often in bulk quantities, in order for her to turn a profit. "I don't understand how they are going to offer free shipping on low-margin items," she says. "Even Amazon can't make money doing that."Social Networking Element Based in Madison, Wis., Alice aims to make money through advertising programs such as coupons, loyalty programs, or keyword sponsorships, betting that its reams of data on shopping habits and tastes will be highly desired by manufacturers. "It's a service, like Netflix, not a store," says Wiegand, who won't project sales but expects 250,000 customers in the first year of operations. (Unlike Netflix ( (NFLX)), however, consumers don't have to pay to subscribe to the site.) The site will also include a social networking element where users can upload pictures of their actual cupboards and chat about them in an area called "Me, My Shelf, and I." A "reorder queue" on the site means "you'll never run out of toilet paper again," the company claims. Retail and consumer product experts say Alice.com's business model is intriguing but depends on participation from the branded manufacturers, who are thus far not entirely convinced. McGuire and Wiegand admit that roughly half of the products on the site come from manufacturers that have not yet signed agreements with Alice, meaning that Alice will have to pay wholesalers for those products. If those manufacturers are not on board in the months after the launch, their products could eventually be dropped, the founders say. Some Nervous Manufacturers After hearing about Alice.com, Ken Harris, a longtime consultant to consumer-products makers, says he "wouldn't bet on it," as Alice's success depends too much on the support of the branded players. Alice's founders feel the consumer-product manufacturers will come around, eventually. "The [consumer product] guys are nervous about being retailers, because they are competing with their own partners," McGuire says. So nervous, in fact, that Wiegand and McGuire can't mention any big ones by name. And if retailers can act like manufacturers by making and marketing private-label or store-brand goods, Alice's founders argue, why can't manufacturers turn the tables and act like retailers? There are signs this is happening already: Earlier this month, Procter & Gamble announced it is getting directly into the retail business with its acquisition of retailer The Art of Shaving. Six-Item Minimum Order One small manufacturer that would speak is Radius, a Kutztown (Pa.) maker of high-end toothbrushes that does about $9 million in annual sales at outlets like Whole Foods ( (WFMI)), Target, and Bed, Bath & Beyond ( (BBBY)). Saskia Foley, executive vice-president of sales and marketing, says she's interested in the prospect of capturing additional consumers through Alice.com. "People in general don't think about buying toothbrushes in advance," she says. One shopper who has used the site is impressed. Kristin Chase, a blogger in Atlanta, says she was intrigued by the concept, especially as she had just run out of toilet paper the day she was contacted by Alice.com to participate in the beta test. Chase says she found the site easy to use, and "it made my life a little more organized." She's not wild about the six-item minimum order, though, and says Alice's success depends on shoppers "embracing a new way of shopping."
Boyle is a reporter for Bloomberg News and Bloomberg Businessweek in London.

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