April 20, 1999 8:25 PM PDT

Heavy lifters may win next e-tail round

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Internet-only retailers like Amazon.com won the first round of e-tailing with goods like books and CDs, but in markets just now coming online, traditional retailers may have the upper hand.

The barriers to entry into the online retail market for small, easy-to-ship goods were low compared to the kinds of goods consumers increasingly will be buying online, entrepreneurs and analysts say. Shipping bulky items like appliances, consumer electronics equipment, and furniture can be costly and difficult.

As online markets expand, brick-and-mortar companies with established delivery mechanisms will have an appreciable edge over start-up Net outfits.

"The categories that are going to matter next are where physical distribution is a huge barrier," said James McQuivey, e-commerce analyst at Forrester Research.

"If you're going to move furniture and appliances around the clock, it matters who you are and who your distribution partners are. In those markets, start-ups won't have much traction."

Most of the goods shipped to online consumers over the 1998 holiday season--when e-commerce seemedto come of age--fell into the retail category.

Those goods could easily be transported by United Parcel Service, which shipped 55 percent of online holiday purchases, as well as its rivals. The U.S. Postal Service shipped 32 percent, and Federal Express delivered 10 percent, according to market research firm Zona Research.

But UPS won't ship anything heavier than 150 pounds, while the U.S. Postal Service has a 70-pound limit. That works fine for shipping PCs or computer peripherals, but it isn't so helpful for a king-sized bed.

"To deliver something the size of a refrigerator, I would imagine that [a retailer] would need to set up their own logistics supply chain or work with a larger logistics company," said UPS spokeswoman Angela McMahon.

One executive who knows about shipping is Julie Wainwright, who has gone from being chief executive of Reel.com, which sells videos, to CEO of Pets.com, which sells many items of differing size and mass.

"The next wave of e-commerce will be things that are harder to put in boxes, and where distributors are not automated at all," said Wainwright.

So far, many online-only retailers have simply avoided logistical problems by not stocking larger items. Appliances Online offers only small household appliances like toasters, waffle irons, and microwave ovens, and uses the Postal Service for deliveries.

"When the customer says, 'Deliver it to me,' that sounds easy enough," McQuivey said.

"But you still have to move it across the country. That's why I think the real success will be Sears, which has it in the warehouse."

Sears intends to begin selling major appliances from its Web site around the middle of this year.

But distribution dynamics vary among industries, points out venture capitalist Neil Weintraut of 21st Century Internet Venture Partners.

"The supply chain is the big issue for a lot of industries, and depending on the industry, it may help or hurt the incumbents versus the new entrants," said Weintraut. To date, his firm has funded two firms selling easy-to-ship items: nutritional supplements retailer GreenTree and student textbook vendor BigWords.

Even within a particular industry, distribution can vary. Although Amazon.com initially relied on one major wholesale book distributor, BigWords must work with about 50 textbook publishers to supply its inventory, Weintraut said.

Another hurdle Net storefronts face is the fact that many distributors who handle bulk shipments may not be equipped to handle single orders. "Shipping cat litter as individual units is not as cost-efficient as shipping in bulk to retail outlets," Weintraut noted.

The same principle would apply in for other types of goods, since it costs as much to ship an inexpensive item as one with a premium price tag if they're the same weight and size. In other words, high-value goods may be better suited for Net merchants.

Getting the goods can also be tough for a start-up e-tailer trying to compete with a mainstream retailer with decades-old relationships with suppliers and manufacturers. "Outside of very generic, commoditized products like books, music, and videos, you start getting into channel relationships that are not easy to break into," said Forrester's McQuivey.

For the rest, he's betting on big brands. "Once the branded players like Ethan Allen or Crate and Barrel figure out this space, they will own it."

 

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