Confidence in the pure e-tail model has been hit by the news that online retailer dstore is planning to acquire or roll out its own bricks-and-mortar stores by Christmas.
The plan will require a minimum investment of $10 million, although the exact funding and implementation depends on how the company goes about acquiring its real-world presence.dstore's action follows the acquisition of ozbuy.com by Andrew Kelly's Strathfield Group in July, also seen as a sign the pure e-tail model for the IT industry is in trouble.
According to one analyst, the move to bricks and mortar will continue, as investment companies look to ventures that bridge the gap between real-world and online operations.
"Venture capitalists are putting money into dot.coms more prudently," said Gartner analyst Dickson Tang.
"The Internet trend is [now] a combination of online and real-world stores because customers want flexibility and credibility. The whole idea is to make the customer happy - if they want to order something online and pay for it offline you have to be able to provide that."John Slack-Smith, Harvey Norman's general manager of computers and communications, agreed that the future of pure e-tailers is clouded. "It's been our opinion all along that a pure e-tail model is not sustainable," he said.
"Have you seen that Tom Cruise movie? Show me the money!"Slack-Smith also questioned dstore's ability to get bricks-and-mortar stores running by Christmas, given the "frustrations and challenges that are a normal part of retail". He believes the future for retail is to include e-tail as part of an overall strategy, but even then the online component will be small for the likes of Harvey Norman.
Gartner's Tang said e-tailers could survive in business two ways; decreasing costs by cutting overheads and not holding stock or by increasing revenue through better customer relations and customer management, cross-selling and up-selling opportunities. "Both these elements are important," he said.
Steven Spilly, managing director of Sydney-based e-tailer estore, said the move to bricks and mortar by some companies will just prolong a slow death.
"These guys [the ones teaming with bricks-and-mortar companies] will soon be the worst retailers in the market rather than the worst e-tailers, which has got to be a good thing."He said the industry is confused about the pure-based e-tail model and e-tailers that are finding business tough had diluted business models in the first place. "We are profitable, we are registering significant growth, and because we don't hold stock, no expense is incurred on our end until we have a paid order by the customer. We are not burning. Last month we generated $1.5 million in revenue.
"The companies which are going down are registering a monthly burn rate of $1.8 million, which is just horrific.
"As far as we're concerned, it is better if they get out of e-tail because they are damaging the pure-play image. I am sick of journalists ringing me and asking when we are going to go under, so I'm looking forward to these guys exiting the market."According to dstore CEO David Gold, the company is still evaluating its options and how it will meet the Christmas deadline. Meanwhile, Gold said dstore is also looking to expand into Asia, after signing distribution and fulfilment alliances for ventures in Malaysia, Hong Kong and Shanghai. dstore is looking at venture funding for the Asian expansion from partners in the region to the tune of $10 to $20 million. However, Gold said the idea is still in its embryonic stages. "There has been quite a bit of interest from Asia and we will entertain taking funds from those parties," he said.dstore already operates the largest e-commerce site in Singapore through the portal www.hyper.gatecrash.com after it purchased the operating company Ossia earlier this year. The site will be relaunched under the dstore banner next month as part of the expansion.