buy.com's decision to pursue a controversial "loss leader" strategy set has channel tongues wagging in the wake of an aggressive marketing campaign pitching the upstart against Australia's dominant IT retailer.
Advertisements in national papers comparing Harvey Norman consumer goods with a cheaper alternative by up to $250 at buy.com were accompanied by the tag line "spot the rip off".
HN's CEO, Gerry Harvey, was quick to dismiss the company as a serious force in the Australian retail space, commentating the advertising campaign "doesn't make us very happy. The great majority of manufacturers would see that [ad] and vomit," he said.
While the advertisements were not directly targeted at IT products, the aggressive business model prompted a number of calls to ARN.
Some distributors, who declined to comment on the record, were amazed at the strategy and questioned its long-term viability in the channel. One source said the e-tail business model presents distributors with the dilemma of catering for the different needs and pricing structures of retail and e-tail businesses.
Harvey also commented on this issue: "They [Tech Pacific] are obviously going to have a very sour relationship with Harvey Norman and every other customer they've got."
Tech Pacific's new third-party products business reportedly supports the likes of estore and ubid in addition to buy.com.
The problem of allowing e-tailers to undercut traditional resellers was an issue Dataflow grappled with recently in its dealings with smartbuy.com.au.
When asked for comment, Tech Pacific declined to offer any official comment. However, a spokesperson acknowledged buy.com's decision to pursue a "loss leader" strategy made it difficult for the company to manage different relationships with retail and e-tail companies, despite the fact it considers both equal as reseller customers.
When asked for comment on the strategy, Richard Baillie, buy.com's chief executive hung up the phone. A buy.com PR spokesperson later attempted to deny the company dealt with Tech Pacific, despite Tech Pacific's own admission to ARN the company is a "customer". After some discussion with buy.com, the spokesperson said the company did not want the opportunity of reply. "We're not interested in making any comment about our strategy," he said.
For now, the battle is left to Harvey, who said he is not concerned by what he called a "massive money loser" in the US. According to buy.com's financial results for Q2 released on April 24, net loss for the quarter was $US32.8 million, compared with a net loss of $19.3 million in the first quarter last year.
The company did, however, boast revenue growth of 92 per cent to $207.6 million for the first quarter over last year's effort of $107.9 million in the same quarter.
"There's no future for them," Harvey said. "The fact that they've opened here is a massive mistake. In Australia they will just go out of business. You virtually can be guaranteed 90 per cent of these dot-coms will go out of business."
Harvey said he considered David Jones a more worthy competitor, and will not be drawn on price competition with the e-tail model he believes has got "all the fundamentals wrong. I've just got to pretend [buy.com] doesn't exist."