Match of the day?

Traditional companies such as John Lewis and GUS are scooping up the remains of the dotcom downfall.

David Bicknell

If ever evidence was needed that traditional bricks-and-mortar companies have begun to set the trend in e-business, then the start of 2001 is proof.

Following on from its acquisition last year of Jungle.com, Great Universal Stores (GUS) bought failing ISP Breathe. Then, one of the key figures in the 'new economy', Jo Galli, quit an electronic marketplace to go back to a US consumer products specialist; and another UK high street name, John Lewis, agreed to purchase the UK arm of Internet retailer Buy.com.

These moves could prompt a series of acquisitions by traditional companies of the struggling dotcoms. Apart from GUS, which saw the opportunities early on of snapping up Jungle.com and more recently buying Breathe, and Kingfisher's purchase of Streets Online, the attitude adopted by some bricks-and-mortar companies to snapping up rescue-seeking dotcoms has been more akin to 'after you' rather than scrambling for bargains.

John Lewis's move gives it immediate access to Buy.com's technology and management team for its own e-commerce operations. It plans to use Buy.com's technology to develop its department store website, while still operating the Buy.com site separately.

According to Luke Mayhew, director of trading for John Lewis department stores, the deal enables it to build an online business more quickly than it would otherwise have been able to do.

The move is likely to herald an increased exodus from dotcoms back to traditional companies like GUS and John Lewis - a move exemplified by Jo Galli's much-lamented return to the 'old economy'.

Galli, who started his career in a traditional manufacturer of consumer goods, Black & Decker, had become a key figure in the new economy after leaving Black & Decker to become number two to Jim Bezos at Amazon.com. He then quit Amazon to join one of the electronic marketplace companies, VerticalNet, as chief executive last year, joining soon after when such marketplaces were hot news.

Now, however, the broad success of electronic marketplaces - while certain to cut costs - is unclear, with a major shakeout set for this year. Perhaps that is the reason why Galli jumped ship, although he claims he missed working in the consumer durables sector.

The race to get webbed

For John Lewis, buying Buy.com could quickly give it an edge over other companies struggling to establish themselves among the pacesetters in the e-commerce steeplechase. Recent research from E-Business Review has shown that most of the companies on the high street are still on lap one of a four-lap race. Some are on lap two, and only a few leaders are on the third. A great number are still at the stage of revamping their websites.

John Lewis says it will continue to develop the existing Buy.com business in parallel with the parent company's own online activities, with both businesses having their own distinct websites. Buy.com, first established in the US in 1997, sells products ranging from computers and electronics to travel, books videos, games, music and golf. The US operation is not affected by the John Lewis acquisition, which only covers Buy.com's UK activities which were launched in March 2000. By last December, Buy.com in the UK was the fourth most-visited e-tail site, with about 500,000 visitors and 80,000 customers. Luke Mayhew, director of trading for John Lewis department stores, says the acquisition of Buy.com is good news for the company, adding that a move into e-commerce had been a key part of its strategy. It is significant that Mayhew is already talking in terms of integrating both its online and offline activities.

"We believe we are well-placed to serve customers, both in our shops and direct. We know that many of our customers already shop online, and with Buy.com we will be moving quickly to create the UK's best online department store offer," he said, John Lewis Partnership, which operates 25 stores across the UK, already has an e-commerce presence through its Waitrose division, operating as an ISP through Waitrose.com and offering six online shopping services.

Charlie Mayfield, head of business development at John Lewis Partnership, says the decision to acquire Buy.com had been recommended to the board by the business development team, and the board had gone ahead, recognising that Internet technology will change the way retailers do business and that acquiring Buy.com would be a strategic decision.

Mayfield says the current teams of around five people working on e-business issues for the John Lewis stores will join the Buy.com team. He expects the acquisition to speed up e-commerce development within the organisation.

Although there is no dedicated head of e-commerce or e-business for John Lewis Partnership, Buy.com will fit into a clear organisational structure to facilitate e-business.

Buy.com will join the department stores side of the business, which reports to the board through the development directorate. On the other side of the business is the Waitrose operation, which also comprises John Lewis's 40% stake in Last Mile solutions, which uses software and logistics to offer customers grocery deliveries at a guaranteed time slot.

A fine fit

Michael de Kare Silver, now an e-commerce guru on the board of telecoms company Thus, and until last year e-commerce director at GUS, applauds Lewis's decisive move but adds that having acquired Buy.com John Lewis will have to answer a number of questions about how it will integrate the dotcom, within the John Lewis organisation.

"They will have to consider how the dotcom culture at Buy.com will fit into the older, more traditional culture there is likely to be at John Lewis. Then there is the question of the Buy.com name. Although they will keep it to begin with, at what point in the future will the name disappear? What are the branding issues?

"For example, when Kingfisher bought Streets Online, it kept Streets as a separate brand, because it brought a different audience. Another thing John Lewis will have to consider is cost-savings. I'd assume that Buy.com will fit into Lewis's existing goods purchasing operations rather than operating independently," said de Kare Silver.

Never knowingly undersold: Key questions

• How will Buy.com be integrated into the company's operations?
• Will the Buy brand continue long term?
• Will the company's cultures match?
• Will the dotcom staff want to stay in a bricks-and-mortar company?
• What are the costing/purchasing issues for Buy.com within John Lewis?