Delivering the goods

Do the simple things well. That's the mantra which has kept the New Zealand All Blacks on top of the rugby world for as long as anyone can remember. But it's a guiding principle many start-up Internet retailers have failed to heed.

Strategic alliances will provide the path to successful Web retailing in the 21st century, reports Mike Johnson

The business battleground is now littered with the bodies of e-tailers that have tried and failed to take on the world. From ClickMango to Dressmart and Boo.com to Boxman, dotcoms have become dotgones. Retailers which set up shop solely in cyberspace have been brought back down to earth with a bump.

With hindsight, their problems were simple enough. Establishing brands and setting up a Web infrastructure burned through investors' cash at a frightening rate. And it soon became clear that many Web retailers were not only unprofitable, they were hardly selling anything at all. ClickMango had a monthly turnover of just £4,000 despite, according to reports, running through £3m of start-up capital in just eight days.

Now it's the traditional 'old economy' retailers, which just 12 months ago were lambasted for dallying too long before making their move into e-commerce, which are being heralded as the new heirs to the Internet retailing throne.

At the start of this year, Great Universal Stores (GUS), which owns the Argos high street chain, bought the portal service Breathe.com for less than three-quarters of Breathe's annual turnover. What GUS got for just £1.4m was the technology, the skilled staff and the hardware to reinforce its own Internet presence - just as it did last September when it added Jungle.com to its Argos retail division for an equally knockdown price.

Bricks-and-mortar retailers venture on to the Web with a big advantage - established brand loyalty. They also have the management skill to know how to do the simple things well; like cost control, logistics (sufficient and efficient warehousing), fulfilment (delivery and delivering on time) and customer service.

A step in the right direction

These days, no Blue Chip company business plan is complete without some form of clicks-and-mortar strategy, blending years - sometimes centuries - of experience of physical retailing with the lessons taught by the e-commerce meltdown of the past 12 months. "Many of the dotcoms put all their eggs in one basket by relying on the Internet as the only channel available to them," says Jonathan Tate, e-business partner at PricewaterhouseCoopers. "But the possibilities of the Internet were hyped."

Many people still want to touch and see what they're buying, he believes. "What the bricks-and-mortar companies do more successfully is manage a multichannel strategy - realising that shops, mail order and the Internet can work together rather than cannibalise sales from each other."

Takeovers at bargain basement prices aren't the only way they're doing this. Discreet alliances with specialist dotcom retailers are quietly being made too. This sort of alliance will become increasingly important, not least because the two sides need each other.

First, the bricks-and-mortar companies need online expertise. While the Web may have been overhyped for the speed at which it will come to dominate as a selling channel, it is expected to capture a greater share of consumer spending in the medium to long term. But most traditional retailers don't have the skills to exploit that.

And second, for pure Web retailers keen to find a new showcase for their wares, an alliance is an attractive option. Again, because most Internet retailers don't seem to have the retail expertise to create businesses that can turn a profit, the way forward will be through partnerships that offer equal benefit to both sides. "We are definitely seeing more alliances to give Internet retailers an offline presence," says Tate. "The pureplay dotcom may be a thing of the past."

So what makes a good partner? There obviously needs to be a gap on either side and a good fit between the businesses. It needs to be a company staffed by people who understand what you do and, ideally, people you trust.

This was the foundation for an alliance between Kingfisher, one of Britain's largest companies and parent of high street chains such as Woolworths, Superdrug, B&Q and Comet, and Thinknatural, the online health and bodycare company. "I got a call from a senior Kingfisher director who asked, 'Are you interested in talking'?" recalls Thinknatural founder Carol Dukes. "I said, OK, let's talk."

Jump at the chance

The timing was exactly right. Thinknatural was trying to attract that difficult second round of funding. Kingfisher was offering to invest £4.5m in exchange for a 12.5% stake in the company. Dukes jumped at the chance.

"They were keen to work with someone who had a lot of experience online," she says. When the call came through, Kingfisher was in the early stages of developing Superdrug's online offering, and Kingfisher has learned a lot from its smaller Internet partner. But apart from the cash, what was in it for Thinknatural? "We now have a really experienced retailer on our board as a non-executive," Dukes says. "We get great expertise and knowledge."

Dukes wasn't in the least bit suspicious that Kingfisher was trying to gobble up Thinknatural. "They seemed good people - and it's important to like and trust who you're going into an alliance with. We talked about a number of options, including them buying us. But this way, with just a 12.5% share, they can't force us into anything and they can't block anything either."

And just a few weeks ago came perhaps the most exciting fruits of the partnership - the launch of a branded range of Thinknatural products in 100 Superdrug stores around the country.

"In an alliance, both sides have to win," says Dukes. "Both sides don't have to win equally, but they have to get out more than they put in."

Branching out: dotcoms Spread their wings

ShopSmart seeks in-store presenceIt was the need for an offline presence that led shopping portal ShopSmart.com into a strategic alliance with Wal-Mart, the world's largest retailer and parent of ASDA supermarkets in the UK.

Wal-Mart has agreed to feature and promote ShopSmart in its stores in the UK and Germany. Additionally, Wal-Mart and AOL Europe will promote ShopSmart's price-comparison service. In return, Wal-Mart and AOL get a joint 22.5% stake in ShopSmart.

"We have always built our business model on the basis that we could forge alliances," says ShopSmart spokeswoman Alison Crombie. Her previous job was with Boo.com. "The trouble with some companies is that they've been too proud to think about alliances and you got the sense that you could make it alone." Not always justifiably, as it turned out.

ThinkNatural posts mail-order expansion

Establishing offline sales channels was fundamental to the business plan of health and bodycare specialist ThinkNatural.com when it began trading on the Web in November 1999. Four months later, it launched a mail-order catalogue to help sell its range of vitamins, minerals, herbal supplements and homeopathic remedies. The catalogue is now distributed through Superdrug stores as a result of the company's alliance with Kingfisher, as well as health clubs and direct mail.

Just before Christmas last year, ThinkNatural bolstered its offline presence through buying the mail-order business of the Women's Nutritional Advisory Service (WNAS), a specialist supplier of women's natural healthcare. WNAS already has an established customer base gained from 16 years of experience providing natural health solutions to women via clinics in London and Sussex.

Broadening the company's routes to market early on set ThinkNatural apart from its more famous rival ClickMango. "I don't understand why other dotcoms didn't think offline had to be a fundamental part of their operations," says ThinkNatural founder Carol Dukes.

Gameplay hits the high street

In the fast-moving world of e-games, it's no surprise that new media channels, including broadband, interactive digital TV and WAP, are being touted as key to sales for Gameplay, a company that both sells and offers the chance to play games across a number of platforms.

But suddenly, Gameplay has come over all old-fashioned. It has recently launched a chain of eight high street stores, an effort to create what it describes as "a bricks-and-mortar gaming environment". Most of the stores were acquired from Dixons last year and Gameplay is keen to retain Dixons' retail expertise; it will continue to staff and operate the shops. In return, Dixons gets a minority stake in Gameplay.

"It takes time for people to catch up to new media," says a Gameplay spokeswoman. "In the meantime, it's good to have the shops as well."