Executives quitting dotcoms for safety of bricks and mortar

New Economy executives are beating a hasty retreat into the familiar world of traditional companies. What impact will this have...

New Economy executives are beating a hasty retreat into the familiar world of traditional companies. What impact will this have on European dotcoms?

David Bicknell

The departure of eToys from European shores on 19 January could be regarded as tangible proof of the so-called "Revenge of the Clicks." The online toy company said that it would close its European operations in January with the loss of 74 jobs, citing difficult market conditions.

Similarly, last month's acquisition of Breathe.com by Great Universal Stores confirmed the trend that the traditional companies - particularly in Europe - are now holding sway over the dotcoms, who not so very long ago were being predicted to leave bricks-and-mortar companies standing still.

It was going to be the US dotcoms that led the charge, they said. After all, they had already had two or three years' more experience in the US, and though they would have a problem adapting to 15 different European cultures, they posed a real threat to European companies.

European problems

For eToys, though, it wasn't the case. It not only had problems in Europe, but the US, too. The company said it would cut 70% of its staff, but it would not be profitable before 2003. In contrast, its bricks-and-mortar rival Toys 'R' Us - which has also had its woes trying to set up a credible e-business operation that did not haemorrhage cash - saw Christmas holiday sales from its Internet unit more than triple from $39m last year to $124m.

After a year of living dangerously in trying to crank lethargic bricks-and-mortar companies into action, plotting an e-commerce strategy through the politics of organisations, while jousting with company boards who insisted the Internet was just a 'fad'; now e-commerce directors - or their equivalent, as such job titles are comparatively rare now - can give themselves a small pat on the back.

According to figures from Ernst & Young, even the 'bricks-and-clicks' websites are attracting as much interest as pure-play dotcoms.

A survey last December of 1,400 US consumers named Amazon, Barnes & Noble, auction site eBay, JC Penney and CDnow as the top five online retail sites. Close behind were Fingerhut and Toys 'R' Us. The Ernst & Young study shows that shoppers' favourite sites reflected the trend toward well-known multi-channel players and away from large e-brands.

While Amazon was still the respondents' favourite site, familiar, traditional multi-channel brands such as JC Penney, WalMart and BestBuy will take an increasing share of online purchases in 2001.

According to Stephanie Shern, Ernst & Young's global director of retail and consumer products, the number-one reason consumers went to traditional sites was "merchandise selection" from familiar brands.

"Ernst & Young believes that to win in online retailing, companies must excel in meeting or exceeding customer expectations and improving relationships through world-class operations and merchandising," said Shern. "We see the e-winners as those companies who are implementing a multi-channel strategy so consumers see a consistent and integrated brand at the corner store or the online mall."

Ironically, in the dotcom shakeout that has occurred since spring last year, key executives with dotcom experience are now being hired back into the Old Economy. In the biggest move of its kind - and one that would chill the bones of many of those working in start-ups and marketplaces - Joseph Galli quit VerticalNet, which owns and operates business-to-business exchanges to join Newell Rubbermaid, a maker of consumer products.

Galli, who once upon a time was president of Black and Decker's tool business, quit to become number two at Amazon behind Jeff Bezos. Then he left to become the president and chief executive of VerticalNet. Now, he's gone back to the Old Economy, in a stunning vote of no confidence in where the New Economy - apart from that now taking place in 'clicks and mortars' - is now headed. If ever there was a case of leaving the sinking ship that is the dotcom New Economy, this was it.

New economy departure

His hasty departure from the New Economy did not impress some. One US analyst commented icily, "The sinking of a large ocean-going vessel tends to split crew members into two groups. Crew members in the first group work feverishly to maintain order, assess damage, make repairs and, if unsuccessful, salvage whatever possible.

Those in the second group make sure to use their insider's early warning to be among the first to grab the life raft. Joe Galli has proved to be a crew member of the second variety," he said.

Though the e-business picture has a habit of tuning itself upside down every few months, it seems that any company that is going to be a success is more likely to be a traditional one.

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