Globalization slow in e-retail

Few U.S. sites entering European market so far

LONDON

Several European online retailers at last week's eTail 2001 conference said they're no longer bracing for the tidal wave of U.S. companies that they expected would crash their cybershores.

Instead, they're watching some of their U.S. counterparts wrestle with the same sorts of challenges that have kept them from expanding into other countries, including language barriers, cultural nuances, shifting regulations and distribution and logistics hassles.

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European Retailers Prepare for IDTV

Interactive digital television (IDTV) may not have hit the radar screens of many U.S.-based retailers, but it was a hot topic of discussion among their European counterparts at last week's eTail 2001 conference here.

Several major retailers, particularly those based in the U.K., said they're taking the medium very seriously. In fact, some already have been selling merchandise via the emerging platform.

"Today, it's nothing. But it's going to grow very fast, because in three years, there will be more TV sets capable of receiving it than there are Internet connections," said Patrick McHugh, director of e-commerce at J. Sainsbury PLC, the U.K.'s No. 2 grocer, which has already established a presence on IDTV.

IDTV isn't Web TV. There's no Internet service provider, no Web browser and no Web pages to surf. Rather, consumers typically get their digital TV service through a satellite or cable provider and can use a regular TV remote control, which also can be used to make purchases.

Backers say IDTV is easier and more natural for consumers who have grown up with television, and it's more secure for shoppers leery of using their credit cards over the Internet. In a typical scenario, they simply press a button to make a purchase; the digital TV broadcaster already has their identity and billing information.

Right now, shopping is typically done through a special channel, or digital mall, where subscribers find a list of retailers selling a limited number of items. The retailers partner with the digital provider for a fee.

McHugh said he expects that J. Sainsbury will also sell goods via ads or TV programs. For example, a consumer might press a button to order all of the ingredients for a recipe on a cooking show, he said.

Jupiter MMXI projects that 31% of all households in Western Europe will have IDTV services available to them by 2003. Olivier Beauvillain, an analyst at Jupiter MMXI, said the U.K. market is leading the way, with "the most innovative interactive services you can find in Europe and the world."

Yet Jupiter MMXI still predicts that the Internet will be the dominant platform for commerce revenue in the U.K. and Europe, with digital TV accounting for 11% of commercial revenue by 2003.

One of the downsides for retailers is that they will likely have to spend money to redevelop their content for the new proprietary platform.

Some retailers said they will take a wait-and-see approach, cognizant that Wireless Application Protocol phones failed to take off the way experts predicted a year ago.

"If I had a nickel for every time I heard about some technology that would take off in the next six to 12 months, I'd be a rich man," said Sam Taylor, vice president of international operations at Lands' End.

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"Two years ago, one thought, 'The Americans are coming. We're just going to be bated,' " said Ian Cheshire, CEO of e-Kingfisher, the online arm of London-based Kingfisher PLC, a $16 billion retailer of home improvement, consumer electronics and general merchandise. "And now it's a question of, well, some but not all [are coming]."

Analysts noted that while Amazon.com Inc. may have staked a claim as the prime global retailer, few other U.S.-based companies have managed to build solid overseas operations or to crack the global online market to any significant degree.

Statistics from Jupiter MMXI in London, for instance, show Amazon.com among the top five retail sites in all eight countries it studied, including four in which Amazon has no international site. Yet the Seattle-based retailer's chief competition in the U.S. bookselling market, Barnesandnoble.com Inc., has chosen not to build any infrastructure outside the U.S.

"The reality of the situation is that infrastructure is going to be key to being successful globally. It's also the least sexy and most expensive," said Lindsay Parker, a senior manager at Deloitte & Touche LLP's retail and consumer business.

The Internet's global potential may have helped inflate dot-com stock valuations, said Peter Schaeffer, a managing director of retail and consumer strategy at Ernst & Young LLP in New York. But the lack of infrastructure and cash for the advertising needed to build a brand has kept retailers from living up to that promise, he said.

"It's not a whole new mythical thing. It's another channel. You've got to approach it with the [retail] fundamentals," said Jeff Roster, a senior analyst at Stamford, Conn.-based Gartner Dataquest.

"You've really got to maximize the economies of scale that you've got already, because that gives you the most chance of being profitable," said Brian Hume, president of Martec International Inc., a retail consultancy in Atlanta.

The many difficulties and vagaries inherent in the retail business have given even European retailers pause about expanding beyond their home-country borders.

Michael Gerke, managing director at PrimusTronix Europe GmbH, the online company affiliated with German retail giant Metro AG, said his company has resisted launching a U.K. Web site "because I'm afraid of losing money here."

"[U.S.-based] Outpost.com is about two and a half years ahead of us. They could be faster than we [are] in Europe. Why didn't they come already? Because the European market is segmented compared to the U.S. market, where they have one language, one product," Gerke said.

Cognizant of language barriers, Gerke said his company has expanded into only German-speaking parts of Austria and Switzerland.

The Pan-Europe Approach

Carol Dukes, CEO of ThinkNatural Ltd., an online retailer of natural health and personal care products, said financiers last year pressured her to go "pan-European" with her U.K.-based business and to make her business model "culturally flexible." She said she was told that European markets are small compared with U.S. markets. Building a large company would require entering numerous countries, she said.

"It was the latest buzz thing at the time. They said, 'Well, individual European markets are relatively small compared with the U.S., so if we're going to build a big company, then we need to be able to build it in all the European countries so that we've got a big potential market," Dukes recalled.

A seasoned businesswoman, Dukes rejected pan-European expansion and built only one non-U.K.-based Web site and mail-order operation in Germany, because that country has "by far Europe's biggest natural health products market and mail-order market."

But the expansion wasn't without pain. Dukes noted that her new company achieved few economies of scale. Besides technology and senior management, "everything has to be built from the ground up in the local area."

Retailers with economies of scale in an existing global business stand a better chance at expansion, and mail-order outfits may be in the best shape, analysts said. Lands' End Inc., for instance, built catalog operations in the U.K. in 1991, in Japan in 1994 and in Germany in 1996. When the Dodgeville, Wis.-based retailer launched Web sites in those countries in November 1999, it already had the necessary distribution and call centers in place.

Lands' End reaped further benefits when it built Web sites in Ireland, France and Italy. Sam Taylor, vice president of international operations, said the French site cost 12 times less to launch than the U.K. site, and the Italian site cost 16 times less. "Over the course of 12 months, we launched in six countries," Taylor said. "We could never have launched in France and Italy and Ireland if the catalog operation wasn't there."

HMV UK Ltd. in London has gradually opened sites in countries (the U.K., Canada, Japan and Australia) where it had brick-and-mortar operations.

"It's all about timing," said Stuart Rowe, general manager of HMV Direct & E-Commerce. "Only invest what you can afford, and don't go for unknown forecasts."

Kingfisher's Cheshire said his company will expand on a country-by-country basis where it has brick-and-mortar operations, sharing the back end as much as possible. But he's treading carefully, particularly when it comes to IT work for multichannel integration.

"How can you justify on, say, 1% of your sales, 50% of your IT budget?" Cheshire said. "What you have to do is say, 'What can I absolutely function from the e-commerce point on with, and then how do I start finding money to build applications which I know will have a life?"

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