Electricals is proving to be one of the winning categories on the Web as IMRG says (see e-sales monitor). It is forecast that the Internet will account for as much as 20 per cent of total sales of electrical goods by 2007, according to Forrester Research.
For Tony Stockil, chief executive of consultancy Javelin Group, this is leading to great interest in the area. 'Tesco and the other supermarkets have their sights on this sector and so have others, such as the online providers, which have an opportunity to use the Internet to get access to a large part of the market,' he says.
One of the factors behind the sector's online success is that margins in electrical goods have been falling for high street retailers, whereas online - where overheads can be kept to a minimum - the operators have been increasing their margins. This means that the Internet is an extremely attractive proposition for retailers.
Among those benefiting from the Web is online retailer Dabs.com. Speaking at the recent Javelin Group Conference in London, Dabs.com group commercial director Jonathan Wall revealed some of the key factors needed for online electrical sales success.
Strategy overhaul
For Dabs.com, the first step involved changing its business model completely.
Wall says this involved taking the dramatic decision to stop selling its goods - which consisted mainly of computer hardware at the time - via mail order, and closing its telephone order lines in summer 2001. Instead it switched to selling only via the Internet, on a Web site that was launched in 1999.
Wall believes this was a crucial decision and one that has enabled Dabs.com to tap into some very strong Internet growth. 'We want to be the lowest cost, not necessarily the lowest price. We are not selling on price anymore - lots of other people are still doing that,' says Wall.
Dabs' rigid model extended to its fulfilment operation, with Wall believing that 'touching the box is a distinct advantage'.
Keeping it in the family
Dabs had previously outsourced all fulfilment to its manufacturers, but they were only used to shipping large quantities to businesses so offered a poor level of customer service when delivering direct to customers' homes. Dabs.com felt this was unacceptable, so it invested£5 million creating an in-house warehouse and logistics capability.
Trading purely online has also given Dabs.com the opportunity to extend its range continually - it now averages 22,000 lines at any one time - and frequently changes the products it stocks. This is particularly important in the electricals sector, where the rate of obsolescence is increasing and the time to bring new products to market is shortening.
Although the new model has helped grow sales to£150 million for the year to end March 2003 (which makes it one of the UK's leading online retailers), Wall says the company has its sights on bigger things. 'We're starting to build our brand to a wider audience, not just the computer hobbyist,' he says.
This brand-building includes the launch of Dabs.com's bricks-and-mortar stores. The first at Liverpool airport opened in August, and up to seven more outlets will follow in high footfall locations, possibly Bluewater, the Trafford Centre and other airports. 'We don't intend to be a (high street) retailer - we just see retail as an ideal marketing opportunity. The Liverpool store has to make only£1 profit and then it's all free marketing for us,' says Wall.
Although the company also uses online marketing, it sticks rigidly to performance-based initiatives through affiliates such as Kelkoo and Dealtime.
'We have to be able to measure the impact (on actual sales) and not just pay for click-throughs. A failing of many traditional retailers that go online is that they can't measure the results of their marketing,' he suggests.
Wall reveals that Dabs.com is in the process of making significant changes to help it drive sales up to about£500 million by 2006. This should bring in a pre-tax profit of about£25 million, compared with£5.1 million at present.
These changes include the£750,000 overhaul of its Web site, which has improved usability and added new functionality that makes the site more attractive to its new technology-buying target market. 'The challenge going forward is to enable these customers to browse. We found that 90 per cent of our new customers couldn't find what they wanted before,' admits Wall.
In contrast, the new site enables customers to watch streaming video footage of products, make comparisons of goods in the same category and view customer product reviews, thereby enjoying a personalised experience on the site. The company will be hoping to leverage some of this expertise when it launches a shop on the Sky Digital TV platform next year.
As well as looking to attract customers through this additional channel, the company is also broadening its customer base by targeting the rest of Europe, starting with France. Wall says: 'A European presence is very important to us and we believe that our business model can be replicated overseas. We will be launching a store before Christmas.' The aim is to be the number one online electricals retailer in five European territories, says Wall.
He does not regard other online retailers as major competitors to Dabs.com's online store and instead points to traditional retailers such as PC World as providing the greatest threat.
The American way
In the US, the giant Best Buy group boasts about 700 bricks-and-mortar stores, along-side an online portal. It regards the traditional retailers - chiefly Wal-Mart - as its major threat online.
BestBuy.com senior vice-president Scott Bauhofer says: 'We can't beat Wal-Mart on price. Even if we did, customers would still give it the credit for being the lowest-priced retailer. We have recognised this and, with the commoditisation of electrical goods, we are adding value. Our strategy is based around the customer experience and winning the home in order to compete (with Wal-Mart).'
Crucial to this strategy is BestBuy.com's online store, which is attracting 50 per cent of the Best Buy customers that visit its shops. This demand led to the recent redevelopment of the site, which Bauhofer says included 'merging the look and feel of the Web site with the stores'. Crucially, this enabled it to achieve 'parity', whereby prices, marketing and promotions can be consistent across both channels. 'We can now integrate campaigns across all mediums,' he says.
This process is encouraged by the company's recently launched loyalty card scheme, which Bauhofer hopes will have two million members by February.
The insight this provides will give Best Buy more opportunities to better target its customers with cross-channel offers.
The new Web site also enables the company to quickly sell off end-of-run stock, take pre-orders for forthcoming releases, download music and provide a research centre, as well as offering much greater personalisation.
It has all helped BestBuy.com become the company's largest 'store', with 20 times more SKUs - 500,000 when music and movies are taken into account - than the typical Best Buy bricks-and-mortar shop.
The online store's performance gives Bauhofer confidence that it could account for up to 15 per cent of the total online electricals market in the US by 2007 (or even sooner) - the same market share that Best Buy has through its physical stores.
'If the online market is worth approximately $35 billion in 2007 and we have 15 per cent of it, that's a $5 billion business. That is quite significant within a $21 billion (turnover) company, so we're quite excited,' says Bauhofer.
These bullish predictions and strong performances from leading players on both sides of the Atlantic suggests that regardless of whether you sell across a multi-channel platform or trade solely over the Internet, the market for electrical goods online looks set to grow at a healthy rate.
No comments yet