Nick Land, Special to the China Post
At the height of the dot-com boom, it was widely assumed that “clicks” were destined to triumph over “bricks.” According to the dominant scenario of the time, consumers would migrate in ever growing numbers from traditional retail channels to the electronic mall, justifying dizzy stock-valuations for any Internet start-up with a viable product niche, image and promotion strategy.
The dazzling promise of the Internet as a marketing platform led many investors and entrepreneurs to overlook the fact that B2C e-commerce players still had to resolve formidable problems of commercial “execution” — payment and delivery.
On the payment side, online security issues have proven to be a major drag on the growth of electronic transactions, with customers understandably cautious about depositing their credit-card numbers in a hacker- and fraud-infested cyberspace.
On the other hand, delivery problems have also upset otherwise promising e-commerce schemes, with dot-coms typically underestimating the costs, organizational difficulties, and potential loss of goodwill involved in fulfilling online purchases.
Without an effective payments system customers are difficult to acquire, whilst an inadequate logistics system results in vanishing or negative margins.
Taiwan’s President Chain Store has built a B2C e-commerce model that directly tackles both of these problems by using the Internet to leverage its already existing capacity for large-scale commercial execution. The company is counting on two of its subsidiaries in particular, its 7-Eleven chain and its Wisdom logistics operation, to provide the retailing infrastructure to support e-commerce partnerships with 35 local online stores, selling products ranging from books to mobile phones. The system is initially expected to handle 150,000 online transactions a month.
The President B2C model — based on a successful Japanese prototype — uses existing 7-Eleven outlets as “points-of-execution” for e-commerce transactions, thus eliminating the necessity for either online financial tranfers or direct-delivery logistics arrangements. Customers take full advantage of the Web’s e-shopping potential by electronically browsing for, comparing, and selecting goods, whilst the actual transfer of the merchandise takes place in local 7-Eleven stores, served by the Wisdom delivery network.
President Chain Store will receive both a retailing fee and a logistics fee, whilst its online partners are able to remain pure-play e-commerce operators, outsourcing the whole “old economy” side of their businesses to President’s subsidiaries.
President is confident that its distribution and retailing network will ensure delivery to customers anywhere in Taiwan — even to outlying islands — within 24 hours. 7-Eleven is Taiwan’s largest convenience store chain, with 2,517 outlets serving an estimated total of 2.75 million customers each day throughout the island.
UBS Warburg analyst Shirley Chu is impressed with the simplicity of the arrangement. “Basically, these Internet e-commerce companies send over their customer orders to Wisdom, then Wisdom delivers the goods to 7-Elevens across Taiwan. Even without the extra Internet-ordered goods, Wisdom makes deliveries to 7-Eleven stores every day, so there’s little extra cost to the company,” she notes.
ABN AMRO’s Jeff Coggshall concurs, noting that “the 7-Eleven pick-up model is much better than home delivery. Home delivery is a much more expensive way to distribute goods.”
President’s own e-commerce subsidiary, Pcyber.com, is also building a B2C business on top of the 7-Eleven retailing infrastructure, adding business worth NT$600 million to the group last year. Pcyber.com uses the President B2C model to sell high-value products to online customers through 7-Eleven stores. Unlike President’s pure play e-commerce partners, however, Pcyber.com makes a positive virtue out of its “clicks and mortar” hybrid status. Pcyber.com General Manager Ming-Hung Wu says that only 10 percent of the company’s marketing activity will be channeled through its online platform, with the rest leveraging under-exploited President assets. The most remarkable example is the one-billion-plus annual sales receipts generated by the 7-Eleven chain, which Pcyber.com has begun to utilize as a marketing and promotions tool, by adding coupons and discount vouchers. It has also initiated a lucky-draw that brings together its online registration list with the unique numbers on the sales receipts. In order to maintain business integration as it complicates its activities President has been forced to become a Taiwan pioneer in the electronic re-engineering of the “old economy.” In collaboration with Microsoft Taiwan, President has installed a comprehensive XML-based e-commerce software platform to support the new B2C functions of its traditional assets.
Eunice Chiou, Microsoft Taiwan’s general manager, said, “The platform, based on Microsoft BizTalk Server 2000, provides 7-Eleven with information exchange and management of online operations through XML documents across different business software and enterprise resource planning (ERP) systems.”
By using a consistent XML-standard throughout its B2C, B2B, and internal communications President is able to seamlessly pass information between its retail, logistics, and marketing operations, as well as commercial partners. It also allows President to provide customers with real-time information about products on the company’s Web site, whilst logging orders in a format compatible with the entire company supply-chain.
Don’t expect a dot-com type stock-price response, however. Confidence in the President group was already so high that few investors have been surprised by the effectiveness of its move into e-commerce. “People already knew the company planned to go this way,” says Jardine Fleming’s James Chung, “so this won’t have a big immediate impact (on share prices). Overall though, we really like the company.”