Three E-Commerce Concepts That Deserve a Second Chance

Many e-commerce firms were doomed to fail the moment their founders hatched their shaky business models. But hindsight redeems the collapses of some others.

In fact, a few promising online business models undeservedly sank with the receding technology tide or were otherwise hampered by poor execution.

In many cases, analysts said, conceptual gems might have spawned healthy companies if exuberant e-tailers had only embraced their brick-and-mortar brethren sooner.

"There was a determination to be pure online players, unsaddled by warehouses and inventory," Morningstar.com analyst David Kathman told the E-Commerce Times. "This turned out to be a bad decision, because when online growth did not reach expectations, these companies had nowhere else to turn."

Analysts agreed that online grocery shopping epitomizes this scenario, and may enjoy a resurgence. Similarly, despite some notable downfalls, the furniture and electronics industries still could produce e-commerce winners.

Grocery Bills

The crashes of HomeGrocer, Streamline.com and HomeRuns mar the short history of online groceries. But Webvan orchestrated the most notorious flameout, spending billions of dollars on warehouses, delivery trucks and personnel before exiting the e-commerce stage in July 2001.

"The economics of building a stand-alone Internet grocer proved highly problematic," GartnerG2 research director David Schehr told the E-Commerce Times.

If technology sector growth had continued at meteoric rates, Webvan's pure-play model might have worked, according to analysts. But weak demand left the company unable to cover its monumental infrastructure costs.

Webvan also tried to expand too quickly, moving into new areas before it had achieved measurable success in its home market of northern California, Kathman noted.

Special Cases

But as recent forays by MyWebGrocer.com, Albertson's (NYSE: ABS) and Safeway (NYSE: SWY) show, the online grocery shopping concept is far from dead.

"The concept is not inherently bad if it is done the right way," Kathman said. "It may be more of a niche rather than mass market, with a subset of people who are affluent and busy enough to pay for delivery."

The packaged goods niche presents a riper opportunity for online grocers, Schehr added, because research shows that consumers prefer to buy fresh produce, bread and meat in person.

Mixed Models

Some online grocers already have launched hybrid models that allow shoppers to place orders online and pick them up at physical supermarkets.

"They use the existing physical infrastructure of a supermarket and leverage the existing cost base for additional revenue," Schehr said.

For its part, Albertson's offers in-store pickups at 31 stores around Portland, Oregon, for a service fee of US$4.95 per order.

Linking Lists

Schehr said he also sees promise in the concept of storing online shopping lists for frequent shoppers. Such lists could be tied into transactional data from ubiquitous frequent-shopper cards.

Royal Ahold-owned Peapod.com, for example, banks on such lists to grow customer loyalty.

Clearly, with brick-and-mortar partners on board, online grocers like Peapod could remodel and resurrect the idea championed by martyred predecessors like Webvan.

Electronics Potential

While outright failures in the electronics arena are fewer than in the grocery sector, electronics e-tailers have encountered similar obstacles.

As with groceries, selling electronic equipment solely through the online channel proved to be at odds with prevailing consumer demand, analysts said.

"Electronics are tough to sell online because shipping is a hassle and expensive, and customers like to touch and feel [the products]," Kathman noted.

Best for Last?

Complementary brick-and-mortar arms allow electronics e-tailers to offer shoppers in-store product testing and order pickup.

For its part, Connecticut-based Outpost.com came within inches of failure before established electronics retailer Fry's Electronics saved it with a buyout.

Even Amazon.com (Nasdaq: AMZN) has teamed with Circuit City and Best Buy to better serve electronics shoppers.

All in all, analysts agreed, online electronics retailers could enjoy a second wind as long as physical stores are kept in the loop.

Future for Furniture

In the furniture industry, failed e-tailers Furniture.com and Living.com belie the potential of the basic business concept.

"Companies had bigger expectations than they should have," Kathman said. "Shipping furniture is a hassle, so brick-and-mortar partnerships [are crucial]."

For instance, surviving furniture firm Homeportfolio.com offers rebates to customers who browse the online showrooms of partner stores and make in-store purchases.