The Emperor's New Clothes
George Matyjewicz -- Gifts & Decorative Accessories, 2/1/2001
Once upon a time, there were some companies called "dot-coms." These companies convinced people (investors) that they possessed a magic cloth (the Internet), which had the wonderful quality of being invisible to any man who was unfit for their caliber of business or who was unpardonably stupid. And so the investors came, and they lined the parade route with money, and everybody partied as these dot-coms spent the big bucks. Then a little boy who was watching the parade said, "But there is nothing there at all." And his father added, "Listen to the voice of an innocent child." And then all the people shouted, "But there is nothing there at all." That cry made a deep impression upon the investment world, which cut off funds to the dot-coms. But the dot-coms thought to themselves, "We must bear up to the end." And they walked on with still greater dignity, as if they wore the shining garment that did not exist.
My apologies to Hans Christian Andersen and his classic The Emperor's New Clothes, but that parable says a lot about our new economy. Many dot-com companies are failing-140 this past year, according to a 60 Minutes segment entitled "Dotcom Millionaires." And the consulting placement firm Challenger, Gray & Christmas reported that some 31,056 dot-com jobs disappeared during 2000.
But things may not be as dire as they seem. While 140 dot-coms failed, more than 1,700 dot-coms were funded in 1999 alone, according to the consulting firm PricewaterhouseCoopers. A large portion of the 16,345 companies funded over the last five years have been Internet-related. Even though more than 30,000 dot-com workers have lost their jobs, the Internet has created some 2.3 million jobs in the last seven years. And while sales at brick-and-mortar retailers were down this past holiday season, online sales were 50 percent higher than they had been.
It may be that the emperor's new clothes are made of magic cloth after all-the same magic cloth that is used by brick-and-mortar retailers. This cloth is created by offering a popular product mix, servicing customers, shipping goods, collecting payment for goods sold, securing the payment method, and properly managing the business. Unfortunately, dot-com companies have forgotten about the single most important fiber in the magic cloth: making a profit.
While this column has examined the elements of a successful dot-com business before, there are three that will be very important to e-tailer survival in the coming years: customer service, security and payment methods, and business management.
Customer Service
Good customer service means good customer retention. One of the greatest online innovations is "live person" technology; it allows you to service your customers while they are at your site. Let's say that I go to your site looking for a gift for my son. I ask you for suggestions, and you ask me about my son's lifestyle, his occupation, and his interests. You then select some products and show them to me online. Once I am satisfied, I purchase. If I can't get the answers I want online, you have me click a button that connects us via telephone!
I personally experienced live person technology this past Christmas. I wanted a particular Lenox china pattern, and found it at Murphy's Department Store in Oklahoma (www.murphyshomestyles.com). Since I had already tried three other stores, to no avail, I wanted to be sure that they had the pattern in stock. Murphy's had a live person link powered by Human Click (http://humanclick.com). I was able to chat with a real person, even though it was 9 p.m. my time. This employee confirmed that the store had the goods and could ship them before Christmas. Within an hour after I placed the order, the same employee followed up with a telephone call, telling me that one particular item (out of eight I had ordered) wasn't in stock. Now that's service! And Murphy's is not a big-box retailer; it is similar to most giftware retailers.
Security and Payment
While many security issues swirling around online sales are no more than misperception and media hype, there are some real concerns. In December 2000, the online company Creditcards.com was hacked into and 55,000 card numbers were held hostage for $100,000. When the extortion attempt failed, the hacker posted the stolen card numbers on the Web. Another company, Egghead.com, announced that its system had been breached by computer hackers the week before Christmas. According to a warning Egghead delivered to credit card companies, the online bandits may have made off with 3.7 million credit card numbers. There was even a site on the Web that explained how to crack supposedly safe payment methods like PayPal!
How can merchants provide adequate security for online transactions? One major mistake the breached companies made was storing credit card information online, where hackers could access it. A better approach is to have consumers give their credit card information to the online retailer each time they make a purchase; the merchant keeps no record of that information. Two cybercash companies that facilitate this strategy are E-Gold (www.e-gold.com) and Standard Reserve (www.standardreserve.com). With each, consumers complete an application and deposit funds into an account. When they purchase from a merchant, they are linked to their individual account via a secured payment screen. Only the consumer knows the account number, and only the consumer can access the account (using a private password). The merchant never sees any personal information. E-Gold can be used online only. Standard Reserve currency can be used online and (through a stored-value card) at brick-and-mortar outlets that accept debit cards.
Business Management
Dot-com companies have come to be associated in people's minds with twentysomething entrepreneurs trying to run a business they know nothing about. Click-and-mortar operations (brick-and-mortar stores with Web sites) have other issues. The folks who run them often have little knowledge about how the Internet works. They hire Web-site designers, but the designers don't have retail experience. It's another recipe for disaster.
The solution to these problems is to use common sense in every part of your business, be it online or off. Listen to the advice of others, but if it goes against your instincts, don't follow it. Don't be swayed simply because "everybody" is using credit cards online and you have people telling you that "it's the only way you'll increase your business." Also, don't create an online store with the expectation of gaining a boatload of new business. If it makes sense, do it. If you can manage your business, provide a desirable product mix, attract and service customers, sell products, provide adequate security, ship goods, and collect payment for goods sold, then open an online store. And use the same common sense ideas and tactics that you use to make your brick-and-mortar operation a success.
The essence of managing a business is the same online and off: Sales minus cost of sales, minus expenses, equals profits.
If you follow the steps above and weave your magic cloth from the same fibers that make your offline business strong, you may find yourself with a wondrous new outfit. And you won't have to worry about cries of, "There's nothing there at all!"
George Matyjewicz of GAP Enterprises Ltd., a management and marketing "solutioning" firm, can be e-mailed at georgem@gapent.com. E-Tailer's Digest is a moderated Internet retail discussion forum, located at www.gapent.com/etailer/.
