e-commerce has had its share of casualties, but it seems that the Internet shakeout is slowing. According to a study conducted by research firm Webmergers, the dot-com death rate has decreased with only 54 Internet companies shutting down or filing for bankruptcy during the first quarter of 2002, compared to 164 during the same period in 2001. That brings the total number of dot-com failures to at least 823 since January 2000, the study said.
Although not all the casualties of online business were of the retail variety, they are all examples that professors of Business 101 will reference of how not to start a start-up. "The tried-and-true basics of business did not change because of the Internet," said Fred H. Lerner, president and CEO of Ritz Interactive, Inc., an Internet survivor that has launched 14 e-commerce sites since 1999. "E-commerce companies of all flavors spent hundreds of millions of dollars to develop business models that were questionable from the start." And the Internet market proved that certain products, like pet supplies and groceries, for example, were not meant to be purchased through a computer.
Know What It Takes To Sell Electronically
In Lerner's opinion, there is no difference between a brick-and-mortar business model and one with an "e" in front of it. The founders of successful dot-coms value the business principles of ROI, cash flow management, solid management teams, and stable business plans. Once the principles are established, the next online must is a moveable product. Certain product categories such as books, music, and travel have flourished online because the companies that sell those products identify customer needs and deliver their products through appropriate and efficient customer service. The photography market, one of Ritz Interactive's core e-commerce markets, has also found an Internet niche. "The PMA (Photographic Market Association) reports that 25% of all digital cameras are purchased online because the demographic of the digital camera consumer matches that of an online shopper and a PC user," Lerner said.
And while it is important to recognize your online customers' shopping needs, technology (or lack thereof) has played an equally important role in dot-com demises. Businesses that couldn't offer timely and accurate order fulfillment or secure online transactions were quick to fall off consumers' bookmark lists.
Although Ritz Interactive leverages the brand recognition of the 1,350 Ritz Camera Centers, the e-commerce company is considered a strategic partner of its brick-and-mortar counterpart. While the customer-facing aspects of the businesses remain separate, Ritz Camera Centers supports Ritz Interactive's sites in terms of inventory, fulfillment, and distribution on the back end. When it first launched, RitzCamera.com lacked in real-time order management and fulfillment because its front end Web engine software did not integrate with Ritz Camera Centers' back end legacy systems. Its Web orders were manually processed once they reached headquarters, and call center representatives handled all customer service issues, including manually alerting a customer of a back order via e-mail. Ritz Interactive had plans to expand its Internet offerings to other photographic sites, as well as launch into the online marine and specialty market, the company's other vertical focus led by BoatersWorld.com. But to do so, the company had to build an infrastructure that could support its Internet dreams.
Integration Ensures Real-Time Success
A common mistake made by retailers launching into the world of online sales is to treat an online order as if it were a person entering a store - manually. "Our original order management and fulfillment was handled via 'sneakernet,'" said Peter Tahmin, COO at Ritz Interactive. "When an Internet order entered Ritz' headquarters, an employee would print the order, manually process the credit card payment and fraud check, and enter it into the legacy warehouse management and inventory systems. From there an invoice and packing slip were created and passed to the warehouse where someone would physically pick, pack, and ship the product for the customer." None of the steps, including notifying customers of back orders or product changes, were handled in real time, and the manual fulfillment steps proved expensive. "We needed to integrate our disparate hardware and software systems and create a seamless, real-time transaction for the consumer," Tahmin said.
In November 1999, RitzCamera.com went live with a new infrastructure. The company installed the Net.Commerce e-commerce engine from IBM (Armonk, NY) and retail.dot.commerce, order management and fulfillment software from CommercialWare, Inc. (Natick, MA). Net.Commerce communicates with retail.dot.commerce, builds the content into the Web pages, acts as the shopping cart, and accesses product information that is stored in IBM DB2 databases.
A challenge of installing the new software was that the two packages operated on different platforms. Ritz installed the CommercialWare software solution on the company's existing IBM iSeries platform, but on the front end, Net.Commerce operated on a Sun Solaris system. The disparate systems required Ritz to install MQSeries middleware so that Net.Commerce could communicate with CommercialWare's retail.dot.commerce solution in real time. Now when customers place items in Ritz Interactive shopping carts, current prices are displayed and customers are notified of real-time inventory availability status. The Web site processes credit payments immediately and passes authorizations through its fraud screening software from Cybersource Corp. (Mountain View, CA).
Another business benefit that retail.dot.commerce offered Ritz Interactive was simultaneous inventory access to all four of its distribution centers (DCs). If an order consists of multiple items, the software searches all four warehouses until it finds one that can fulfill most, if not all, of the order from one DC. "This saves us money on fulfillment and shipping, and more importantly the entire order arrives to the customer at the same time. This cuts down on service calls from customers wondering when the rest of their order will arrive," Tahmin said. And since the system automatically routes the orders to the most applicable DC, most are shipped in 12 hours or less.
More Sites + Existing Infrastructure = More Profit
Since 1999, Ritz Interactive has expanded to 14 e-commerce Web sites that service more than 1 million visitors a month. The sites cover photography as well as the boating and marine verticals and contain both content and e-commerce functions. "When we looked for the new solution, we had to make sure that our infrastructure was scalable on the front end and back end to allow us to expand our business without purchasing additional software packages or revamping any part of our site," Tahmin said. "As expected, except for the occasional upgrade, we haven't had to replace any core components on either end."
Even in October 2001, when the acquisition of WolfCamera.com increased Ritz Interactive's orders by 20% to 30%, the e-retailer was able to easily accommodate the increase in volume without changing its system structure. In April, Ritz Interactive again extended its online market share by launching RitzElectronics.com. "Since the inventory for this site is held by a separate electronics distributor, we broke away from a single distribution model and into a multiple distribution mode, but our systems could handle it without any trouble," Tahmin said. "Data is exchanged between our distributor's database and retail.dot.commerce, so we are still able to provide our customers with a real-time look at pricing and product availability." As its online presence grows, Ritz Interactive has also extended the return on its CommercialWare software investment by having its Web call center representatives directly access retail.dot.commerce to take orders or make changes as necessary for those customers who still like to talk to a real person.
Ritz Interactive has proven that the right mix of business principles and technology integration will ensure online success. Many before you have paved the way, so learn from their successes and failures, or else be the next site to be added to the dot-com failure list.