Reintermediation

Fishpond sells online to New Zealanders

Recently I've looked at disintermediation in the retail industry.  I've examined the new online daily deal model and the web shopping sites like Mighty Ape and Fishpond, who do a great job of emulating overseas giants like Amazon.

This time I'm going to consider whether there are signs of retail going the other way - re-introducing intermediaries as part of the supply chain, or reintermediation.

I think this has happened quite prominently in the purchasing patterns for home computer equipment.  Let me explain . . .

PC Direct was an NZ success story

When computers took off in a big way here in New Zealand in the 1990s,  a burgeoning new retail sector was born.  There were many small, local computer shops that sprung up to custom-built desktop computers.  Such operations were pretty much classic retail operations, that bought products from various distributors, added value by assembling the computer and selling as a retailer to the general public.

The big players in this new industry though were the mail order companies that sold direct to the customer.  Some were overseas giants like Dell and Gateway but New Zealand created some very successful local companies like PC Direct and PC General.  These companies had impressive buying power and they negotiated cut-throat deals with wholesalers and distributors.  Sometimes their power was such that they became their own wholesalers and usurped the established players.

THE IBM PS/2 (circa 1987)

At the time it seemed that new, more powerful configurations of computers were arriving almost weekly.  This was the era of the Intel 486 (SX or DX), the early Pentiums and Pentium Pros, when a graphics card was measured in kilobytes and a CD-ROM drive was cutting edge.  Assembling the right mix of components took skill and it was very difficult for manufacturers to plan a configuration that would last for more than a few weeks before it changed again.

In this frantic atmosphere of constantly changing configurations the local assembler and the big mail-order computer builders were king.

Fast forward to the last few years and the market has changed.  Most people have little interest in what kind of computer chip or graphics card is in their sleek new laptop or tablet, as long as it's fast and spacious enough to cope with whatever they throw at it.  Let's face it, most users are perfectly happy with any of the configurations that the likes of Hewlett Packard or Samsung provide.  Notebooks and tablets are consumer items and people are happy to buy them from consumer stores.

Most people have long since stopped buying desktop computer equipment.  If I want a lnotebook, a netbook, a sleekbook or a tablet, I want to go and choose it from a shiny display at my neighbourhood retailer.  I want to be spoiled for choice and walk out of the store with a neat little box and a hefty discount.  I appreciate that buying a computer is no longer a scary experience where a confusing array of mismatched components causes a general protection fault (GPF), hardware crash or the dreaded blue screen of death.

Modern laptop retailing (PB Tech Ltd)

For those that want to bypass the retailer option there are plenty of online sellers of computer hardware, some of which have no bricks and mortar retail presence.  They may be able to undercut the pricing of the high street retailers in some segments of the market.  Indeed these guys are still the favourite places for people to buy components, such as optical drives, hard drives, graphics boards.  Consequently they attract a specific segment of the market - technically expert people rather than the regular consumer who will buy an already built device, usually through a high street retailer.

Having the high street retailer provide the millions of notebooks to the general public has removed a nightmare support structure that most assemblers just couldn't afford to provide.

This division between expert and regular user is far more pronounced than before.  Two sets of needs that are today satisfied by two sorts of technology supplier.  At one time, anyone who wanted a desktop computer was mercilessly drawn into understanding at least something about the components that make up the unit.  This is no longer necessary for the regular user because end-user devices are pre-packed plug-and-play.  Generally, only gamers and power users these days are interested in specific components.  Given that they are so finely aware of specifications and they are sourcing high-end specialist components, they are far more likely to be using dedicated suppliers rather than the high street chain.

The big manufacturers have solved those problems for me, have packaged awesome processing power as a sexy, consumer item and have brought back the appeal of the local retailer, who no longer needs to know that much in order to sell me a thoroughly competent piece of technology.

I've seen reintermediation of the retailer into the domestic computer hardware market and I think it's a really good thing.

Death of the middleman (Act 3)

Online shopping via smartphone

In my third article looking at disintermediation I examine the most famous of the Business 2 Customer (B2C) operations - the internet only shop.  Many have tried but few have lasted the distance.  One of the undisputed kings of the market is Amazon.  Amazon manages to play so many roles in the supply chain.  They are now so huge that they can perform the roles of wholesaler, distributor and retailer all at once.  They can even provide these services to thousands of internet shops that exist within the Amazon domain and use Amazon's massive infrastructure for running their business.

I'm a big fan of Amazon.  Although I've chosen to live at the bottom of the South Pacific in Wellington, New Zealand,  I like to do my shopping on the other side of the world.  Ah, the wonders of the modern age.  Take a look at one of my shopping encounters with this champion of the internet . . . .

• Are you a savvy online shopper?
• Do you expect, nay, demand a keen price on everything you buy?
• Are you prepared to spend considerable time researching the marketplace before you commit to buying?
• Do you feel a sense of pride when you finally make your purchase, knowing that you have done everything possible to secure the very best deal for the model you want?
• Do you approach this shopping minefield as a personal challenge of your tenacity to triumph over adversity?

If you answered yes to any or all of these questions, we share something of a common purpose.  I love the hunt for online bargains and I sometimes spend an alarming degree of time and effort on the silliest of things but I'm big and ugly enough to admit this.  Call me a product of the internet shopping age.

OK, maybe I do get obsessive about these things but I freely admit that I am happiest if I feel I have examined all the available information before I commit.  Sometimes this is straightforward - if only one or two suppliers can provide the goods then it's just a question of whether the price is right.  However, when there are many possible suppliers, that's going to take a bit longer to follow the research trail.  At this point many people give up and buy the first copy they can find but that is not me.  Oh no.

I'll illustrate this with a real-life case.  I'll call it Hunt the Wolverine.

X-Men Blu-Ray box set

I hadn't seen any of the X-Men movies and I thought it was about time I rectified that.  Sure, I could pick most of them up on weekly rental at the local DVD library or I could buy the individual parallel imported Zone 2 (UK/Europe) DVDs from the Warehouse for $10 each or less.  Mighty Ape could offer me the Zone 4 (NZ/Australia) DVDs for much the same price, if I wanted to pay some postage costs too.  They also had a DVD boxset of the four films, which was competitively priced but, here's the thing - the reviews all shouted this at me - buy the Blu-ray versions, they're so-oo much better.

Now the Blu-ray option introduced a whole new set of research challenges.  New Zealand, unfortunately, has not yet accepted Blu-ray as the way of the future.  I'd love to blame someone for this and frankly I don't know who is responsible - all I know is that it is taking way too long.  I'm guessing the movie studios are keeping their pricing too high, the distributors certainly are and the retailers are making a pretty poor effort at persuading customers to embrace Blu-ray.  For whatever reason, Blu-ray bargains in the local market are few and far between.  Generally for Blu-ray I need to look overseas.

Here's where the NZ shopper gets a bit of a break for a change.  Unlike the DVD zoning debacle where NZ ended up in a different zone to the UK, the movie industry (bless their cotton socks) did at least realise that they could sort some distribution/manufacture issues by including NZ/Australia into the European Blu-ray region.  Now don't get me started on the whole topic of zoning - at least with the better zoning for Blu-ray, I can buy my home zone from British and European retailers as well as local ones.  And with parallel importing rules as they are in NZ, I'm not even infringing on that score.

Top online shop - Amazon UK

Ask yourself though, are you ready to buy from overseas?  Well, this is something that clearly plenty of people are doing but it does scare others.  Let's assume that you are prepared to buy from a reputable giant like Amazon UK.  What should you consider?

• Will Amazon ship to me down here at the bottom of the world?  (The answer is not straightforward - certainly don't try buying computer games or software, but Blu-ray/DVD/CD is fine)
• What's the shipping going to cost me?  (Not shown until checkout.  Note freight on some books can be horrendous)
• How long can I wait?  (Probably takes about a week if it's in stock)
• What's the price in New Zealand dollars (not shown during the shopping process but broken down at checkout and payable in local NZ currency so you can avoid the bank conversion fees)
• What other costs are there (if you don't know how much you can spend before Customs will hit you with GST, you need to do some more research)
• Is the product going to work in my local market?  (Depends - and if it doesn't, that's your lookout)
• What if it's damaged or lost en route?  (Amazon are pretty good at sorting this out but you won't know that until it happens to you)
• Will the warranty be honoured if it goes wrong (this is an absolute minefield so I will only buy things that have a value that's not going to keep me awake at night if it fails)

Back to my story on my X-Men Blu-rays.  I finally found a box-set of all the movies at Amazon UK, which they supplied to me pre-Christmas in just 5 days for less than the cost of the DVD box-set offered on Mighty Ape, the cheapest NZ source.

I sat down to watch the first movie and 20 minutes in I knew that my Hunt the Wolverine mission had been worthwhile.  The picture and sound quality were spot-on and my sense of smugness for bagging a bargain was the icing on the cake.

Be a savvy online shopper (Wikihow tutorial)

Kiwis shop on their smartphones (Netguide)

Introduction to retail (Wikipedia)

Death of the middleman (Act 2)

Noel Leeming has a great web shop     

Continuing my posts on how the web is changing the supply chain . . . last time I looked at the recent phenomenon of daily deals sites.  These web-only stores are certainly selling to the customer by removing the retailer and perhaps the distributor from the chain, a process referred to as disintermediation.

This time I 'll look at the websites of traditional stores and ask are these players actually removing any intermediaries at all?

A web presence is pretty much expected for just about any business in 2013 but for any operator who sells to the general public, it's an essential.

At the bare bones minimum,a web site should provide full details of where any bricks-and-mortar stores are located and how they can be contacted - phone and email as a starter.

However, any internet shopper who seeks out the website of a retailer and finds only this wireframe presence is going to be seriously underwhelmed and may well flick straight off to find a more engaged competitor site.  The internet shopper is a on a mission - to seek out new civilisations . . .  sorry, got a bit carried away there.  The internet shopper wants information fast and if he/she doesn't find it here, there's generally someone else on the net who can provide it.

(Soon to go) Bond and Bond

Some retailers understand that the web is now an essential shopping channel, particularly if their business is selling technology goods.  Others have yet to get the message unfortunately and I'm sure that this lack of market understanding must be hurting their business or at least limiting new sales opportunities.

I'll refer to a few local market examples to illustrate the point.  Noel Leeming (and the soon to be defunct Bond and Bond - two names, same owner, little point of difference) have invested heavily in building a full blown shopping website that features all of their high street merchandise and more besides.  Noel Leeming was the first national electronics retailer to jump onto the web and it shows.  This is a mature, fully featured web shop as good as any overseas site - easy to navigate, good product information, clear pricing, and internet shopping with delivery to your door via courier.

JB Hi-Fi is a recent arrival in NZ

Dick Smith Electronics offers much the same in capability - the New Zealand site is a clone of the Australian one but it's fully customised to support the local market.  Dick Smith is particularly good at offering daily and weekly specials that are offered only to the online shoppers, not to shoppers in the physical retail stores.  An added sweetener for the web shopper is free courier delivery on just about anything.  If you know what you want and don't need to actually see it first, the website is far more convenient than heading for the retail outlet.  JB H-Fi is an australian import that's made quite a splash with a few large stores and they have an impressive web presence.   All the specials they offer in store are replicated online and they offer free shipping too.   It's a tricky site to search but it has an impressive catalogue of goodies that may well appeal particularly to provincial people who don't have access to a physical store.  There are other high street giants that have also spent substantial time and money building strong web channels - The Warehouse, Warehouse Stationery - plus others with maybe a lower commitment but still some reasonable shopping capability, like LV Martin or its owner, Smiths City.

Aussie import Harvey Norman

Compare these fully featured web shopping sites with Harvey Norman.  Good ol' Harvey has fast established himself as a major player in the New Zealand electronics (and furniture) retail space since arriving here from across the ditch.  However, Harvey is very much a bricks and mortar operation, as is shown by the below par website.  OK, it's got some nice graphics and pretty pictures but visitors will soon find that it's not a fully-formed shopping site to replicate the diverse range of the retail stores.  There's some product here but not a lot.  Perhaps this is a deliberate decision.  After all Harvey Norman stores are run by owner operators so any commission from web sales is not going to be passed on to them.  This approach may also apply with other owner operators like the 100% stores, who have a frankly low-grade web presence.

Woolworths-owned Dick Smith

For the Noel Leeming and the Dick Smith type operators the web channel is not replacing their bricks and mortar operations but is instead bringing in much needed additional cash flow via the internet.  I've no idea whether their return on investment is paying dividends but as a keen buy I am certainly more drawn to these stores because they offer me good price and feature research opportunities, which may well translate into an actual purchase.

NZ stalwart The Warehouse

This shopping model, unlike the online line only operators like Fishpond or Mighty Ape, has not cut out the middleman.  Perhaps in some of these business it is the franchise owner who is selling direct to the public via the web channel, thus cutting out the franchisee who runs a retail outlet that is completely separate to the website, but generally the big New Zealand high street retailers appear to be running their own stores and the web site serves as an additional channel to the physical outlets.

I don't know if I'm a typical shopper or not but for what it's worth I am far more likely to spend my disposable income with retailers who have given me the pleasure of a great browsing experience than ones that left me disappointed at their lacklustre efforts.

Death of the middleman (Act 1)

Shortening the supply chain

Cutting out the middleman, bagging a bargain by moving closer to the source, disintermediation - pardon?  Yes, horrible term but perhaps some very good news for the consumer.

Traditionally us consumers are a fair way down the supply chain.  Typically we see suppliers who feed the manufacturers with raw materials.  Finished products then pass to a wholesaler who may on-sell to a network of distributors.  Retailers (who may or not also be the distributor) take the products and offer on their store shelves to the consumer.  Quite a lot of people get to put their margin on that product before you get to buy it.

So, the chance to cut some of those players out is quite attractive, especially if you are happy to break out of this normal supply chain in order to save some money.  Bid welcome to the Business to Consumer (B2C) model.  Sometimes this may require a bit of adjustment, some inconvenience but by honing your web surfing skills, the experience doesn't need to be onerous.

There are various ways this has developed and I may look at a few of the models over a number of posts.

Local success story, Off The Back

Probably the most in-your-face example of 'direct to customer' selling comes from the explosion of daily deal sites, like 1-day, Off The Back and Treatme.  These no-frills web sites have replaced the retail store (and the distributor) to bring you enticing deals, executed directly through a simple web based shopping basket and card payment process.  Delivery is swift and easy through nationwide courier services.

Cut out the middleman with FirstIn

Most of these sales are spur of the moment, impulse buys, so the goods offered are chosen carefully to satisfy this desire for instant gratification.   Kiwis appear to love this daily fix, as borne out by the rapid proliferation of these services.

The best ones offer excellent service and customer guarantees.  Personally, I've found them to be very accommodating when a product fails, with great after-sales services and a no-nonsense refund or replacement.  Easier actually than a bricks and mortar store maybe.

These new players must have sucked a fair amount of discretionary spending away from the traditional shopping mall or high street store.  They have some distinct advantages over the normal retailer in that they snare the potential customer with a totally different approach.  For a start, these offers land in your email box during the day when you are probably looking for a break from your daily slog.  Secondly, they create a sense of urgency.  Generally these offers are good for just one day and only then if there's sufficient stock.  A ever depleting gauge shouts out that stock is almost gone so make that decision before it's too late.  

They may also offer you things that you are not going to find in any retail store - a cut price housecleaning services, discounted meals at a neighbourhood restaurant,  a too-good-to-pass-up round of golf.  Some sites, like FirstIn, specialise in bringing in overseas refurbished or end of line brands that aren't even sold in the New Zealand marketplace.

Aggregator site, Dealshrimp

There are now so many outfits in the market for daily deals that services like Dealshrimp have sprung up to aggregate these multiple providers into a single tidy 'go to' portal.

Big online retailers like Mighty Ape and professional traders within the Trademe portal have also joined the rush to offer a selection of limited time deals.

Daily deals are definitely a product of the internet age.  The ability to blitz the nation with a deal that lasts just 24 hours could only have come from the presence of internet connected devices in most households and the public's appetite to act fast on a same day basis.  The speed with which this sales model has been accepted here is quite astonishing.  It appears that everyone likes a bargain and people are prepared to trust a company they may little or nothing about to come through on their promise.

Clearly this new B2C model has found favour in business circles with bricks and mortar retailer, The Warehouse, deciding in March 2013 to take a major stake in Torpedo7, operator of the most high profile deal site, 1-day.

The Warehouse takes $33m stake in Torpedo7

A modern sales success story if ever there was one.