KEY POINTS:
Just in case you missed all the TV ads, Telecom has ramped up its online shopping mall Ferrit.co.nz and is making a big push to attract online punters in the run-up to Christmas.
After its first year as an online marketing and promotional website, Ferrit was changed last
month into a full-scale retail website.
Around 90 of the 98 retailers are using Ferrit's new shopping cart system. This enables visitors to buy items from several retailers and pay for them using one credit card transaction.
Previously the website was like a glorified advertising site that directed customers to retailers' own websites to make purchases. The revamp is the biggest development so far at Ferrit as Telecom spends millions in anticipation of a predicted avalanche of new online shoppers.
But as New Zealand's biggest listed company lavishes the website with resources (it is nowhere near break-even and won't be for some time), the details of its business plan remain unproven.
Some retailers - including two members of Ferrit - believe the website's strategy may be seriously flawed.
The New Zealand Retailers Association chief executive, John Albertson, has no doubt we are on the cusp of a boom for online retail that will grow as a new generation of tech-savvy teens become big earners and fuel retail spending.
But it is far from certain whether they will shop in online malls such as Ferrit or deal directly with their favoured retailers who establish an online profile.
Ferrit general manager Ralph Brayham says its business plan is not based on dominating online shopping, and it encourages retailers to use as many portals as they can. He says other telcos like BT in Britain have made similar moves into online retail sites.
Financial analysts say the investment in Ferrit is relatively small considering the telco's size. Telecom has spent about $5 million on the latest ad campaign and some believe about $30 million overall.
Jeremy Simpson, of sharebroker Forsyth Barr, says a move into e-commerce is a part of Telecom's core business.
Mark Ottaway, of AC Nielsen's NetRatings, says the website is performing relatively well, and that its concept of a self-contained retail website is unique and may well be copied overseas.
Nielsen estimates that 172,000 unique users - the hit rate minus repeat visits - logged on to Ferrit last month.
But given the publicity and resources, you would expect it to be bringing in plenty more. And it is still hard to find many people who know what Ferrit actually does.
Turn on the TV tonight and there is a good chance you will see those commercials - the ones that feature a daffy chap burbling about his purchases on Ferrit. But the launch of the revamped website, which the ads have been promoting, was three months behind schedule.
Brayham says the only sure thing about a software-based business development is that it will be more complicated than originally thought.
The good news for the website is that the new shopping basket system is working in the run-up to Christmas when retail spending spikes by around 8 per cent.
Brayham is confident the website is on the right track. It is aiming for around 300,000 unique users this month, with 2 per cent of visitors buying something.
But some retailers wonder how much Telecom is covering Ferrit's losses for high-impact marketing campaigns. Brayham accepts Ferrit will lose money and he does not know when it will break even.
But the truth is that like a real avalanche, it is hard to predict when online spending will take off.
Brayham - who has worked with retail at Apple and Toshiba in New Zealand - says Telecom is treating the online mall like a venture capital investment and establishing a part of the e-commerce infrastructure.
But media analyst Michael Carney, author of Trade Me Success Secrets, believes the future for Ferrit is far from assured.
"Ferrit was a retail solution from a piece of technology looking for a market," he says. "Its main aim and only offer is to be a destination or venue for people to go to if they want to shop online, but I have yet to see any reason to go to the site."
It has not been the place to compare prices, Carney says.
"I guess the offer of free shipping is an enticement, but it must be paid for by Ferrit out of the marketing budget and that is not sustainable. It is no way to run a business."
Telecom's assumption can be summed up in the catchline for the movie Field of Dreams, about a farmer who builds a sportsground on the expectation that it will be used for an important baseball game - "If we build it, they will come".
Ferrit is hoping consumers will react the same way they do in bricks-and-mortar retailing and visit a one- stop mall.
It is easy to see the business appeal of providing a venue for online shopping and taking a commission on sales - typically 4 or 5 per cent.
And for retailers it is a no-brainer. They only pay commission on sales and enjoy the benefits of Ferrit's own generous marketing budget.
Brayham rejects a suggestion that Ferrit's survival and success depend on other retailers not developing their own online profile.
He says Ferrit is encouraging retailers to list their products on several sites, saying online stores are comparable to bricks-and-mortar chains such as Whitcoulls - it has a big branch in Queen St but dozens elsewhere.
People find it difficult to comprehend what's going to happen to the online retail sector, he says.
The New Zealand retail spend is around $60 billion. He estimates that currently only about 0.3 per cent of spending is done online compared to around 10 per cent in Britain and 5 to 7 per cent in the US.
"There is no reason why New Zealand cannot reach 5 or 10 per cent, which is an additional $3 billion to $5 billion. We would like a share of that."
But some retailers, such as music store Real Groovy, have advanced websites and others will be looking to improve returns with their own online e-commerce sites.
Take the hardware co-operative Mitre 10, which has been using Ferrit as a shop window to promote its products and then directing prospective buyers to its own site.
Mitre 10 brand manager Paula Arblaster says the company will keep using Ferrit as a marketing tool.
But it has not and will not be using the new shopping cart.
"We believe strongly in using other sites to market out products and our own to complete the sale," Arblaster says.
"We think the future will be a mixture of people using the internet to research and for inspiration."
ONLINE SHOPPING INCREASING
ACNielsen says in its latest survey 1,265,000 people said they'd made purchases online in the last year and 423,000, or 33 per cent, were regular online shoppers. This compares with 239,000 in 2001.
Estimated spending for the past year is $1.5 billion.
Nielsen NetRatings estimates around 172,000 unique users used Ferrit in November. About 2 per cent of unique users are expected to make a purchase.
Telecom expects New Zealand will follow the experience of Britain and the US and online sales will increase to $5 billion.
WHY WE'RE OFF-LINE
Five reasons e-commerce has flopped in New Zealand:
1. Mall mania. Trips to the shopping centre are a top Kiwi recreation.
2. Security fears. Kiwis are paranoid about giving credit card numbers online.
3. Bargain hunting. If it's not cheaper online, why bother?
4. The Trade Me factor. The auction site dominates the time we spend online.
5. Delivery costs. US research shows free delivery is a big attraction for online shoppers.
