Dreams of a clicking Christmas

Will Donner, Blitzen, Rudolph and the rest be put to pasture as Santa goes online in the retail rush? By Karen Scherer.

'Twas the night before Christmas, When all through the house, No computer was stirring, Not even a mouse ...

Okay, so the rodent puns are getting a little tiresome now, and Clement C. Moore is probably turning in his grave. Even the late Marshall McLuhan is probably wondering whether he was right about the global village. As anyone who is a regular user of the internet can probably attest, the world is starting to look much more like a global shopping mall.

While the United States had its first big online Christmas last year, New Zealand is finally catching up. While numerous local retailers have been hawking their wares on the net for months now, if not years, a string of recent developments has highlighted the fact that e-commerce is finally going mainstream.

In recent weeks, one of the country's oldest retailers, Farmers, has gone online with its own web site, albeit with a low-key and cautious offering.

FlyingPig, which will initially feature products from Whitcoulls, Bond & Bond, Noel Leeming and Computer City, is due to go live on Wednesday.

The brainchild of former Whitcoulls head Stefan Preston and his business partner Adam Keller, FlyingPig hopes to become the internet equivalent of The Warehouse Group - a classic category killer unashamedly styled on the world's most famous e-tailer, Amazon.com.

While many retailers now see e-commerce as an inevitable development, some remain sceptical about its potential. The chief executive of the Retail Merchants Association, John Albertson, speaks for many when he says he does not expect online shopping to really take off until today's schoolchildren reach employment age.

"There are still mixed views out there but I think everybody in retail has to take it seriously and give it due consideration."

While there is a plethora of data available on what's happening in the US, Europe and Australia, there have been few, if any, reputable surveys of how much New Zealand consumers are already spending online.

Interestingly, market research company ACNielsen released a report this week which claims that internet usage is higher in New Zealand than anywhere else in the Asia-Pacific region. A third of those surveyed in the year ending June reported they had used the internet in the last four weeks. Of these, 18 per cent said they had made an online purchase.

The Boston Consulting Group plans to release its own survey of online retail spending in New Zealand early next year. But Stefan Preston is not holding his breath. Even in the US, online spending is estimated to have accounted for just 0.5 per cent of all retail sales last year.

The New Zealand tally, guesses Preston, is unlikely to be more than 0.1 per cent. "But you've got remember," he stresses , "retail is a monster industry."

At Whitcoulls, Preston oversaw around $100 million worth of sales each year. What he and his backers have set their sights on with FlyingPig is 15 per cent of a much bigger market, including almost everything you'd currently find in your local shopping mall.

Based on last year's consumer spending data, FlyingPig would appear be aiming at a market worth more than $2 billion. Even 10 per cent of this is twice what Whitcoulls is currently taking, and with much lower overheads.

"We've been in it for a couple of years and I can tell you, sales are not spectacular over the internet at this point in time," he concedes. "They're not even that spectacular in the US - the hype is way more than the actual sales that sit underneath it. But the point is, the growth is there and this will be a huge channel at some point."

He likens the investment in FlyingPig to the millions spent by BellSouth establishing a cellular phone network in New Zealand.

"At the time, when there were only 30,000 people with cellphones, it seemed bizarre, but now it's a seriously profitable business. It's a bit like that for us. We think down the track this will be a viable and attractive business to be in, but we know we've got four or five years of hard investment and building a brand and building the site."

For those who are still not convinced, he has another analogy he likes to use: when cars made their debut they were slow, uncomfortable and unreliable, and the roads were nothing but mud.

"All that was needed were roads, gas stations and places to buy spare parts, and the car itself got better. What's going to happen with the internet is the Toyota Corolla is going to get invented soon, and we'll get Web TV and all the other access devices. The roads are getting built."

While FlyingPig has made no secret of the fact it wants to be an Amazon clone, it has two crucial differences - it wants to integrate its operations with existing bricks and mortar stores and at this stage, it is content to concentrate on the local market.

At the other end of the country, another young entrepreneur has taken the opposite tack. In March, Matthew Darby launched a Christchurch-based online music e-tailer called CDStar. His aim is to sell not just to New Zealand, but to the world.

Darby is living proof that not all young New Zealanders are deserting their homeland to seek fame and fortune elsewhere. He started CDStar after heading the local branch of global online employment agency TMP Worldwide. It was clear his next move would be to the US, and he didn't want to go.

He is realistic about the size of the New Zealand market. "We're the size of a city and at the moment a city of four million people is not a viable proposition to develop an online e-commerce strategy that's sustainable in the short to medium term."

His strategy has been to form alliances with big-name partners, and go global. CDStar is featured on the home page of Telecom's internet service provider, Xtra, and has struck a similar deal in Australia with Telstra. It is about to launch in Canada and is talking with a possible joint venture partner in Asia, which Darby hopes will see its launch in six new countries next year.

Like most other e-tailers, Darby won't say exactly how sales are going, but according to the investment statement issued last month by his company, EStarOnline, it is aiming for $2.5 million worth of sales in the year to August 2000.

It doesn't expect to break even for another two years, but that hasn't deterred investors who fell over themselves earlier this month to subscribe for shares in the company at 33c each. One million dollars worth of shares began trading on the grey market this week, hitting a high of 75c on their first day.

Because of the dearth of well-marketed local sites, he believes many New Zealanders are still buying from US-based businesses.

"At the beginning of the year, I would have said we were about two years behind the States, but we're probably getting down to about 18 months now, largely due to the amount of dollars people like Telecom, Sky TV and TVNZ are putting into online and e-commerce areas. I think next year will be a very good year for online Christmas shopping."

While some e-tailers already claim to be doing very nicely thank-you, others are hoping Darby is right.

As one of 200,000 international affiliates of Amazon.com, retired Auckland publisher Leighton Carrad collects a small but steady income by providing links to the American site through his own web business, kiwiana.co.nz. He gets a 5 per cent commission on sales made through his site, and 15 per cent for products he makes some effort to promote.

Amazon initially warned him that 98 per cent of those who visited his site would be window-shoppers. In fact, he has found the percentage much lower, but will only say that sales are "improving".

Wellington e-tailer Grant Edlin is not quite so coy. For the past three years, Edlin has been running a site called ontheweb.co.nz, which showcases goods from more than dozen small retailers. The site is currently running a Christmas promotion to try to stimulate sales.

"If I was being absolutely honest, there are fluctuations something terrible," he says.

"Sometimes we seem to get reasonable sales, then it's dead in the water for almost weeks on end for some of the sites."

He is nevertheless convinced their patience will eventually pay off. "I tell people if they don't actually go out and make themselves available, then all their customers are going to end up going to FlyingPig."