The head of online retailer Ferrit is blaming tough economic times for owner Telecom's decision yesterday to pull the pin on the loss-making business, but analysts were not surprised, saying the writing had been on the wall for some time.
Telecom launched the service, which aggregated online storefronts for a number of retailers on one site, in November 2005 and spent millions advertising it.
However, despite that promotion, data from ratings agency Neilsen showed Ferrit was still struggling to generate significant traffic.
Ferrit general manager Ralph Brayham yesterday said Ferrit had been meeting targets, had achieved 2000 sales orders a day over Christmas and he and his team were "not unhappy" with its progress to date.
Despite that, Telecom retail chief Alan Gourdie said that although Ferrit had continued to grow over the past three years, "the current retail environment has meant the break-even point has shifted out a number of years".
"The decision has now been made to refocus and resources will be directed to other areas," Gourdie said.
Brayham told the Herald the decision to call time on Ferrit was "absolutely" a result of weaker economic conditions.
"We always knew it would take years to break even, it was never going to be a six-month flash in the pan.
"The reality is that in the current economic environment, we know that the new retailers that we need to get on to Ferrit to continue to grow the business at 60 per cent year on year, which is what we did over Christmas, is going to be tough because they are not making what they see as riskier decisions over the next couple of years."
However, a number of commentators have for some time predicted Ferrit's demise, pointing out its relatively small traffic and what they saw as flaws in its business model.
Internet and media consultant Lance Wiggs of Lancewiggs.com was not surprised. He said Ferrit had never been a likely contender because the site was not particularly well designed or easy to use and had tried to drive traffic by advertising rather than by usability and word of mouth.
"They went into the wrong market, had the wrong strategy, put together a very poor site and led that with a very expensive and poor marketing campaign and kept throwing more money after the first lot."
While local e-commerce success story Trade Me had cornered the market among small retailers, Ferrit had targeted the mid-sized to large companies.
"But if they're halfway smart, they don't need Ferrit. They just put up their own website, their own e-commerce solution and market it on their own. Ferrit ... was trying to take a space which was never really there."
Retailers Association chief executive John Albertson said he suspected many of the retailers on Ferrit now had their own sites "and what they're using Ferrit for is to link through to their own sites and Ferrit's revenue stream has gone".
Forsyth Barr telco analyst Guy Hallwright said he had believed for some time that Ferrit's model was unlikely to be successful.
He wondered why Telecom had not closed Ferrit earlier but said it was such a small part of Telecom's operation that it had probably taken some time for chief executive Paul Reynolds, who took over from Theresa Gattung in late 2007, to turn his attention to the business.
Aside from its advertising, the site was probably relatively inexpensive to operate and its demise was unlikely to materially affect Telecom's earnings, expenditure or share price.
Telecom shares were up 6c to $2.47 yesterday.
* Ferrit was launched in November 2005. It reportedly cost $15 million to set up and aggregated offerings from a number of retailers in a single website or online shopping mall.
* In 2006 it was upgraded to a full-scale retail site allowing shoppers to pay for online purchases made from a number of different retailers in a single credit card transaction.
* By that stage it was estimated to have cost Telecom $30 million, including a $5 million advertising campaign. Telecom yesterday refused to say how much it had sunk into the business overall.
* At the start of last week Ferrit was logging around 8000 unique browsers daily as opposed to Trade Me's 466,000, according to data from NetRatings.