February 05, 2001, 2:10 PM — First a word about last week's column on postage and handling charges associated with e-commerce: That column touched a cord with consumers and e-tailers alike. Most consumers agree that we are probably paying more than we should. But e-tailers countered that shipping and handling charges are not just the cost of postage. Rather, they include the labor and materials involved in delivering you the goods. Needless to say, when it comes to this issue, the good, the bad, and the ugly are out there.
Regular readers of this column also know that I've written about the recent difficulties at online toy seller EToys Inc. This company is once again providing business lessons from the trenches for e-business wannabes. This time it's EToys' European exploits that provide a case study.
On Jan. 4, EToys cut 380 jobs in Europe and said it would cut another 320 by then end of March (leaving only 300 people employed across the pond). The company also announced plans to shut down its U.K. Web site in preparation to fully wind down its European business.
With these latest developments in Europe, we see another major challenge for e-businesses: international expansion.
The company entered the U.K. toy market in the third quarter of 1999 with the hope of gaining first-mover advantage and using the Internet as a new distribution model; however, being first and fast was not enough. In the view of my European counterparts, EToys based its strategy on competitive pricing without spending significantly on advertising to build brand awareness. Sure, it addressed adults as buyers, just as it did here in the United States. But EToys failed to connect with children as consumers in Europe, something it also failed to do here. Globally, the company also failed to exploit the full potential of the Internet in building customer relationships.
Perhaps the biggest mistake EToys made overseas is that it appeared to ignore the possibility of competition in the fragmented U.K. toy market. In fact, there seemed to be no competition on the Web -- except from Toys "R" Us. But EToys' operation was easy to copy, and it quickly faced stiff competition from European brick-and-mortar companies such as Argos, a catalog showroom retailer. Now at least 20 companies in the United Kingdom sell toys online.
In Europe, consumer e-business has not yet developed into a billion-dollar business. Without critical mass in a market, e-tailers need strong parents and conventional cash flow to survive. Without these, EToys was unable to respond to entrenched competitors.