There is a fifth column among the ranks of retailers in Taiwan. And while not engaging in sabotage or espionage, this business is counting on the growing penetration of its main sales tool -- the Net -- in homes and workplaces to smooth its path to commercial success.
True to its Spanish heritage, the fifth column of e-commerce has its networks deeply infused within society and is gaining the support of frustrated shoppers too busy with their work or family commitments to satisfy their commercial cravings.
At the head stands E-Family. A small, but growing e-tailer, E-Family (www.e-family.com.tw) sells a moderate range of daily necessities over the Internet. Customers can glide through virtual isles, make a selection and have the product home delivered within 72 hours. Retailing giants 7-Eleven and Costco, whose distinctive appeals are convenience and low cost, are major obstacles for any e-tailing firm looking to ride those same marketing appeals all the way to the bank.
PHOTO: GEORGE TSORNG, TAIPEI TIMES
According to E-Family founder Ryan Hsieh, e-tailing isn't likely to knock these established giants from the top of the retailing food chain, but does offer an alternative.
"We are not trying to replace convenience and megastores, we are simply setting up a fifth sales channel for consumers," Hsieh said.
The other four, more conventional channels are megastores, convenience stores, department stores such as Sogo and media sales via TV Infomercials and catalogues.
Hsieh hopes that his fifth channel will eventually nudge out this last sales method and intends to do so using a sales pitch similar to those employed in TV and catalogue ads -- convenience and price.
This is a pretty common battle cry among the mushrooming legions of online sales companies. But Hsieh said that unlike many e-tailers who focus on providing a huge range of items, E-Family focuses mainly on a limited range of popular products in combination with a high standard of customer service.
"We don't stock too many items," Hsieh said. "Many Web sites in Taiwan do businesses similar to us but their emphasis is on quantity of items, maybe 10,000 or 20,000. Selling so many items brings problems with supply."
Currently E-Family offers around 1,000 products in nine categories including babycare, healthcare, food, cosmetics, gardenware, kitchen and bathroom products, bathroom supplies and mixed categories.
Babycare tops the list as most popular, with more than 300 products accounting for 40 percent of sales, followed by cosmetics.
Hsieh said that although the quantity varies little, the range is altered monthly, with about 300 new products rotated on to shelves and around 250 unpopular items being taken off.
Any move to broaden the quantity of products offered could lose the interest of suppliers, as it would lower the sales volume of individual products.
"Right now we make NT$10 million per month, so each item sells [on average] for about NT$10,000 worth," Hsieh said. "Maybe next year we will expand the number of items we sell."
Besides those Web sites adhering to the mass sale appeal, there are also those that edge themselves out of the market by offering such a small range of goods.
"Many sites sell IT devices in Taiwan, but the market scale is not big enough for purely Internet-related goods because Taiwan has only four million Net users," Hsieh said.
Indeed, in response to the general lackluster performance of e-commerce systems in Taiwan, some of the country's biggest corporate names have decided to consolidate their standing in the Net-services market and merge their business-to-business and business-to-consumer arms.
The Lien Hwa-Mitac Group is reportedly planning to pool the resources of Lien Hwa Foods and Mitac International to link manufacturing, distribution and retailing to provide a total e-commerce service.
Another Net giant, Acer Digital Services Corp, has also signed deals with the Eslite bookstore chain and the Golden Harvest entertainment company, with whom the firm hopes to build stronger e-commerce systems.
E-Family has all the hallmarks of any other Internet start-up: an idea, a young, motivated pioneer working long hours from home on the computer, a little help from the Old Man and eventually a lot of help from a big firm.
Educated as a biomedical engineer, the 31-year-old Hsieh began his venture into Net commerce in 1997, when he spent the entire year developing an online shopping and medical information service called Netpharma. He was aided in this endeavor by his inside knowledge of the pharmaceutical business, thanks to his experience working alongside his father who has operated a chain of drug stores throughout eastern Taiwan for 30 years.
Netpharma sold the same nine categories of items as its offspring E-Family, and provided a working model upon which E-Family was built. Its name was a misnomer, as in accordance with Taiwanese law sale of medicines over the Net is illegal.
Hsieh claims that it was the first business-to-consumer Web site in Taiwan. Whether or not it was in a class of its own may be moot, but as 2000 approached and business picked up, it became clear to Hsieh that it was time to take the next step.
After sending out a number of proposals, Hsieh finally got a hit and Jade Pacific Corp came in with NT$18 million. This month, the company's capitalization will increase to NT$45 million and Hsieh will begin looking for additional funds from international venture capital tie-ups.
Looking at E-Family's sales figures, finding partners shouldn't be too hard. Since launching on January 1, 2000, ("We weren't afraid of Y2K," said Hsieh), E-Family's total sales have jumped by 1,000 percent to hit NT$10 million in April. Also in April, hits at the E-Family Web site topped 2 million, ensuring a steadily increasing flow of customers.
Along with sales, the number of employees too has grown, sometimes at the rate of a two or three a week during some periods. Currently E-Family employs around 30 people and Hsieh expects this figure to grow to 60 by the end of the year.
And, like every other Taiwan company, E-Family is already looking hard at options to expand into the massive Chinese market. Hsieh says that although any move in this direction is still some way off, he has already set his sights on Shanghai.
"The business model in Shanghai is similar to that in Taiwan and the population is large enough," to support such a service, Hsieh said.
When setting up the company, Hsieh realized that any online shopping venture would require smooth lines of supply. To circumvent any delay problems, Hsieh added a clause to the contract he signed with local suppliers that would guarantee delivery of goods to the E-Family warehouse within 12 hours. This deal also means that E-Family rarely has to tell its customers that it is sold out of a certain product.
Subsequently, E-Family maintains only one medium-sized warehouse, which Hsieh prefers to consider as a distribution center, in Wugu just outside of Taipei. Keeping the warehouse moderately stocked saves money and space by avoiding having to hold unpopular goods.
However, as E-Family's catch-call is "convenience," Hsieh admits that the 72-hour delivery time is a drawback. To combat this costly time lag, Hsieh is working on a new system whereby E-Family takes the product the all-important "last mile" -- right to the consumer's door.
Currently, E-Family employs the services of three local delivery firms to see that customers get what they paid for. According to Hsieh, this is where the major delay problem lies.
"The cost of rapid delivery is very high because such systems are not well developed yet in Taiwan," Hsieh said.
To overcome this hurdle, Hsieh is working on his own delivery model, based on an E-Commerce Store, or ECS. An ECS, Hsieh said, will be a small outlet staffed by one or two people and will be located strategically around large population centers.
E-Family will provide all the CIS (company identification system) and SOPs (standard operating procedures) and computer systems, for which the ECS operators will receive 5 percent of the profits generated through their store.
This delivery chain will be initially involve around 10 operators stationed around Taipei and be dedicated to servicing E-Family orders, hopefully cutting delivery time to 24 hours and slashing delivery costs, Hsieh said.
Currently, rapid delivery of an average NT$3,000 order will cost NT$210, or 7 percent of the sale's cost. "With ECS, we will be able to slash that cost to NT$30, or 1 percent," Hsieh said.
Focussing on low operating costs is the heart of E-Family's competitiveness.
"Our power lies in cheap operating costs, which are less than those of traditional shopping channels," Hsieh said.
Based on estimated monthly sales of NT$100 million, Costco's operatiing cost is 22 percent, he said. "But if we can make sales of NT$100 million per month, our running costs would be around 15 percent, including delivery fees."
Besides long delivery times, the only other problem E-Family has encountered has been with online payment. Cash-on-delivery has remained the payment method of choice, Hsieh said. He said that doubts about the integrity of online payment systems that require entry of credit card details have hindered E-Family's development into a totally virtual online business.
"We use the Hinet system," he said, "but the link between the Hinet and the bank is poor."
Chances of seeing any immediate improvement in this service could be slim, according to Hsieh, as the market for such a service is low. Indeed, online transactions in April for the market in Taiwan totaled only NT$30 million, of which E-Family accounted for 30 percent.
Aware of consumer's wariness on online transactions, E-Family has employed the services of Net security big gun, US-based Verisign, which is represented in Taiwan by Hitrust.
Winning the confidence of Taiwan consumers to use this payment method may take some time, but in light of E-Family's buffeting capital, rising sales and custom-made rapid delivery model that Hsieh hopes will put it out in front of the pack, time could very well be on his side.
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