Ferrit to fold as retailers move offline

Monday, 12 January 2009

Telecom is blaming internet-shy retailers for the demise of its online shopping site Ferrit.

Just six months ago Ferrit general manager Ralph Brayham said the online shopping mall would not fall victim to the economic downturn.

But yesterday he announced that Ferrit would close at 5pm tomorrow, affecting 37 jobs. At least some of those jobs would be reintegrated into other parts of Telecom.

Ferrit, launched at the end of 2005, allowed shoppers to browse the wares of multiple retailers, research a product and buy it without leaving the site.

An initial membership of 100 retailers peaked at about 120, before dwindling to about 80, with several big names pulling out.

Mr Brayham said Ferrit's business was dependent on a constant stream of new retailers signing up to expand the product range.

Over the past six months potential new retailers said they were 'reticent to invest in what they see as a potentially high risk thing over the next couple of years, being online. That has really been the big change'.

Retailers were focusing on selling through their stores.

Research by digital marketing company Coremetrics said online purchases halved in the second half of last year as people curbed their spending and the lower dollar made many foreign purchases too expensive.

New Zealanders placed just 2.5 orders for every 100 online sessions in the three months to December, compared with four orders per 100 sessions in the June quarter, according to Coremetrics.

Mr Brayham said Ferrit's Christmas sales were up 60 per cent on the previous year at nearly 2000 orders a day.

Retailers selling highly commoditised consumer electronics, books, games and babyware did well.

Ferrit never made a profit, and Mr Brayham said in June last year that the business was still years away from breaking even.

Telecom retail chief executive Alan Goudie said yesterday: 'Ferrit has continued to grow during the past three years, but the current retail environment has meant the break-even point has shifted out a number of years.'

Mr Brayham would not say how much had been invested in the business.

But start-up costs were a reported $15 million in the first year, with another $12 million pumped in to run it each subsequent year.

Ferrit had to turn over an estimated $240 million a year to break even.

E-commerce analyst Stefan Korn said Ferrit's business model was flawed from the start, including poor usability, a delay in allowing customers to make multiple purchases from different retailers directly through the site, and an initial lack of customer feedback options, which were a common feature on similar overseas sites.

Ferrit's advertising was also more akin to a site for used goods than the retailers it represented, Mr Korn said.

The economic climate might have accelerated its demise, but the amount invested would have made it almost impossible to make a return in New Zealand's small retail market, he said.

It was also too difficult for retailers to align their in-store sales strategies with their online business.

'I don't think it would have ever achieved a positive return for Telecom,' Mr Korn said.

Mr Brayham was convinced that New Zealand would eventually catch up to the United States and Britain in online retail volumes, where they made up between 8 per cent and 10 per cent of total sales compared with just 0.5 per cent in New Zealand now.