Paul Reynolds on Ferrit

The nationwide embarrassment. The site we love to, err, dislike. Ferrit.

Paul Reynolds answered two questions on Ferrit (they were not mine but from BarnacleBarnes). How did he do?

Ferrit
Q. One word: Ferrit. With an investment north of $30 million dollars and traffic that is less than a deal-a day site and only slightly more than a shop selling parallel imported sports gear how can Telecom keep supporting Ferrit?

Dr Paul Reynolds: Telecom is investing in Ferrit as part of a longer term strategy. The growth and potential revenue opportunities from online retail and for Telecom are significant if New Zealand follows trends in the US and UK. In the UK online retail is in excess of 15% of all retail and is expected to grow an additional 50% this year. By helping to develop New Zealand’s online retail market from around 1% to US/UK levels, Ferrit believes it can establish itself as a valued partner to help bring a large portion of New Zealand retailers online in a trusted one-stop online retail mall for consumers. A key challenge to achieving this goal is educating New Zealand retailers (other than the handful who already do online exceptionally well) about what is needed to succeed online and providing tools to help them do this.

Q. With a charging structure that can hardly bring in much cash at current traffic levels and no sign of any forward momentum it doesn’t seem to add up. I would be really interested to know how you think Telecom can make Ferrit profitable in the medium term.

Dr Paul Reynolds: By helping equip New Zealand retailers to succeed online, Telecom helps open up worldwide retail opportunities for these retailers, as well as helping them effectively compete with overseas sites who have invested millions if not billions of dollars on their online capability and who are quickly growing their share of New Zealand retail spend (at the expense of New Zealand bricks and mortar businesses).

The one thing Dr. Reynolds did not answer was the question of profitability, and probably with good reason. Dr. Reynolds does say three things:

1: Potential retail revenue for NZ & Telecom is strong if NZ follows trends in USA and UK

2: Educating NZ Retailers is the key challenge to getting from 1% to 15% of all retail online

3: Ferrit will help NZ Retailers sell to the world by “equiping NZ retailers to sell online”

I have a different point of view.

Firstly, the potential revenue question. I agree that the online market in NZ is, Trade Me aside, poor.There is no Amazon, no Best Buy, no Yahoo shops and so forth. However Trade Me is a standout – delivering far beyond eBay would be, including elements of Amazon, match.com, along with the  motors, property and jobs sites.

On the number side I find the online share of retail sales in the USA, according to to US Census Bureau, to be just 3.3%. That excludes “Online travel services, financial brokers and dealers, and ticket sales agencies” which are are not classified as retail. Notwithstanding the popularity of sites such as Amazon and eBay this feels about right. It’s just numbers though, and as long as we stay consistent then that’s ok.

Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales:
4th Quarter 1999–2nd Quarter 2008: Source Census Bureau
4th Quarter 1999–2nd Quarter 2008

Secondly in NZ we are not doing so badly. Trade Me has 1.23 million items for sale right now. If the average time to sell is a week, average sale price is $60 and sell through rate is 20% (all top of head without looking at any real numbers) then Trade Me has about $64m in sales each month, or $770m per year. That’s excluding cars (55,000 cars listed, at say $12000 each and say 3 months to sell that’s $220m per month) and Property (57000 @ say 400,000 and 4 months = $5.7 billion per month).

The last twelve months NZ rolling retail sales were about $66 billion (Stats.govt.nz), or $58 billion excluding motor vehicles. At $770m Trade Me there for would have about 1.3% of NZ’s non motor vehicle retail. At ($770m+$220m*12 = $3.41 billion) Trade Me would have 5.2% of total NZ retail spending including motor vehicles. Both are staggering numbers. How much is Ferrit selling?

Meanwhile my guess is that if we include air travel in the stats then much of it (80%+) will be through online, lifting the overall online sales percentage even higher.

Thirdly, Ferrit is not really equipping NZ Retailers to sell online, nor educating them, nor competing overseas. The retailers should ideally be  putting up their own sites and marketing to the world, but they are trapped behind Ferrit’s branding and technology. Ferrit does not offer shipping outside of New Zealand so there is no international sales potential. It would retailers much more good to not only create their own site, but also to get on eBay, Amazon or Yahoo! shops for international sales and of course Trade Me for domestic sales.

Happily there are plenty of other efforts going on in New Zealand to help eCommerce aside from Trade Me – Torpedo7 shows how it can be done, Silverstripe provides free tools, FishPond is grabbing the Amazon space, there are some great design firms, excellent search and SEO companies and even Telecom has been doing some good things.

We are seeing some interesting stirrings at Telecom. Fixing Ferrit will be a sign that things have really changed.

About Lance Wiggs

@lancewiggs
This entry was posted in Internet Business, NZ Business, telecom, Trade Me and tagged . Bookmark the permalink.

11 Responses to Paul Reynolds on Ferrit

  1. scrote says:

    Maybe they an elaborate tax saving scheme?

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  2. Interesting analysis Lance.
    I’m beginning to have my doubts generally about Paul Reynolds. This was really such a no-brainer that I’m a bit shocked he didn’t pull the plug in his first week on the job.
    It shows he is out of touch with the New Zealand market and not focused on the thing that matters – being a great mobile operator and fixed broadband network.
    His decision to appoint COO Simon Moutter as the chief transformation officer, for a start, was very curious. Moutter is no change agent. He is good at running monopolies. The indictment of that appointment was Moutter’s decision just a few months later to leave to be the CEO of Auckland Airport.
    The whole episode exposed Reynolds’ inability to grasp the scale of the problems facing Telecom or have the strength and nous to make it happen. The Moutter appointment smelled of a face-saving sideways push rather than the real thing.
    cheers
    Bernard
    PS Disclosure – I worked for Telecom a couple of years ago as the managing editor of XtraMSN, which has since been broken up into YahooXtra and MSN. I left before it was broken up.

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  3. Lance Wiggs says:

    Bernard

    On the other hand almost all of the direct reporting management team has been changed. Coincidence? Not at all. I’ve been very impressed with Paul Reynolds’ ability to make the changes happen without being perceived to be swinging a big axe. It’s straight out of the playbook I would use – change the top first, but he’s done it a nice gentle way.

    Simon Moutter and others may well have deliberately given a challenge that targeted their perceived gaps, and been set up to either prove the weakness wasn’t there or fail – and when they failed the door was open. Whether they were pushed or saw the light and left is not relevant. I guess what I am trying to say is although it is much harder to come to a mutual agreement to part ways than to swing an axe, the result is better for everybody.

    In the scheme of things he on going costs of running Ferrit should be tiny, despite the millions that have been sunk into it. The question is whether the Ferrit will be fed a budget going forward, and what will happen to Ferrit boss Ralph Brougham.

    PS Disclosure: Bernard and I worked together at Fairfax. It was lots of fun.

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  4. I read this post last night and wanted to add something as I was convinced as we all were I am sure that it was a question of how long after Reynolds appointment that Ferrit would close; however much as I reflected – there was nothing I felt was valuable to add.

    On reflection this morning and Bernard’s comments, I think the fact maybe that in some way the reason is a blend of both of your comments.

    Firstly I have no disclosure of interest! – never worked for Telecom and am not a big fan of their marketing or operation.

    I think Reynolds is the change agent who is re-shaping Telecom – he has that dower Scottish pragmatism, he has started re-shaping and refocussing the company to the core components. He has through natural attrition or persuasive force changed the key leaders and brought his team in. The results will show in 2009/2010 – that is when he will be judged.

    This all leads to my belief that Ferrit whilst psychologically important to us in the online world is so insignificant to him that it is not worth his while. The majority of the $30m was Terresa’s folly and whilst killing the sacrificial play-thing would appeal to our psyche; to him a business which whilst not huge (UB’s & $ return) is an e-commerce business without a major competitor (his view)- so for a subsidy of maybe $1 – $3m pa. it is insignificant – he can play a waiting game.

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  5. jandal says:

    “educating New Zealand retailers”… yeah, some one is not doing a very good job then.

    I have gone to Ferrit a couple of times, out of pity, and found the images of the products, if any image, are so poor, you wonder why they bothered listing the item.

    Come on, you can Google great product shots if you are too lazy to take a few of the product that’s in your system.

    I don’t have a problem with the “ideals” behind Ferrit, there is just no one with full time passion in behind it.

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  6. Glen Barnes says:

    The interesting thing with Ferrit is that the only way they seem to be able to draw traffic is to go on sale (The only certain things in life these days are the fact that Ferrit and Kathmandu are on sale!) Their education of NZ retailers involved flying them to the US to attend e-commerce trade shows and providing research into e-commerce. All good stuff but I think their approach was fundamentally wrong. They should have been focused on providing the right tools for all companies to go online. They could have built a site that offered the tools to take the next step up from Trade Me and used Ferrit as the aggregator – much like Amazon does. Getting the large retailers onboard is just not an easy proposition – IMHO you are far better to build from the bottom up a great product and the rest will follow in time.

    Unfortunately Ferrit was built by marketers and not technologist. What was needed was a rock solid platform to move forward for the long term instead they are left with a less than stellar platform and still no signs of real traffic.

    Glen (aka barnaclebarnes)

    Disclaimer: I used to work for Nielsen Online who supplied some of the research to Ferrit.

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  7. Amanda says:

    No Amazon, no Best Buy, no Yahoo, no GAP.com, no Piperlime…incl. their 40% return rate on shoes purchased online, etc.

    With a nation of only 4 million people…can we really expect them to have an international distribution facility with fulfilment being client side.

    Ferrit are constantly trying to convince some of the largest B and M retailers in NZ to carry out e-commerce – one wonders why this education process is necessary when the solution is very obvious.

    Paul Reynolds job would be like Helen Clark’s or Graham Henry’s…damned if they do and damned if they don’t. Imagine these postings if they’d put 30mil in and pulled the pin.

    Just to clarify, I work for an online marketing agency, have never been employed by Ferrit and have never been taken to an e-retail event with them.

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  8. Miki says:

    @Lance

    Ralph has been running Broadband and Ferrit for the last year or so. Just picked up Next Generation Telecom in the recently announced re-org.

    Disclaimer – I worked with Bernard at Telecom. We both worked for Ralph. I still hang out with Ralph when I get to Auckland. I buy nappies from Ferrit. Um – that’s it.

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  9. Lance Wiggs says:

    Interesting. Next G is what pulled Telstra out of despair in Australia.

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  10. Ray says:

    Nice in depth analysis there ,

    My feeling is ferrit is shaping up to be a school yard bully for NZ online shopping, not really the best system or well thought out but with Telecom’s budget they are trying to swamp out every one else. Unfortunately I doubt it will work until ferrit start to change their direction and provide a usefull and friendly site.

    My guess is after this Christmas run they will cut their loses and get out or change drastically and move to a more open retailer network type system.

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  11. Pingback: The reasons Ferrit failed « Lance Wiggs

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