Offshoring retail

Nostradoofus prediction for 2010:  Web retail is increasingly offshored.

To see why, pay a quick visit to the World’s Scariest E-commerce Site.  Savor the broken English, salted with nonsequitur French and Italian.  Admire the ragged formatting and non-matching fonts.

The site claims its location is “Alabama,” but they ask 20 business days for delivery, and the domain is registered in Shenzen, China.  Er, Alabama is far from California, but not that far.

If you actually buy something at that site, as I did, you’re greeted with the chilling purchase completion message, “Dummy string.  Actual purchase completion message goes here.” You then experience two weeks of deafening silence from “customer service” before your order arrives. But it does arrive.

What?  You’re not running out to buy from this site?  Before deciding, consider this:  on my first $100 purchase there, I saved 70% off the price of an equivalent item from a US site.  Including shipping costs.

So don’t look at the site itself, but rather what this site is trying to do.  Where is that $70 being saved?  They are cutting out the entire wholesale-retail chain, and shipping directly to your door from factories in Shenzen.  This is quite interesting.

And it gets better with scale. Once they are receiving 50 or 100 orders a day, they can ship them all in one box to the US, then break them up to trans-ship domestically.  Inventory? All in China, almost free to store.  Website?  Maintained in China, nearly free.

Perhaps most interesting is that, by locating near the factories, the retailer can eliminate inventory entirely, simply buying as needed directly from the factory.  This, in turn, permits the retailer to list a vastly larger catalog, since need not actually stock anything, but has immediate access to everything.

In the most extreme manifestation, the end buyer becomes the endpoint of a just-in-time delivery system, in which retail orders directly trigger production runs in China.

Yes, there are site quality issues. For now. But I would not bet against the ability of the industrial titans of Guangdong to solve that problem.  Web vendors of imported durable goods should be squirming, because this system is inherently and vastly more efficient.

Comments are closed.