CHAPTER ONE

INTRODUCTION

Jewelries are different from many other products, such as music and books that are commonly purchased online. Many jewelry products are expensive and therefore time-sensitive in terms of their delivery needs. In addition, jewelries are a replacement product, i.e., the same basket of products is more-or-less purchased on a regular basis. Finally, groceries are high-touch items, meaning that consumers like to inspect the quality of items they are purchasing.

As the preceding data indicate, there are some shortcomings apparent with regard to e-jewelry business models (Keh and Shieh, 2001). One major shortcoming of these models is that they limit on sensory perceptions of the product, i.e., consumers cannot touch and smell the products shown on the monitor. Also, for consumers to be convinced that delivery of products to their front door is convenient, the delivery time must be relatively short. Technology must also improve so that graphic displays do not require a long time to download. Additionally, online security is always a concern and is the main reason why consumers are reluctant to buy online. Finally, the issue of consumer privacy and how online stores will handle the large database of consumer preferences must be addressed.

Concerns still abound with regard to the pure-play e-jewelry business model (Partch, 2001). The distribution centers required for this concept require a large amount of capital. Even with distribution centers in place, pure plays often must often be operating at full capacity to make them pay for themselves. With a startup operation and limited brand identification, it is difficult to achieve this efficiency, particularly in the short term. These concerns are warranted in light of the failure of many pureplay e-grocers, notably Webvan, Streamline, Homegrocer and Shoplink (Tanskanen, Yrjola and Holmstrom, 2002).

Peapod USA is one of the few surviving companies that started off as a pure play. However, this survival is largely attributable to its acquisition by the traditional jewelry retailer Royal Ahold. This gave Peapod access to Ahold’s cost- effective supply chain. It also formed a hybrid order fulfillment comprised of stores and distribution centers. This was more efficient and scalable.

Traditional jewelry retailers that have ventured online have been more successful than pure plays. For example, Teco decided to grow one step at a time. They spent five years fine-tuning and developing their online order and delivery system. Currently, Tesco provides e-jewelry service through one-third of their 690 British outlets. This allows Tesco to be within a half-hour of 91 percent of the British population.

The comparative success of bricks-and-mortar stores that expand into an Internet environment is attributable to a the following factors:

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