Where Admart Went Wrong free essay sample

A revolution was taking place in the grocery store industry, and was creating the potential for drastically lower food bills for Hong Kong consumers. This was the result of Mr. Jimmy Lai Chee-ying? s latest business venture, adMart, a directmarketing company that sold groceries and electronic products through the Internet and phone-in orders, and offered free delivery service. At stake was a slice of the market worth more than HK$55 billion (US$7 billion) a year (HK Standard, 22 August 1999). Mr.Jimmy Lai had broken into other markets in the last ten years with Giordano (a casual wear chain-store), Next Magazine (a weekly magazine), and Apple Daily (a daily newspaper). But this time, he was taking on Hong Kong? s retail powerhouses, a duopoly of billionaire Mr. Li Ka-shing? s Hutchison Whampoa (Park? N Shop) and the colonial British conglomerate Jardine Matheson Holdings (Wellcome Supermarket). Other retailers had not been able to challenge the entrenched giants, largely because setting up brick and mortar stores was simply too expensive given Hong Kong? skyrocketing real-estate costs. Mr. Jimmy Lai figured that a virtual store would solve the problem and boasted that adMart would smash the status quo and bring price relief to local customers. The idea was to use the huge advertising muscle of Mr. Jimmy Lai? Next Media Group to sell products and revolutionize the grocery market. An excellent marketing strategy such as promoting adMart goods vigorously in his Apple Daily, one of Hong Kong? s two most-read newspapers, and orders could be placed by telephone, fax, or e-mail. As a result, a new brand name was developed in a short time, which forced Wellcome and Park? N Shop into a cut-throat price war. Mr. Jimmy Lai claimed that Hutchison and Jardine had warned the distributors not to sell groceries and electronics to adMart and pulled advertisements out of his Apple Daily. Although the two supermarket giants did not admit to directly competing with adMart, both acknowledged that they met adMart? s challenge by boosting advertising, slashing prices, and launching their own me-too cyber stores (Business Week, 23 October 2000). The venture into cyber-shopping was never going to be smooth for adMart. The first problem was that online transactions did not live up to expectations. At their height, only 25 percent of the orders delivered were placed on the Internet, with 65 percent coming by telephone, and 10 percent by fax (SCMP. com, 13 December 2000). Not long after it opened, adMart was plagued by product and service problems. Adding to adMart? s woes, suppliers stopped providing goods, because the company was selling products below prices agreed between the suppliers and other retailers. Hampered by a lack of quality products, adMart was forced to parallel import goods that offered little quality assurance, and reportedly made losses of between HK$50 and $60 million a month (Hong Kong iMail, 12 December 2000). After an 18-month period of intense competition, adMart ceased trading on 11 December 2000. No longer bound by time or geography, customers could shop in cyberspace around the clock. Online shopping was now becoming as common and convenient as ordering by telephone or fax. A survey conducted by AC Nielsen in June 1999 revealed that 17% of Internet users showed interest in shopping via the Internet. Books, magazines, CDs, audio and videotapes contributed to about 39 percent of total local Internet sales, followed by daily supermarket items and computer software products. According to the survey, Internet users had shown a growing interest in grocery shopping, creating demand worth HK$800 million a year. In August 2000, almost 50 percent of the people who shopped on the Internet had used it to buy food and household goods in the previous 12 months, which was up from only 20 percent in January 2000. People commonly shopped online for basic items such as rice and bulk food (SCMP. com, 10 October 2000). The average purchase value of each Internet shopper was around HK$680. 00. The benefit of shopping online was that one had more choice of goods, and could more easily compare prices between shops. The advantages of cyberspace were most significant for shopping that required a substantial amount of information, which was an area where the traditional shopping experience was rather inefficient (HK Standard, 10 May 2000). A Consumer Council survey found that about 80 percent of Internet shoppers were happy with the service that they received. However, consumer complaints related to Internet shopping had risen, and most were due to delivery problems, lost goods, misrepresentation of the goods, and overcharging (SCMP. COM, 18 October 2000). Online shopping was further advanced in January 2000 by the launch of Hong Kong? s first virtual credit card. This move by the Hang Seng Bank attracted thousands of new consumers to the Internet. The bank set a low monthly credit limit of HK$3,000 (HK Standard, 18 January 2000) to 4 ACRJ help calm the public? s well-known fear of online fraud. Indeed, the distrust of online services, and the local passion for physical shopping and bargain hunting, were seen as obstacles in the development of electronic commerce. Hong Kong shoppers wanted to touch and hold the goods they buy, and haggle for the lowest possible price. Such habits would continue to present difficulties for Hong Kong entrepreneurs wanting to replicate the success of e-commerce in Western countries. However, the adMart management group had confidence in the future of direct marketing services, as they reasoned that people in Hong Kong do not have time to shop for basic necessities, and most of them do not have vehicles to transport bulky items home. The management of adMart predicted that once the consumers began shopping online, they would never want to carry a bag of rice and 24 cans of soft drinks back home from the supermarket again.