LEVERAGING Wat-Manrt, eBay ano USPS Prepared by Ken Mark under the supervision of Professor Eric Morse Copyright © 2004, Ivey Management Services INTRODUCTION See David Lewis was mid-way through the second year of his MBA at a prestigious East Coast business school. It was early January 2004, and Lewis had a great idea for a new business, or so he believed: With all the perceived time pressures on our busy schedules, I believe that there exists a niche market segment—let's call it the “time-starved” segment— that is willing to pay my future firm to provide prod- uct pick-up and delivery services and, in the case of businesses, conserve staff resources. The concept itself is pretty simple: My warehouse is Wal-Mart, Version: (A) 2004-04-27 my storefront is eBay, my delivery service is the USS. Postal Service, and customers can contact me directly through my pager, cell phone or by e-mail. A newspaper clipping from The Wall Street Journal had provided the spark for Lewis's new idea. While on a break during a recent shopping trip, Lewis read that: . .. Many toy retailers say they can’t afford to match Wal-Mart prices, particularly those (toys which are priced) below their cost. They note for example that Wal-Man sells Barbie Swan Lake for $15.84'— below the wholesale price of $17 (for smaller retail- rs), according to a list of manufacturer pricespNEURSHIP 6 © CASES IN ENTREPR! eet Journal, Wal-Mart sells WAL-MART AS WAREHOUSE 29.74, helow Street viewed by The Wall Hot Wheels T-Wreeks Play Set for 8: its wholesale price of $42, and Sesame Hokey Pokey Elmo at $1946, below its $24 Whole-—ttign on revenues of $247 bili c price? 1,568 Wal-Mart Mart sold goods below ‘The idea that Wa wholesale prices stuck with Lewi Mant’s low prices with the United States Postal of 95,000 square feet, Discount Sorvice’s delivery options, Lean send an unlimited $0,000 stock-keeping units (SKU variety of goods across notice.” He did some For its fiscal year 2003, Wal-Mart g, iscount Stores in 4 States in January 2003, and most of «It Tcombined open 24 hours a day. With an average Coveral time zones on short ments of merchandise. Table | provides a Search on Wal-Mart, cBay the merchandise categories and their contibut ions Camned &y on. There yt Ihe Unity them were t OTe Sing. Stores caniog Js) im 40 dep lst of and the United States Postal Service: to Wal-Mart store sales: Table 1 Category of WMT Sales Grocery, candy and tobacco—Canned goods, snacks, generic chocolates and 24 candy items Hardgoods—Hardware items such as screws, nails, fasteners, lightbulbs, automotive 20 parts, plumbing supplies, utensils, small kitchen appliances Soft goods/domestics—Home and bathroom supplies, towels, clothing, 18 outerwear, underwear Pharmaceutical—Vitamins, over-the-counter medication such as pain relievers and 9 cold/flu syrups, contact lens supplies, footcare products Blectronics—Batteries, CDs, DVDs, video games, cameras, film, music supplies 9 Health and beauty aids—Shampoo, soap, dental supplies, mass-market beauty supplies, 7 | personal care products Sporting goods and toys—Toys for all ages, footballs, fishing equipment, 6 | hockey equipment | Stationery—Pens, paper, files, folders, safes, calendars, school bags Sea eet ‘One-hour photo—Photo-processing on SHE 7 | fed 27 January 2004 1EBAY AS A STOREFRONT Lewi: own Web site. He esti- mated that it would cost him between $200 and $10,000 to outsource Web site construction. To build it himself would cost him two weeks, or 80 hours, of work. Web hosting would cost between $30 and $80 a month depending on the level of service Lewis required, If Lewis chose to sell packaged combinations of products to online consumers (for example, a “back-to-school stationery set” or an “emergency set of clothing”), Lewis was aware of these fees charged by eBay, shown in Table 2. U.S. PosTaL SERVICE AS SHIPPER cee a ne Lewis downloaded shipping costs from the U.S Postal Service’s Web site, and he organized the information in the format shown in Table 3. Searching for Venture Opportunities. » 7 The rates were for a package ed 30" x 30" x 30" and weighing up to five pounds, from Boston, M: ichusetts to San Francisco, California. Lewis belie express mail shipping speci the heaviest product, in the I package size, shipped the gi the shortest possible period of time. Anything lighter, smaller, shipped closer and delivered later would cost a fraction of $27.30. Lewis had not decided yet if he would offer free shipping. Other Costs Lewis knew that he would need, at mini- mum, a cellular phone ($40 per month) and a pager (same cost). Office expenses, including business stationery, business registration and business cards, would come to approximately $800. Table 2 . Value of Package | $10.00 to $24.99 $25 10 $49.99 $50 10 $199.99 | $200 and up 2 $3.30 Insertion Fees $0.55 $1.10 $2.20 same Picture Services | Ist Pic. Free, each same same additional pic. $0.15 c 5.25% of closing value} same same Final Value Fees. | 5.25% of closing value | 5.25% of clo sie of remaining value Table 3 livery Tine Rate Mail Service Est. Delivery ae a i ernight to mos Is Express Mail Overnig! ona0 Priority Mail 2 Days = Parcel Post 7 Days