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Megabuy helms two worlds
Anita Devasahayam, 1-Mar-2001

The start of the millennium will be a time of reckoning for majority of B2C plays in the electronic retail market. Industry analysts and pundits predict that closures, mergers and consolidations are in the works. Amidst the job slashing and belt-tightening environment, local computer retailer Megabuy is unwavered by the brouhaha.

Megabuy's General Manager William Lien shrugs off the hullabaloo surrounding the dotcom fallouts. "We are in a business that is very focused on what we do," he said, alluding to the notion that dotcoms going under had tried to be all things to everyone and are dependent on venture capital funding to get by.

"We are concerned about bottom-line and we are operating as a business that must realise the hard earned investments made," he said, adding that he doesn't worry about the competition either.

Megabuy claimed that it faced little competition as most portals pushing technology products have gone under or changed direction. Instead, it is intent on spreading its wings.

Lien also brushed aside the company's obvious relationship to Asian PC giant Acer Computer. Acer founder Stan Shih has announced plans to realign the conglomerate's business to "simplify" it from its current "complicated" nature.

While this could mean consolidation in some divisions, Megabuy is confident that it will continue to thrive as the Taiwanese giant begins its move to redesign the overall corporate structure.

Being a subsidiary is a non-issue, Lien said, as Megabuy operates as a dealer with all its partners that include IBM, Hewlett-Packard (HP), Canon, Palm, 3COM and Toshiba.

"Initially, some vendors were a sceptical about working with us but when they realised that we only serve to widen their avenue to sell, they had no problems with it," he added.

The computer superstore, unveiled its Web portal - - in December 1999, followed by the set up a 1200 sq ft retail outlet at the city's posh shopping district, Kuala Lumpur City Centre.

Lien argued that the physical set up was necessary to show that they are serious about being in the business. "People want that kind of assurance. Buying computers is not like buying a car. Services are essential to the equation. By having a store, they know where we are if they need help."

Setting up a presence online had certainly helped Megabuy reach a wider audience apart from building mind share among local buyers. This is validated by the purchase orders streaming in from folks as far as Labuan and Langkawi.

Doing the Right Thing

Preferring the click to brick formula worked well with Megabuy that currently offers over 3000 PC and computing-related items representing 50 brands on its portal. Lien pointed out that PCs and PC-related products are viable online offerings as they rank among the top five selling products on the 'Net worldwide. The others include books, CDs and household goods.

"Furthermore, computer products tend to get obsolete very fast and putting new information online was more logical and can be done faster compared to stocking new goods at a retail outlet."

Apart from browsing, customers are able to view and check specs for every product intended for purchase. The portal's payment mechanism support both Secure Sockets Layer (SSL) and Secure Electronic Transaction (SET). The pre-sales role offered by the portal helped channel a fair bit of business to the physical store.

Lien is also well aware that the mail order and catalogue shopping culture is lacking in Malaysia. Instead of pushing potential customers to shop online, he is happy to allow them to do as they please until they reach a certain level of confidence to shop.

"Trust has to be built between buyer and vendor. Today, the buying public is sceptical about us and similarly, vendors are not sure if the public buyer is genuine."

A fraud mishap in the early days also shaped the current purchasing experience. Stringent screening procedures have been put in place to verify a customer's identity. Potential customers must place their order with a valid e-mail address accompanied by a valid phone number. Mobile phone numbers and Web-based e-mail addresses will not be entertained.

Megabuy verifies each order that comes in via the 'Net manually by picking up the phone to check and confirm details with the customer. Lien revealed that the portal has helped generate new business for the retail outlet as well.

He added that most orders received via fax are from mid- and large-sized corporations. "We had an order for products worth over RM60,000 (US$15,786) from a single customer."

Common items purchased are computer peripherals such as personal digital assistants (PDAs), colour laser printers, digital cameras, monitors, scanners, notebook PCs and consumables like ink cartridges and refills.

Good Money

The portal, designed in-house and built on IBM NetCommerce solution, enjoys an average order value of RM450 (US$119), contributing to an average revenue collection of close to RM500,000 (US$131,550) a month.

To date, Megabuy has 10,000 registered buyers of which 30% are repeat business. The average click-through rate is 3000 page view per month. In the early days, the site fell prey to window shoppers and pranksters. Gone are casual browsers as it enjoys the privilege of having genuine shoppers these days.

Almost 70% of its customers are professionals such as doctors, university lecturers and accountants. "We did a small survey to find out why they shop online and the most common answer was that they are too busy to shop otherwise," said Lien.

He added that most shoppers are looking for products and peripherals that are not easily available from existing suppliers. Approximately 40% of the portal's orders are from Malaysian states like Johor Baru, Ipoh, Penang, Miri and Kota Kinabalu.

Deliveries are done within 24 hours upon confirming the order and a stipend of US$0.90 is included for postage for orders weighing under 5 kg within West Malaysia. Free deliveries are in the pipeline once the portal reaches a critical mass, said Lien.

Over 80% of Megabuy's transactions are paid via credit card. "This is a good sign - it shows that more people are becoming comfortable with online purchasing."

The potential stemming from the corporate sector also prompted the set-up of a corporate team, staffed by three, to visit and cultivate MIS folks at large organisations.

"In the early days, we wanted to build a community Web site alongside the online store, but we have since put that on the backburner. There are many others doing this and they can do it better. We have decided to concentrate on the shopping [experience] and send regular e-mail updates to our registered buyers to keep them informed of what goes on."

Promotional campaigns will be stepped up to cross-promote the portal and retail outlets. Currently the portal offers a weekly special each Thursday. Megabuy also hopes to leverage on its partnership with vendors to push items on its portal.

"We have been pretty selective and have advertised in technology and business sections of local magazines and newspapers. Perhaps by next year we will take part in trade fairs."

Megabuy realised its return on investment (ROI) a year after it set up shop. Lien confessed, however, that it managed to defray much of its cost by sharing fixed costs such as finance, administration and technical support with its sister companies.

Headcount remains at a slim 12 for direct staff that includes seven full-timers processing enquiries and orders originating from the portal; 40 indirect staff assist in other areas.

Having enjoyed a healthy ROI has prompted Megabuy to plan opening of three more stores in the Klang Valley, in addition to the KLCC and Subang Jaya stores. "We expect to achieve our target of opening 10 outlets by next year to enjoy economies of scale."

Lien hopes to spread Megabuy's presence across the region in four years' time. Although it may seem too far in the distance in 'Net time, Lien feels that by then transacting online will be commonplace. Furthermore, it plans to set up more physical stores across Asia to complement portals in each country.

"We still believe in setting presence in both worlds as IT products cannot do without the service bit," he reiterated.

Lien is confident each outlet will be profitable. "Currently, we make about US$3 million each month per outlet that gives us a profit of US$131,579 per store."

By 2003, Lien believes that Internet access will be faster and the 'Net will be part of the local lifestyle. "Today we do not have many local sites that are useful to Malaysians - information that is related to their daily lifestyle - that is why local sites are unable to enjoy success the way US sites do."

Lien admits that he is running against time in the 'Net clock and has to endure problems, as do many other companies, in maintaining manpower. But life does go on and Lien intends to make sure that the portal makes money by 2003.

"It is not a long shot, only in excess of 1000 days."