Retailers from the United States and Europe this summer will launch the world’s largest business-to-business online marketplace with the intention of simplifying the selling process, automating buying cycles and cutting customer costs.
Open to all retailers, the WorldWide Retail Exchange’s bottom line is to squeeze the best prices out of more than 100,000 suppliers, distributors and partners who are expected to participate. It will operate in the food, drug store and general merchandise areas.
“It can be a great boon for everybody in the [retail] industry because it’s really standardizing commerce,” said Dan Garretson, senior analyst at Cambridge, MA-based Forrester Research. “It allows a lot of automation, much more efficient communications, and ultimately will make a lot more information available to suppliers about demand.”
Participants include U.S. chains such as Albertson’s, CVS, Target, Kmart, Walgreen and Safeway, and their British equivalents, Kingfisher, Marks & Spencer and Tesco. France’s Casino and Auchan chains and the Netherlands’ Royal Ahold are other members. French-Belgian retailer Cora will soon join.
In all, these retailers account for an estimated 33,000 stores and a combined 1999 revenue of $318 billion.
“The motivation of this group is to really improve business processes and ultimately lower the cost of sales,” said Susan Eich, director of public relations at Minneapolis, MN-based Target Corp. “It provides for a more efficient negotiations for the purchase of goods, and it also has the potential to lower transaction costs.”
Reduction of costs in the supply chain is the foremost reason for this collaboration. Its birth will herald a new way retail-channel buyers and sellers conduct business.
“We’re using existing Web technology now to move to a paperless environment,” said Mike DeAngelis, spokesman for Pawtucket, RI-based CVS Corp.
Founded with an initial capital of $100 million, the WorldWide Retail Exchange is expected to run like a cooperative. Each founding partner holds a 5 percent equity stake. The shareholding pattern for the remaining equity will be reconfigured as more retailers join.
At press time, the exchange had no Web address.
Strangely, fear of getting under the sheets with competition does not worry alliance partners. For instance, CVS is a U.S. rival to Walgreen, while Tesco and Marks & Spencer compete for consumers in the British market.
“We think that, if anything, the open exchange is going to help us,” said Michael Polzin, manager of media relations for Deerfield, IL-based Walgreen Co. “Certainly, we have to look at it from a competitive standpoint, but we feel an open exchange like this is good for Walgreen and good for the industry.”
Forming multibillion dollar BTB exchanges seems to be the in-thing for traditional marketers. For example, Boeing Co. has teamed with Lockheed Martin, Britain’s BAe Systems and Raytheon — all competitors — to form an aerospace and defense exchange.
In the paper industry, International Paper, Georgia-Pacific and Weyerhaeuser have joined hands.
On the healthcare front, Johnson & Johnson, GE Medical Systems, Baxter International, Abbott Laboratories and Medtronic have formed their own exchange. Ditto in the energy, metals and commodities: BP Amoco, Royal Dutch/Shell and Totalfina Elf.
Dow Chemicals joined the fray a few weeks ago, with its own panacea for the chemicals market.
General Motors Corp., Ford Motor Co. and DaimlerChrysler, rivals under normal circumstances, teamed to create the mother of all BTB marketplaces: AutoXchange, which targets a $240 billion auto procurement market. It was the biggest BTB joint venture until upstaged by the retail exchange.
Besides marketplaces from traditional marketers, there’s a whole host of BTB start-ups from Internet-only companies. However, many of these dot-coms lack the pedigree, clout or financial wherewithal of their bricks-and-mortar-backed rivals.
“I think pricing competition is going to rise anyway whether or not these buyers set up these exchanges,” Forrester’s Garretson said. “The Internet, in general, is creating a layer of visibility of information around product availability, price, etc. So, if it’s not the buyers who’ll set it up, somebody else will, with the same result.”
This furious activity has caught the eye of the Federal Trade Commission, which the media has said was contemplating a review of the automaker’s auto exchange, fearing a monopoly situation.
Monopoly is still not an issue if these companies insist they are going to buy via only the Internet exchanges, Garretson said. But the retailers have to avoid the next step of banding together to set prices.
“That’s where these marketplaces are going to have to work hard to ensure that policies are in place to make these truly open trading communities and not an environment that fosters collusion,” Garretson said.