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LOST IN CYBERSPACE Electronic commerce is a merchant's dream: no costly stores, no payroll* for salespeople, slim inventory costs. In a few years a lot of online merchants have opened shop. Build a Web site and they will come. Traditional retailers embrace the dream. Many of them are already on the World Wide Web. The others plan to join them very soon, according to an Ernst & Young survey. Online sales are soaring and could grow tenfold in four years. Promising, but now comes the hard part: turning a profit. Behind high-tech screens there are some hidden low-tech costs. Online sellers that had dreamed of avoiding bricks and mortar are now building distribution centers and warehouses. The Web's ability to compare prices at the click of a button sparks jarring* discounts and costly coupon wars. And for all those eyeballs online, marketing consumes a frightful chunk* of revenues. The hurdles* can be even higher for traditional retailers going digital. Their online sales may simply cannibalize sales they would have racked up* offline — that is, in the real world. Their backshop* infrastructures were built to dispatch truckloads of goods to hundreds of stores — not ship small orders to millions of individual customers. Manufacturers hoping to sell directly to consumers risk the wrath* of the dealers and wholesalers that provide most of their revenues. In short, the Web is both the problem and the opportunity. No wonder some merchants venture into cyberspace with no small amount of dread*. Borders, the second-largest chain of bookstores, which was one of the first to open its Web site isn't exactly ecstatic about it. The 1,145-store chain's chief executive sounds like one reluctant cybernaut: "Books, music and video have all been substantially discounted. Consumers get good value, but in the long run margins are inadequate to support the business regardless* of how much volume is done." Its CEO worries that Web profits may never come. Borders expects the Web effort to run a loss of $10 million this year and $20 million the next. The chain's stock tumbled* 38% when those prospects and other snags* were disclosed. It hasn't recovered. It seems investors, unfazed* (imperturbable) by red ink for online upstarts* with "dot-com" in their names, are unforgiving* (implacable) when the same applies to old-line firms going on the Web. Yet Borders, like many marketers*— like your company, most likely— has little choice but to go online. Its rivals at Barnes & Noble had preceded it onto the Web, and both chains had good reason to fear the soaring* sales of Amazon.com. Amazon opened up shop in 1995 and offered discounts of 30% on bestsellers. Barnes & Noble turned up the heat on-line by offering 40% off. Wal-Mart, one of the largest booksellers, has a Web outpost* slashing* 45% off list prices — and upstart Buy.com promises 50% discounts. So Borders opened a vein and bled, offering on-line discounts even as he jacked up* spending for the privilege of doing it. To gear up* for shipping tiny orders to thousands of customers, Borders had to build a separate $15 million distribution center in Tennessee. All told, the distribution costs of an online storefront* can be surprisingly high — about 15% of sales for Web sellers like Borders. Borders had to get cybershoppers into its on-line store. On the Web, that can mean paying hefty* fees to other sites for referring their visitors to yours. It is a kind of rent: popular "portals" like Yahoo lure* the critical mass of eyeballs, so e-commerce companies pay for prominent placement on Yahoo and 1 for customer "click-throughs*." Such rent and other marketing costs can run to 65% of sales, says the Boston Consulting Group. Borders spent $5 million marketing its new Web site and could lay out $20 million more. Pfeffer won't confirm the numbers but laments: "I can remember hearing this is a great model. With bricks and mortar comes rent. But the fact is, real estate costs online are significant. It makes it really difficult to get profits." For existing retailers, the scary* prospect is that the less-profitable setting of the Web — rather than create extra sales from new customers — will simply siphon off the higher-margin sales from their stores. That could happen at Borders. Buying two or more books can be instantly cheaper on its Web site than in its stores largely because customers can avoid state sales taxes. Retailers must collect the tax only in the states where they have a physical presence. Borders' separate online unit has only two such outposts: the warehouse in Tennessee and headquarters in Michigan. So Pfeffer looks for other upsides*. Even if his Web site never turns a profit, he hopes it can increase sales in stores. Shoppers frustrated by sold-out stock and hard-to-get titles can now place special orders via Web-linked PCs in Borders outlets*. This approach could bring in several million dollars in revenue in each quarter, less than 1% of total sales. Of course, the Web is supposed to be a sales outlet unto itself, and virtually no on-liner has more experience at it than Amazon. And rarely have so many companies been thrown into so much panic by a company that loses so much money. In the past years Amazon lost a cumulative $162 million on sales of $774 million. Indeed, the deficit has grown nearly as rapidly as revenue. As a percentage of sales, Amazon's net loss has actually gotten worse, widening from 16.4% in the first quarter last year to 18.4% in the first quarter this year. Amazon expects more losses for the foreseeable future. Even for a pure on-liner like Amazon, distribution costs are a huge drain* (= loss of money). When Jeffrey Bezos founded Amazon in 1994, he planned to rely heavily on Ingram Books, the largest book wholesaler in the U.S. The concept: Ingram would keep his inventory — and the costs that go with keeping inventory. Bezos bragged* of offering 1.1 million titles while stocking just 500 bestsellers, in a single 45,000square-foot warehouse. He set up shop in Seattle in part because of its proximity to some Ingram operations. But he stopped short of letting Ingram handle shipping to individual customers, insisting on deploying his own force to ensure quality of service. Three years later Amazon relied on Ingram for 60% of its books. That portion has since declined, and today two-thirds of Amazon's 2,100 employees work on customer "fulfillment*", placing orders, packing shipments and answering customer e-mails and processing credit card charges. That consumes close to 10% of revenue, and it could go higher. Now Ingram is being bought for $600 million by Amazon's rival, Barnes & Noble. Ingram hopes to keep supplying Amazon, but Amazon is increasingly sidestepping* Ingram to buy directly from publishers. To house all its new inventory, Amazon is opening its third warehouse—a colossal seven-acre* facility in Fernley, Nevada — with plans for a fourth and possibly a fifth one. Staffing costs will grow accordingly. Worth it? Even Sam Walton of Wal-Mart shaved* his cost of goods sold only 2% below his competitors by buying direct. Amazon says its gross margins on books have risen four percentage points in 18 months. 2 Perhaps Amazon will find profits in becoming an on-line landlord*. Lately Bezos launched a "shop the Web" program, charging "e-tailers" rent to be featured on Amazon. Cyberspace is getting to be as expensive as a storefront on Rodeo Drive. Barnes & Noble's on-line unit is paying America Online an eye-popping $40 million to lock in space as AOL's exclusive bookseller for four years. A bargain? "I've always felt these portal deals were way* too expensive and lock you in for way too long," says Darryl Peck, head of Cyberian Outpost, a Web seller of computers. "No one knows if they're going to work or not." Music sellers N2K and CDNow agreed to merge in part because their already-ailing* finances were hurt by contracts to spend, between them, $108 million for similar marketing agreements. That is almost half their hoped-for full-year revenue — a costly promotion, to be sure. "We don't want to go out and talk about how it's not working," says N2K Chief Executive Jon Diamond. He has renegotiated some deals (= contracts), which could reduce the cost by $10 million. Such savings can get eaten up quickly by other needs. Ad budgets are a big jolt* (= shock). Last summer software seller Beyond.com began a six-month TV blitz* (= bombing) for $10 million — exceeding its entire third-quarter sales. Buy.com, an on-line discount store, paid $1.6 million for a single 30-second spot on the Super Bowl. Technology spending can be a drain, too. 1-800-Flowers poured $13 million into its new Web site and will spend $15 million in the following years to upgrade it. "We've been profitable thus far. Now we're plunging into the dark," says Chief Executive James McCann. "Still, we do believe it's the future. We're betting all our chips* on it." The Web was supposed to all but wipe out the cost of customer support, letting mouse-clicks replace phone orders. Don't count on it. During the Christmas rush, Shopping.com's support lines were swamped* with callers who needed a human touch. Some of them were left on hold for an hour. The Web discounter, which sells watches and other goods, doubled its support staff to 50 people, easily adding another $1.5 million a year in costs. Yet revenue for the nine months ended Oct. 31 totaled just $4 million. Will these Web selling costs go away? Probably not. Web sellers have noticed that on-line buyers are indecisive, filling up their digital shopping baskets as they proceed through a site, but then erasing two-thirds of their purchases before reaching the checkout. They lose their nerve or can't find their way out. The bottom line* is that e-commerce companies have to spend more on phone centers than bargained for. There must be some way to make money. Ebay, the auctioneer*, is one of the few Websters to turn a profit, in part because it refuses to fuss with "fulfillment"; customers who use the site must do the work to get the booty* shipped from buyer to seller. Scott Blum, the founder of Buy.com, plans to sell some products below cost — in the expectation of building a large enough audience that he can make money on advertising. He hopes so many customers stampede* his way that other Web sites will pay him big bucks* for customer referrals*. Good luck to him. Someone will get it right, but along the way hype* and hope will collide with harsh realities. "This is just a catalog retail business with lower barriers to entry. Margins, if they ever materialize, will always be crummy*," grouses* Michael Murphy, a veteran tech investor in Half Moon Bay, California He may be right. 3 EXERCISES Give synonyms shop (UK) = (US) expensive = e-tailer = 10 times = to trigger = a rebate = disturbing = incomes = a big part (of budget) = appalling (2) = obstacles = to eat up = to post good figures = to send (2) = maker = anger = retailer = in a nutshell = no surprise = to dare = fear = a bookshop (UK) = (US) very happy = unwilling = in the long term = 4 to fall = problems = to reveal = undisturbed = start-up = traditional = merchant = to skyrocket = to reduce (prices) = to increase (prices or wages) = to prepare oneself = to be ready = very small = shop window = big (profit) = commission = a sort of = to attract = visible = location = maybe = to hire (UK) = (US) a good buy = much too = nobody = to suffer = to wound (2) = nearly = 5 expected = to diminish = a shock = a bombing = to go beyond = to manage = enormous (3) = building = under = to improve = to submerge = the personnel = to disappear = the conclusion = the treasure = below = a public = a dollar = reference = hard = lousy = to grumble = Give antonyms wrong below to empty net 6 different never to rent a tenant nightmare slim on-line purchase soft a loss low-tech buyer peace to run a profit competitor to follow to plummet to close down CEO = Chief Executive Officer CDO = CFO = CIO = CMO = COO = CPO = CSO = 7 Abbreviations, acronyms, portmanteau words ad = How do you call … a unit for measuring an area of land equal to 4050 square meters? = this shopping district of Beverly Hills in California known for designer label and haute couture fashion? = American versus English spelling/vocabulary Put the following words in the correct column : spin-off – meter - to rent - to fulfil – to fill out - bookstore – cannibalize – bookshop – fulfillment – totaled – to harmonise – catalog – to hire – tap – programme – centre – startup – honor – totaled – metre - faucet AMERICAN BRITISH 8 Principals to cost construire worried forgiven to lay être couché stood sat to hang perdre bet paid Translate 1. Nos ventes en ligne se sont montées l’année dernière à 45.000 €. 2. Leur société n’a pas encore réussi à dégager un bénéfice. 9 3. Avez-vous l’intention de construire un nouveau centre de distribution l’année prochaine ? 4. Offrir des rabais élevés n’est pas la bonne solution. 5. Je suis désolé mais je ne peux pas me permettre des commissions aussi élevées. 6. Ton propriétaire demande quand tu as l’intention de payer ton loyer. 7. Etes-vous prêts à allonger 2 millions de livres pour ouvrir un magasin à Londres ? 8. Acheter des livres en ligne est souvent moins cher qu’en magasin. 9. Nous sommes spécialisés dans les titres épuisés ou difficiles à trouver. 10. Vous devriez ouvrir un nouvel entrepôt pour héberger vos produits haute technologie. 11. J’ai toujours eu le sentiment que cette approche était beaucoup trop coûteuse. 12. Ils ont accepté de fusionner parce que leurs finances étaient mal en point. 13. J’ai l’intention de renégocier certains contrats, ce qui devrait réduire nos coûts. 14. C’est illégal de vendre à perte. 15. Si j’étais vous, je n’investirais pas dans ce secteur, les marges y sont minables. 16. Le propriétaire donne une maison en location tandis que le locataire la loue. 10