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Time for E-Tailers to Play Survivor

By Ellen Neuborne For a real-life version of the TV hit Survivor, tune into the latest twists and turns of the online retailing industry. The bods are not as buff, but other parallels are striking. Here we have a mass of contestants who have piled into this uncharted territory with hopes of being the big money winner. But now, as the game wears on, it has become all too clear: The only way to survive is by forming an alliance.

As fans of the show know, that's the way schemer Richard Hatch won the $1 million prize in the series' first season. Trackers of e-tailing will see similar patterns. Take Toys 'R' Us, for example. Just a year ago, it was coming off its disastrous 1999 holiday season with its reputation in tatters. This was the e-tailer that couldn't, the online store that left kids crying by the Christmas tree when their gifts didn't turn up in time. You couldn't script a more dire situation for a toy seller.

SANTA SMILES. What a difference a year makes. Today, Toys 'R' Us is basking in the glow of strong earnings -- up 21% in the Christmas, 2000, quarter and 16% for the full year. There are lots of factors that led to the success, but one was a savvy alliance to sell its toys online via It was humbling for Toys 'R' Us to concede that it could not master the art of e-tailing on its own. After all, this was the chain that revolutionized the toy business and has dominated it for decades. But online, it needed a partner. And that bended knee turned out to be more than worthwhile. Not only has Toys 'R' Us posted a strong season but it has also had the last laugh over eToys, which filed for bankruptcy on Mar. 7.

That successful combination has put the whiff of Alliance Fever in the air. Many e-tailers are now considering the idea, in many different forms. Earlier this month, rumors swirled that was in talks with Wal-Mart to form an online retailing alliance. Nothing concrete emerged. But e-tail experts say that doesn't mean the parties aren't interested. "It may be the most sensible idea to come down the Internet pike in a long time," says B.L. Ochman, president of consulting firm What's Next Online. "What's the point of reinventing the wheel when you can collaborate? A lot more companies are thinking that's not such a crazy idea after all. Certainly, it beats going bankrupt."

Or watching your e-commerce investment sit idle. Indeed, while behemoths like Wal-Mart and Amazon warily eye each other, smaller alliances are already flourishing. Garnet Hill is a specialty cataloger that invested heavily to create a sophisticated, classy-looking Web site. Now, it's looking for alliances to help get the enterprise to start paying for itself. For example, it has crafted a marketing alliance with online retailer Red Envelope, which sells upscale gift items and household decor as does Garnet Hill. True, the two are rivals in several categories, selling similar merchandise to an identical demographic. Yet, says Grace Cleaves, vice-president for e-commerce, an alliance makes sense. "We don't share proprietary information, but we can use an alliance as a way to find new customers," she explains. "We bring value to our customers by serving them ourselves and by saying, 'Here's another site we think is cool.'" Shoppers buy from many different sources, says Cleaves. No point in pretending that isn't true.

PICK A PARTNER. This kind of an alliance is new to retailing, and shows just how much impact the Internet has had. There is already plenty of symbiotic potential out there in the Old Economy. A manufacturer and a retailer might do a deal. A movie company may partner with a fast-food chain. But these new Net-inspired alliances are different. They are marriages of rivals. Think McDonald's and Burger King, Coca-Cola and Pepsi. These are companies whose executives cross the street rather than walk past the door of the competition. But in this new arena, in this medium that has changed everything, rivalries have evolved, and alliances look better all the time.

Ultimately, this trend is good for the industry. Allied survivors will be strong enough to weather the slowdown in consumer spending. It will mean, of course, that those who want to remain e-tailers will have to stop talking trash about one another, and look for ways to join hands and work together. That's a tall order. But it beats getting voted off the island. Neuborne comments monthly on Net marketing issues for Business Week Online. Have a question or a comment? Let her know at

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