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What is Fubon Up To?

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What is Fubon Up To?

Source:Domingo Chung

Enjoying success with its TV and Internet shopping ventures, the financial group Fubon has gone brick-and-mortar, with its Momo Department Store. Is Fubon creating a consumer paradise, or just aiming too high?

What is Fubon Up To?

By Chao-Yen Lu
From CommonWealth Magazine (vol. 457 )

In the midst of a news conference, a reporter is asking: "Taipei will see two brand new department stores open during the month of October..." when Chou Pao-wen, sales promotion manager for Shin Kong Mitsukoshi Department Stores, Taiwan's biggest department store, interrupts, seemingly puzzled.

"Isn't it just Hankyu? Who else is opening?"

Holding its opening just one day ahead of Hankyu Department Store's, Momo Department Store's low-key approach was consistent with the corporate culture of its parent company, Fubon Group.

Fubon's entry into the department store racket is by no means anything to sneer at. Fubon Multimedia Technology Co., Ltd., a Fubon Group spin-off, is now bridging the gap between virtual and real-world sales channels. Starting out as a cable TV shopping channel, Momo then expanded to the Internet, catalogue sales and Momo Drugstore. On October 6 it finally opened as Momo Department Store on the site of the old Asiaworld Department Store in Taipei.

Not many people realize it, but according to an ARO (Access Rating Online) survey conducted by InsightXplorer Ltd. last March, the momoshop.com online shopping website is now Taiwan's fourth largest e-commerce website in terms of visits.

"Lots of people believe Unimall, Happy Go and Payeasy are big, but in terms of business-to-consumer transaction value, we're the third biggest," says C.F. Lin, president of Fubon Multimedia Technology. "And if you deduct the value of 3C products (computers, communication devices, consumer electronics) from PChome, the current runner up, then we're number two, second only to Yahoo! Kimo."

In late September, Fubon Group subsidiary Taiwan Mobile began its "mofun" digital content platform, through which users can view clips from Momo TV and daily discount specials on products featured on the momoshop website through their mobile phones.

"In the future, when smartphones become more ubiquitous, every mobile phone will become a sales outlet," Lin boasts. "It's going to be scary. We've integrated all the sales channels in a way that will be hard to replicate, as the barriers to entry are high."

Anywhere in the world, it's rare to find a successful example of a virtual retailer crossing over into the realm of brick-and-mortar sales. Now Fubon has become Taiwan's first TV retailer to make that leap. Exactly how did they manage it?

The key to Fubon's ability to gain a firm foothold in virtual sales lies in its financial industry actuarial expertise in calculating costs and profitability. Its first campaign for training its troops was in television sales. Oriented toward "quality goods at a low price," the Momo Shopping Channel came to life fully six years after market leader ETMall channel, yet within less than a year it had already reached the monthly break-even point, achieving profitability more quickly than any other TV shopping channel in Taiwan.

Fubon's formula for success was different from the sell-anything ethos at ETMall, instead focusing on high-profit-margin items like cosmetics. They also pioneered television sales of financial products, including personal credit loans and financial life insurance products.

"When Momo started out, the clear market leader was ETMall," says one former top TV shopping channel executive. "Momo had only one channel to ETMall's five, so they couldn't rely on scale. They had to go after higher profitability. By allowing individual companies to expand their profits, it made them focus on Momo."

Momo Online: Profit Round Two

When Fubon crossed over into online retailing, they took hot-selling items from their TV shopping channel and featured them online. Costs were lower since the company did not have to pay cable TV systems for airing the programming, so Momo permitted items to be sold online for a lower price than they had sold for on TV, sparking another wave of sales and a second round of profits.

But Momo's tactics in its stellar rise have not been without controversy in the Internet community. Established in 2005, momoshop.com began to experience a surge in traffic last year and has now even surpassed that of Internet portal site MSN.

"Momo's TV and online revenues will intersect next year, and online revenue will eventually surpass TV revenue," Fubon Multimedia's C.F. Lin predicts.

The controversy surrounding Momo lies in the placement of its online advertising, which is somewhat different from that of many e-commerce websites. Most competitors advertise on major websites like Yahoo! Kimo and Google, while Fubon is much more diversified in its ad placement.

"Yahoo! Kimo is just too expensive, and we're not going to put all of our eggs in one basket," explains Joseph Chou, director of Fubon Multimedia Technology's Web & Catalog Division.

According to industry research, however, Fubon's ad placement includes advertising on websites offering illegal downloads and even pornographic sites. Traffic on some of these sites is substantial, yet their advertising rates are far lower than Yahoo! Kimo. Chou claims he's unaware of such advertising.

"The boss won't even allow us to sell some rather popular sex toys, so this must be a problem stemming from overseas agents we've contracted with," Chou says.

Based on its surge in traffic, Momo now finds it a lot easier to attract suppliers.

Sharing Resources among 5 Major Channels

Another strength of the financial industry, risk diversification, also shows up in the retail business in the form of integrated sales channels.

Fubon Multimedia Technology's five major sales channels fall under the roof of a single company, making sharing of resources easier. In his past role as president of Fubon Direct Marketing, C.F. Lin made a habit of conducting a monthly analysis of the effects of cross sales among various subsidiaries.

Since moving over to Fubon Multimedia Technologies, Lin has brought his habitual adroitness in the use of customer databases to bear for Momo.

Any customer who ever made a purchase on the TV shopping channel receives a Momo catalogue. Fully half of momoshop.com's online members are Momo TV members. The Momo Department Store that is now opening will be better able to target marketing promotions to a million or so consumers among the four million members of Momo's four other marketing channels.

The new department store will also feature two major proprietary branded counters for ladies' shoes and fashions, adeptly putting to use the experience in product development that the group has gained through its TV shopping channel.

Big Challenges for Momo Drugstore

Fubon's first foray into brick-and-mortar sales was with the 2008 opening of Momo Drugstore. At the outset, the company outlined a bold plan for 500 outlets within three years. Then came the global financial crisis, and the total number of stores now stands at just 25. Last June, Momo poached Leeco Outlet general manager Allwell Chou to serve as vice president for its brick-and-mortar operations, its first top executive for that setup.

In addition to managing the department store operations, Chou is expected to lead Momo Drugstore to surpass 80 outlets next year, evidence that the company is determined to shrug off the lackluster condition of its real-world outlets.

But industry insiders believe Fubon's impact on non-virtual retailing will be slight. K.J. Lee, president of Pacific Sogo Department Store, had his own view when queried about Momo Department Store.

"At the end of the day, what is it that they want to do?" he asked reporters impatiently.

Jing-Jan Retail Business general manager Christina Ko believes that the customer bases for virtual and real-world retailing are ultimately different, and Fubon does not necessarily hold an advantage in operating a department store.

President Chain Store operations manager Hsieh Chien-nan thinks highly of Fubon's customer relations management capabilities. "But it only knows customer data. It doesn't really know its customers by face," he asserts. Such mundane considerations as retail space planning, customer service quality, and food and beverage services are all outside the scope of Fubon's expertise.

"Fubon's got plenty of cash. They can poach talent," says CK Watch & Jewelry Taiwan vice president Vicky Lee.

Fubon is accustomed to entering new lines of business through acquisition and is adept at utilizing management professionals to further its business interests, including financial holdings, telecommunications and TV shopping. Now that it's moving into the realm of real-world department stores, competitors are keeping a close eye on how things develop.

Translated from the Chinese by Brian Kennedy

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