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  Schlecker Contemplates Online Drugstore 

Perry, Gaynor; Schlecker, Meike; Weber, Eric
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In December 1999, Anton Schlecker, owner of the drugstore retail giant, Schlecker, faced an important decision: whether or not to launch an o­nline drugstore. At the time, the Internet was generating a lot of hype, but Schlecker was not convinced that the technology would transform the shopping habits of his German clients. Schlecker debated: Is the Internet an appropriate medium for the sale of drugstore products?

The case study "Schlecker Home Shopping" by Gaynor Perry and Meike Schlecker, under the supervision of IESE Professor Eric Weber, presents the issues at hand: the uncertainty of B2C e-commerce, the risks and costs associated with an o­nline operation and the competitive nature of Germany´s discount drugstore market.

As a whole, the German drugstore business was growing and evolving. Market turnover in 1999 reached 16.35 billion DM (8.36 billion Euro), of which Schlecker had a 70 percent share. As the industry leader, Schlecker accounted for 7.15 billion DM (3.66 billion Euro) of the total revenues. Yet, competition was stiffening as big national chains absorbed local stores and smaller regional chains. Competitors also tried to increase their market share through improved product assortment, attractive prices and o­nline initiatives.

Anton Schlecker had entered the family business at the age of 20, in 1965, just before the 1974 liberalization of drugstore products in Germany. By 1999, he had succeeded in making the self-service discount drugstore o­ne of the biggest retail employers in Europe, with approximately 39,000 employees. By 1999, the family-owned chain included over 9,000 drugstores in Europe. Schlecker´s penetration of the market was especially deep in its home market of Germany, where the stores received over 10 million customers a week. The key to Schlecker´s success was its large network of small and medium-sized retail outlets in small towns, where customers could shop "close to home."

Anton Schlecker now debated whether or not the German business would benefit from an o­nline operation. In general, the Internet was not very well developed in Germany. In 1999, o­nly six percent of German consumers shopped o­nline regularly. Also, the o­nly significant player in the B2C e-commerce market was, which had yet to turn a profit. Nevertheless, Schlecker´s management team was intrigued by the prospect of an o­nline drugstore and Schlecker asked the strategy director, Horst Wetzel, to conduct a thorough investigation of the idea.

As the market leader, Schlecker had to respond to competitive threats, including the announcement of rival Rossman that it would open an o­nline store. Another start-up company, which had o­nce approached Schlecker, also decided to launch an independent o­nline drugstore. Yet, it was not clear whether or not these cyber competitors were a significant threat. Would the Internet bring new customers to Schlecker´s business or would it simply take existing customers out of the retail stores? And just how would an o­nline business affect the company´s cost structure?

An important advantage of o­nline sales would be 24 hour service. Yet, Wetzel also had to consider how an Internet operation would affect the company´s suppliers, who were concerned about increased price transparency and the availability of product information. Schlecker simply could not afford to damage its relationship with its suppliers and customers by introducing a low-quality start-up. Would the gains outweigh the costs of setting up a quality website, warehouse and an efficient ordering and delivery system?

To help analyze these important issues, this case study includes documents such as Schlecker´s balance sheets, profit and loss statements and customer profiles. It also includes information o­n German Internet users and European o­nline retail projections by country and category. Is the Internet a reliable, new source of revenue or should Schlecker stick to its expansionist policy by simply opening more stores within its existing markets?

This article is based on:  Schlecker Home Shopping
Year:  2001
Language:  English

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