Warm Southern Breeze

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Big Name Retailers abandon FaceBook during IPO period

Posted by Warm Southern Breeze on Friday, February 17, 2012

News of FaceBook‘s February 1, 2012 filing for a $5Billion IPO (Initial Public Offering) status has Wall Street investors salivating, if not outright champing at the bit for an actionable piece of of that pie. With an estimated net worth of $17.5Billion, CEO Mark Zuckerberg, whom at age 28 is one of – if not the – world’s youngest billionaires, could at least double his personal net worth.

With an estimated 845 million active users, and offices in 15 nations, among online tech giants such as Google, Twitter, and the soon-to-be-defunct MySpace, FaceBook continues to dominate the  SoMe (Social Media) market.

As many may already know, FaceBook neither provides a marketable product or service, and their solitary claim to market value lies in harvesting demographic data from those who establish free FaceBook accounts – which also continues to be a corporate sore spot because of privacy rights concerns. While advertising revenue for the company accounts for their majority income, their “click-though” rate – the percentage of which site visitors click on an advertisement – remains the lowest in the online advertising industry, at 0.04% (400/1,000,000). Standing in stark contrast is Google’s 8% click-through rate, while MySpace’s click-through rate of 0.1% still surpasses that of rival FaceBook.

Video advertising, however, remains a FaceBook strong suit. A study conducted in 2010 found that more than 40% of those who viewed the advertising videos watched the entire video, while the industry average was 25%.

Pundits suggest that the technologically savvy younger demographic uses ad-blocking software, and ignores advertising, whereas an older, more mature demographic may not be aware of such add-on features.

Now, amidst the opportunity and risk, traditional retailers and eTailers have slowly begun to abandon their FaceBook presence.

This is not good news for potential investors.

Retailers Shut Facebook Storefonts Amid Apathy

By Ashley Lutz – Feb 16, 2012 11:00 PM CT

A shop in Tahrir Square is spray painted with the word Facebook in Cairo, Egypt. Photographer: Peter Macdiarmid/Getty Images

Last April, Gamestop Corp. (GME) opened a store on Facebook to generate sales among the 3.5 million-plus customers who’d declared themselves “fans” of the video game retailer. Six months later, the store was quietly shuttered.

Gamestop has company. Over the past year, Gap Inc., J.C. Penney (JCP) Co. and Nordstrom (JWN) Inc. have all opened and closed storefronts on Facebook Inc.’s (FB) social networking site.

Facebook, which this month filed for an initial public offering, has sought to be a top shopping destination for its 845 million members. The stores’ quick failure shows that the Menlo Park, California-based social network doesn’t drive commerce and casts doubt on its value for retailers, said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge, Massachusetts.

“There was a lot of anticipation that Facebook would turn into a new destination, a store, a place where people would shop,” Mulpuru said in a telephone interview. “But it was like trying to sell stuff to people while they’re hanging out with their friends at the bar.”

A year ago, investors hailed so-called F-commerce as the next big thing, speculating that the company had potential to threaten Amazon.com Inc. (AMZN) and PayPal Inc. Facebook is the most- visited website in the world. Some people thought that persuading visitors to shop would be easy, Mulpuru said.

David Fisch, Facebook’s director of business development, said in June that the site would be more appealing than competitors because it could replicate the social experience of a brick-and-mortar shopping mall.

Hanging Out

“This is where people are hanging out,” Fisch said at the Internet Retailer Conference & Exhibition in San Diego.

Facebook planned to profit from retailers buying ads to drive traffic to their on-site stores. Business consultant Booz & Co. predicted in January 2011 that physical goods sold through social commerce would balloon to $30 billion from $5 billion by 2015, with Facebook contributing a majority of sales.

Even as some businesses shut storefronts, many companies continue to devote advertising dollars to the social network. Facebook’s sales surged 55 percent to $1.13 billion in the fourth quarter. The company aims to use e-commerce more as a way of getting users to stay longer than as a way to boost revenue, said Krista Garcia, an analyst at EMarketer Inc. in New York.

Chris Kraeuter, a Facebook spokesman, declined to comment.

Customers had no incentive to shop at Gamestop (GEM)’s Facebook store rather than the company’s regular website because purchasing online is already convenient, said Ashley Sheetz, who is the Grapevine, Texas-based company’s vice president of marketing and strategy.

Shut Quickly

“We just didn’t get the return on investment we needed from the Facebook market, so we shut it down pretty quickly,” Sheetz said in a telephone interview. “For us, it’s been a way we communicate with customers on deals, not a place to sell.”

Gap (GPS), which has 5.6 million Facebook fans from its namesake, Banana Republic and Old Navy pages, opened and discontinued a storefront last year, said Liz Nunan, a company spokeswoman. The San Francisco-based company also discovered customers preferred shopping on its own sites, she said.

“We will continue to evaluate if this is something we want to bring back in the future,” Nunan said in an emailed statement.

Nordstrom tested ways to make shopping “seamless through Facebook” and decided on a broader social media focus, Colin Johnson, a spokesman, said.

J.C. Penney featured assortments in a Facebook “shop” tab beginning in 2010, and took it down in December 2011, Kate Coultas, a spokeswoman said in an emailed statement.

Cracks in Model

Wade Gerten, chief executive officer of social media developer 8thBridge, previously known as Alvenda, opened a Facebook store for the florist 1-800-FLOWERS. Minneapolis-based Gerten went on to develop commerce strategies for Delta Air Lines Inc. (DAL), Diane Von Furstenberg Studio LP and denim-maker Seven for all Mankind.

Cracks in the model showed quickly, Gerten said in a telephone interview. Clients “have taken a different approach,” shutting stores or scaling back their offerings.

“It was basically just another place to shop for all the stuff already available on the retailer websites,” Gerten said. “I give so-called F-commerce an ‘F.’”

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

###

This article originally appeared here: http://www.bloomberg.com/news/2012-02-17/f-commerce-trips-as-gap-to-penney-shut-facebook-stores-retail.html

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