August 11, 2008
Casting a Wide Net
By Riegel, Stephanie
At the corporate headquarters of the Internet Retail Connection, computers whir away 24/7, processing orders for any one of the 75,000 products that are sold on the 12 different retail Web sites that belong to the company.The orders pour in from electronic shoppers around the globe, who buy items like pop tents from cozycamping.net and baby bedding from littlewonders.com. It's a brisk business, and the revenues keep climbing, topping $8 million last year, just the company's fourth year in operation.
You might expect this kind of high-tech firm to be based on the West Coast and to operate, perhaps, from a giant warehouse piled high with inventory. But you would be wrong. The corporate headquarters for the Internet Retail Connection are located inauspiciously in a Prairieville home, and all the processing and filling of orders is done electronically from just a handful of computers in a backyard office.
Welcome to the world of e-commerce, the fastest-growing sector of the retail industry, where anybody with ingenuity and high-tech know- how can be a player. Local companies are no exception. Several Baton Rouge-area online retailers are getting in on the action, generating their share of the more than $175 billion that was spent over the Internet last year.
"The growth of the whole industry is phenomenal," says Warren Sager, who runs the business side of Internet Retail Connection with partner and techie Steve Musumeche. "We were a lot more unique four years ago when we got started than we are now."
Internet Retail Connection is remarkable still, however, because it operates almost purely in the virtual world. Though its dozen Web sites sell everything from toys to camping supplies to knives to birdhouses, it stocks no inventory, does no actual shipping and employs just a handful of customer service representatives who work out of their homes facilitating and following up on orders. It's a model that enables the company to keep expenses way down.
"That's why we can have 75,000 different products for sale," Sager says. "We don't have to actually buy anything before we sell it."
On the other extreme is another local company, ShoppersChoice.com, which had sales of nearly $14 million last year and is expecting to do some $20 million in 2008. Unlike Internet Retail Connection, ShoppersChoice is a wholesaler and also a manufacturer, and stocks more than $1 million of inventory in its four warehouses around the Baton Rouge area.
The company has been selling online since 2001 and ranked 399th of the 500 fastest-growing online retailers in the country by the leading trade publication, Internet Retailer magazine. Much of that growth has come from its signature category of high-end grills, some of which it manufactures itself, some of which it distributes for other manufacturers.
It has also gotten a lot of business through Amazon.com, which uses the company to fill many of its orders for grills. Then, there are niche product lines it has launched recently - one for high-end patio furniture and another for mailboxes.
"We launched UltimatePatio.com in March, and it has gone nuts," says Mike Hackley, ShoppersChoice owner and president.
ShoppersChoice isn't the only local online retailer that does a lot of its own manufacturing and supplying. Fluker Farms is another. The company has had a well-established business selling feeder insects and pet supplies since 1990, but the Internet has opened up new markets. Now, not only does it supply crickets and pet food to big-box stores like Petco and PetSmart, it sells to thousands of individual online shoppers as well.
"We've never been an Internet player exclusively, and we're still not," Dave Fluker says. "But the Internet has totally changed our business. Once we were just selling to pet shops. Now, the consumer drives the market."
Another local online retailer that got its start as a mail-order business is AllBrands.com, which sells sewing machines, vacuum cleaners and appliances. It has been around since the 1980s, but started selling over the Internet in the late 1990s. It now does about 70% of its business via e-sales, which contributed significantly to its $11 million in revenues last year.
"We were the earliest in our specific industry to sell online," says company founder John Douthat, who got into e-commerce after some prodding in 1996 from his 12-year-old son.
Like Fluker Farms and Shoppers-Choice, Allbrands.com does warehouse some of its inventory - about 50% of what it sells - which is necessary in part because the company has several physical retail outlets around the state. The other half of its sales is fulfilled directly by various manufacturers, who drop ship on demand for the company.
"Weighty items that cost too much to double handle we don't get enough discount to justify stocking," he says.
"So the manufacturer sends them directly."
Douthat and his e-commerce colleagues around the area are in a booming segment of the retail industry. While stores nationwide are feeling the effects of an economic downturn, online retailers are thriving. Last year's sales represent a 21% increase over 2006's $144.6 billion, though that's actually a decrease over the 25% growth of the previous year. And even though Internet sales are expected to increase by a slimmer 17% this year, online sales still represent the best hope for retailers, according to industry experts.
Not that online retail doesn't have its challenges. One of the biggest hurdles for a company like Sager's is ensuring quality control. Since Internet Retail Connection relies on manufacturers and wholesalers to fulfill its orders, it has to redouble efforts to ensure products are what they're supposed to be.
"The level of service we provide is not always the level of service others provide," Sager says. "We have to stay on top of that or else it makes us look bad."
A challenge for those companies that do warehouse their own products comes in managing the relatively high cost of shipping. AllBrands.com has several physical storefronts around the state. In those shops, payroll is the biggest expense. In its online store, it's shipping. The company offers free shipping on as many items as it can afford - about 65% of them. But on some, it's just too costly.
"As long as revenues cover expenses for the year, we'll keep doing it," Douthat says. "We'd like to offer it on everything, but some items are just too expensive or too heavy."
For all online retailers, however, the biggest challenge is getting noticed in the vast world of cyberspace. With so many e- commerce companies - and the numbers growing every day - proper marketing is key. The buzzword used in the industry is "search- engine optimization." What that really means is figuring out which keywords or phrases will bring online shoppers to their Web sites over the competition's.
"The search engines are a huge component of e-commerce," says Fluker, who notes that his company is likely fifth or sixth to come up on a Google list of retailers selling crickets. "We'd like to be first."
The way to become the first name to appear on a Google search is to invest as heavily as Hackley does at ShoppersChoice in market research. His company has 26 employees, including five marketing staffers and four programmers who do nothing but refine the company's many Web sites. They get reports on a daily basis of what keywords attracted shoppers to a site and, more important, what prompted those shoppers to purchase once they'd made it past the home page.
"People think the Internet is easy, but it's not," Hackley says. "I've got people and all they do all day long is evaluate our Web presence and make sure we've got good pictures, good content and good information so a customer can make a good decision."
As they look to the future, local online retailers see increased competition. With so much growth in the industry, the number of retailers popping up on search engine sites gets bigger every month. But they also see unlimited potential. Hackley has dozens of retail Web sites in the planning stages. They'd be farther along, if only he had more time.
"We've got stacks and stacks of stuff to build Web sites on, but you have to choose your battles," he says. "We do a lot research to see what the return on our investment is going to be, and before we tackle a certain product we do tons of research because you don't want to build something you're not going to get a lot of return on."
Copyright Greater Baton Rouge Business Report Jul 15, 2008
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