August 29, 2008

Retail Site Revival To Put Pressure On Rivals

Competition among online retailers is heating up and one site hopes to stoke the fire by shipping orders for $1.95.

Enable Holdings, Inc. plans to launch RedTag.com on Friday and sell excess inventory at fixed prices.  RedTag's shipping charge will be cheaper, at $1.95, than competitor Overstock.com that ships items for $2.95.

"We're willing to take less for shipping because we think you'll buy five more items from us - as opposed to if we got as much as we could from you, shipping this product, you may never buy again," said Jeffrey D. Hoffman, Enable Holdings' CEO.

According to Scott Silverman, executive director of the National Retail Federation's digital division, consumers have shifted to buying online after the recent surge in gas prices.

Although fuel prices have recently receded, Silverman believes the habits consumers have adopted are still in place.  Cheap shipping could be another way to keep them spending money on the Internet.

Friday's launch marks the revival of RedTag.com which originally failed in 2004.  Enable Holdings purchased the domain from a major shareholder earlier this spring.

RedTag is selling items from retailers that have gone out of business, or from manufacturers that have produced too much product. 

The company has much more flexibility in negotiating with manufacturers on prices, including shipping costs, because they sell excess goods.

Hoffman recognizes that high fuel prices are putting stress on those in the distribution chain.  RedTag will likely lose money up front by shipping items for $1.95.

According to Overstock CEO Patrick Byrne, his company's average shipping price is at the $2 mark when you count their free shipping, and dollar shipping days.

RedTag's parent company is still small at $43 million in revenue compared to Overstock's $769 million, but both companies are lightweights when compared to eBay and Amazon which made well into the billions in 2007.

Scott Devitt, analyst at Stifel Nicolaus & Co., believes RedTag is a "worthwhile endeavor" that could pressure rival companies like Overstock.
"If they continue to move down this path it may make it more expensive for others in the category," he said.


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