January 31, 2001, 11:24 AM

Garden.com's demise shows why pure-plays will continue to have a tough time

Kurt Peters

Editor in Chief

Cliff and Lisa Sharples had an idea for selling on the Internet long before most other retailers even knew what the Internet was. The husband-wife team-holders of MBAs-launched Garden.com in March 1996, not because they were gardening enthusiasts but because they thought plants, gardening supplies and gardening gifts were well suited to web selling. With great site graphics, an e-mail newsletter, a magazine that offered gardening tips and their ever-expanding selection of products, they helped define what it means to sell via the web. They were pioneers in the trend toward loading web sites with information and buying opportunities.

But in November they became part of another trend among Internet retailers-they closed shop. The problem: Not enough money. “It’s a game of scale,” says Cliff Sharples, president and CEO. “We’ve got well over $100 million invested in this company and it was easy to see we needed to raise more money to achieve profitability.”

Lack of money and inability to achieve scale are the twin scourges of pure-play Internet retailers today. As the Internet moves into the mainstream of retailing, more large, well-funded bricks-and-mortar merchants are developing Internet strategies. And the great advantage they bring to the web is that they already have everything that pure-play Internet retailers are building from scratch. Things like inventory, buyers, warehouses and distribution centers and-maybe most important of all-trusted national brands. “If you’re a Sears or a Wal-Mart, you don’t have to put a lot of extra money into marketing a world-class web site,” says Duif Calvin, San Francisco-based senior retail analyst with iXL Inc. “They can just add a tagline to the advertising they’re doing already: Visit us at our web site.”

In addition, large general-merchandise sellers can leverage a web site investment over a number of product categories and gain an advantage that the pure-plays, especially the specialized ones like Garden.com, have a hard time matching. “Garden.com had 1.5 million customers; Wal-Mart has 100 million transactions a week,” Calvin says. “Wal-Mart gets a scale that Garden.com will never meet.”

Fragmentation

But if Garden.com never reached the levels of a Wal-Mart, it wasn’t for lack of trying. Not that Garden.com had aspirations of being the Wal-Mart of the web world, but Sharples points out that a small fraction of the gardening market would have kept Garden.com in clover. “You can build a successful company on a 1% market share,” Sharples says. He estimates that the gardening/gifts/flowers/outdoor living products market is about $50 billion a year. “One percent is $500 million,” he says. “There are only five companies in the whole industry who are at $500 million in sales. It’s an incredibly fragmented market.”

Furthermore, he argues, gardening is not a commodity market. “It’s not like books or music, where price is what consumers care about,” he says. Even local garden shops have an incredible number of products. “It’s very hard to price compare,” Sharples says.

And to top it off, gardening enthusiasts are information junkies, not just on gardening tips and techniques that a wheelbarrowful of magazines provides, but also on garden design and making the most of the gardening space they’ve got. One of the most popular features at Garden.com was the landscape planner. It helped gardeners decide which plants would grow best in their climate and with their garden or yard configuration. And it gave them the chance to buy everything that the planner suggested.

That feature certainly was an attraction and set Garden.com apart from the neighborhood garden supply store, Sharples says. “If you aren’t adding unique and distinct value and allowing the customer to do something that the customer can’t do in another medium, what’s the point?” Sharples says.

While Garden.com believed it was offering new value on the web and had, in fact, helped lead retailers to the new way of selling, the company still had to employ the old methods of marketing. It built its brand by TV advertising-primarily home and garden shows-it advertised in gardening magazines and, just before it folded it joined the born-again revivalists who were mailing catalogs. Garden.com mailed nearly 2 million catalogs to consumers whose names it had acquired from traditional home and garden mailing lists. “The catalogs were working well, though the amount we mailed was not really significant,” Sharples says. “We were just getting going.”

Different from catalogs

Sharples believes that in that area, too, Garden.com was redefining how merchants sell. “A lot of catalogers are stuck in their own paradigm,” Sharples says. “They believe they have to keep sending catalogs to get their customers to buy from them again. Our goal was to never have to send our experienced customer a catalog again.” Garden.com’s plan was to send a steady stream of email messages to stay at the top of the customer’s mind. Called Garden Minder, the email program gave customers a steady stream of advice about what they should be doing in their gardens at this time of year for their area of the country. “We had a very low unsubscribe rate to our newsletter,” Sharples says. “Catalogs are for customer acquisition only.”

Catalogs weren’t the only print medium that Garden.com employed. It also advertised in a variety of gardening and home magazines. Unlike the customer-acquisition orientation of catalogs, print advertising was for the purpose of building the brand. But when marketing money became tight, Garden.com pulled back from its expensive brand advertising. “We started to shut down the brand activity to go to just customer acquisition,” Sharples says. “Although it’s hard to measure the effect of advertising, I don’t regret doing brand marketing at all. It created some good momentum for the company.”

Garden.com’s marketing spending reflects Calvin’s observation that the Internet pure-plays need to spend heavily to create their brands. In the first quarter of FY 2001, which ended Sept. 30, 2000, the company spent $3.8 million in marketing to obtain $2.2 million in sales. That nearly 2-to-1 ratio is consistent with how the company had been spending. In FY 2000, the company spent $26.6 million in marketing for $13.5 million in sales.

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