November 1, 2001, 12:00 AM

With new financing and a deal with an offline retailer, 800.com hopes to survive the shakeout

800.com is a survivor with a strategy that applies old-fashioned retailing concepts to the web: becoming an authorized seller of technology, paying attention to customer service and support and linking up with a chain.

Standing the test of time has not been easy for most pure-play e-retailers. First, disastrous business plans, then a soft economy have made it difficult for companies to get funding, get customers and keep them happy. But if there are few retailers online today that have been clever enough to get it right, Portland, Ore.-based specialty online electronics store 800.com Inc. is one.

While other dot-coms struggle to secure capital while stretching previous financing through today’s harsh economic climate, 800.com in June raised $20 million in financing and landed a $15 million line of credit. “The funding demonstrates full appreciation of 800.com ‘s business model,” says Gerry Langeler of lead investor OVP Venture Partners. “800.com has the brands, the product expertise, the selection, the management team and the infrastructure of a major retail enterprise.” The company has raised $121 million in financing since its inception in November 1997.

800.com’s strategy is to replicate the real world online by becoming a full-service specialty retailer. That meant becoming one of the few authorized online sellers of top-line brand name electronics. In fact, 800.com is the only pure-play online retailer to have landed authorization on 15 of the 73 brand authorizations it holds.

To keep that authorization, 800.com developed what many consider an exceptional level of customer service by keeping the function in-house. The result: 800.com lures customers in with high-end products and specialty sales, then supports them with service.

Evidence that its full service model works can be seen in its stats: 50% of the web store’s business comes from repeat customers. And Bizrate.com included 800.com in its “Circle of Excellence” award for the 20 best e-retailers of the 2000 holiday shopping season. BizRate chose the retailers based on six key metrics: ease of ordering, product selection and availability, on-time delivery, customer support, overall satisfaction, and loyalty and repurchase intent.

Reeling in a deal

Now a new e-commerce deal with major movie content web site Reel.com will give 800.com a reach to brick-and-mortar customers. With that deal, announced in September, 800.com, will become the e-commerce portion of Hollywood Entertainment Corp.’s Reel.com. And it launches 800.com into the ranks of online experts, such as Amazon.com, who sell their expertise to other retailers. “This deal represents exactly what we want to do more of-partner with non-competitive companies that want to take advantage of our four years of direct-to-consumer e-commerce expertise,” says Greg Drew, 800.com’s president, CEO and founder.

Hollywood Entertainment is the second largest video superstore chain in the U.S. Reel.com will direct customers who want to buy movies, music or electronics to 800.com, which offers more than 300,000 movies, music titles and leading-brand electronics. 800.com will execute and fulfill all customer orders made via Reel.com and Hollywood Entertainment will receive a commission on all sales, although the companies did not disclose the financial terms. Drew says 800.com’s reputation for providing superior customer service helped cement the deal and it expects others to follow, although he declines to elaborate.

Duif Calvin, vice president in the global retail practice at iXL Enterprises, says that while the deal gives 800.com good exposure, selling electronics online is still a cutthroat business that few retailers are making a profit on. “Presumably the deal will give them additional sales from the increased traffic from Reel.com, but it depends on how much it is costing 800.com to pay Reel.com and if they paid a premium to be the only retailer selling videos there,” she notes.

In addition, 800.com says it is ready to handle the customer load and does not fear that customers calling about low-cost videos will overwhelm its call center and force customers buying high-end electronics to wait for service. Video customers will talk to customer service reps while electronics customers will talk to specialists.

The deal with Reel.com comes at a significant time for both entities, say traffic figures from comScore Networks Inc., which tracks online traffic and sales. According to comScore, 800.com’s traffic has steadily increased while Reel.com’s has decreased. Just six months ago, Reel.com had 29% more traffic than 800.com; it now has 55% less traffic than 800.com. At least the remaining visitors to Reel.com are more engaged in the content, comScore says. Reel.com customers view more pages at the site than previously and spend three times as much time on the site as the average online visitor. That bodes well for 800.com as it makes its pitch to sell videos to Reel.com’s customers.

1,800-store presence

Aside from giving 800.com a new income stream for providing e-commerce to an active user base, the deal also gives it exposure to brick-and-mortar customers. “We can expose our wide range of consumer electronics to the millions of households who go to Hollywood Video stores every month,” Drew says. “There is 100% overlap in customers because people who watch and buy videos also buy consumer electronics.”

Hollywood Entertainment will promote shopping at Reel.com online and at its 1,800 stores in 47 states and Washington, DC. For a limited time, new 800.com customers will save $5 off movie orders of $50 or more and get a free rental coupon for Hollywood Video stores. “In terms of competition with other online electronics retailers, it’s a real plus for 800.com to have the brick-and-mortar connection,” says iXL’s Calvin. “800.com is really trying to sell like a retailer and to do that they have to understand the customer. Reel.com will help them do that.”

Until now, 800.com has built its retail business on its boutique style of sales and service. When Internet retailing started, the premise was to allow consumers to shop whenever they wanted without having to deal with humans. “Many folks getting into online retailing fell into one of two buckets: mass merchants selling commodity products or those that focused on a low price point. Because we decided to be a specialty retailer, we had to provide full services to our customers,” Drew says. “Specialty retailers tend to focus on more complex product categories that require a consultative selling process, which means having pre- and post-sale support.”

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