November 1, 2001, 12:00 AM

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

(Page 2 of 3)

The attention to customer support has contributed to smart growth this year. Drew says he expects to reach $60 million in revenue this year, up 25% from last year’s $48 million.

With capital on its side, clearly 800.com is holding fast in the e-commerce market even as competitors are struggling. In May, the company bought out assets from former competitors Roxy.com, an electronics store, and EverythingWireless, a direct marketer of wireless products. As part of the deal, 800.com now has the rights to the two companies’ URLs, databases of 800,000 names, and catalog and creative assets. The acquisition marked 800.com’s entrance into the wireless phone market.

While 800.com is buying up some competitors, others are struggling. Buy.com, which re-launched its web site in September, was bought back by its founder Scott A. Blum after the company was delisted from the NASDAQ exchange due to poor stock performance and reported layoffs and a sharp decrease in sales. Outpost.com also has had a rocky ride recently, as it laid off employees, lost nearly $10 million in Q1 2001 and dropped its free shipping program. It also was the target of an acquisition, was dropped by its suitor then picked up by another.

Big-brand competition

But apart from the struggling pure-plays, 800.com faces stiff competition from national electronics chains Best Buy Co. Inc. and Circuit City Stores Inc., both of which have powerful online presences. Drew argues, however, that 800.com’s personalized, expert customer service on 250,000 products available 7/24 sets it apart. Others agree. “The company clearly understands the needs of online shoppers who want quick and easy access to information such as detailed product information, knowing whether an item is in stock at the time the online order is made and knowing the price they’re paying is competitive with other retailers,” says Paul Ritter, program manager of Internet Market Strategies at Boston-based The Yankee Group. “800.com allows consumers to get their questions answered through whatever means they want, including telephone, e-mail and live online support.” Most other electronics sites offer only e-mail support.

Furthermore, 800.com’s reps receive training through the manufacturers’ authorization programs. And the 800.com support staff is full of industry veterans with substantial experience in selling high-end electronics, the company says. They are trained to cover all the general products as well as provide expert technical advice on certain products.

Providing that meticulous level of customer service is key in attracting high-end, specialty product manufacturers, who don’t want their best brands associated with discount general retailers that merely ship out a box with some manuals. Drew explains that manufacturers, like any other company concerned about its brand, want to know that retailers selling their goods can provide the level of support they think is needed to support their higher-end products. “The biggest key to getting manufacturer authorizations is to have product specialists,” Drew says. “We invested in having this kind of infrastructure which took a couple of years.” 800.com was the first Internet-only retailer to be authorized to sell Toshiba, for instance, and is one of the few authorized to sell Sony products.

Drew says this status ensures the company will be able to provide the retail environment that keeps customers coming back. “When you’re authorized you have access to more products and you can buy directly from the manufacturer,” he says. “Our 70-plus leading brand authorizations have a huge impact on gross margins and, ultimately, profitability because they enable a direct relationship. This direct relationship ensures better price, selection and supply privileges. Authorizations also give us access to the better goods, which have higher gross margins.”

Being an authorized dealer also helps with better marketing. “You then have access to promotional programs, sometimes advertising and coop dollars and manufacturer promotions,” says Drew. In one example of a manufacturer promotion, 800.com, with the support of Sony, offered free shipping on all Sony electronics during a rebate promotion earlier this fall geared toward increasing conversion rates and average order size. The promotion gave gift checks good at 800.com to buyers over certain levels. “The other thing you get is the opportunity for product returns and stock rotation,” says Drew. Retailers who are not authorized sellers have to eat the cost of a returned product.

Other marketing includes online ads, affiliate programs, as well as direct mail catalog, e-mails and postcards. 800.com has 30,000 affiliates, with such online partners as the OurHouse.com home furniture site, that direct customers to the electronics store.

8,000 contacts

With a customer service center that handles up to 8,000 e-mails or phone calls a day, technology is key. Drew says 800.com responds within 24 hours to all inquiries. “We have the staff and the systems that can handle it,” he says. “Anything of strategic importance cannot be outsourced. We believe we must own and protect the relationship with the customer.” In addition to customer service, 800.com maintains its own inventory and operates a warehouse and fulfillment system. Besides its original facility in Portland, Ore., 800.com opened a second distribution center in New Castle, Del., last year.

Drew says 800.com gets lessons every day in the importance of in-house, integrated customer service. A customer considering a home entertainment system may visit 800.com four times in three weeks before making the purchase. That means it’s important to have a single conversation with the customer, which equates to having a system that tracks multiple contacts with the customer. “Customers get frustrated having to start over with a new person so we implemented a system that tracks every conversation and puts it in a single customer record so customer service reps can pick up where the last one left off,” Drew explains. “It’s been a saving grace for us and customers really like it when they’re cared for.”

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