September 24, 2008, 12:00 AM

Flower and gift sales wilt vs. other Top 500 retail segments in ‘07

2007 was a tough year for online flowers and gifts retailers as their combined sales bloomed by less than any other segment in Internet Retailer’s Top 500 Guide. Cumulative web sales for the flowers and gift sector rose by just 11% to $1.35 billion.

Mark Brohan

Research Director

2007 was a tough year for online flowers and gifts retailers as their combined sales bloomed by less than any other segment in Internet Retailer’s Top 500 Guide.

For the year, the cumulative web sales of the 21 flowers and gifts merchants ranked in the 2008 edition of The Top 500 Guide rose by just 11% to $1.35 billion from $1.21 billion in 2006. In comparison, all retailers ranked in the Top 500 Guide grew their combined sales year-over-year by 21.6% to $101.7 billion while total online retail sales rose by 21.8% to $165.9 million.

In 2007, segment leader 1-800-Flowers.com Inc., No. 36 in the Internet Retailer Top 500 Guide, generated e-commerce revenue of $501.9 million, up 16.6% from Internet revenue of $430.3 million in 2006. Following 1-800-Flowers.com in the Top 500 flowers and gifts rankings are FTD Group Inc. (No. 55) at $260 million; Hallmark Cards Inc. (No. 127) at $92.9 million; RedEnvelope.com (No. 132) at $88.5 million; American Greetings Corp. (No. 136) at $85.2 million; Potpourri Group Inc. (No. 151) at $77.4 million; Celebrate Express (No. 163) at $64.7 million; The Vermont Teddy Bear Co. (No. 179) at $57 million; PersonalCreations.com (No. 189) at $51 million and JustFlowers.com (No. 323) at $20 million.

1-800-Flowers.com now controls 37% of the online gifts and flowers market as measured by the Top 500 Guide, compared with 19% for FTD, 6.9% for Hallmark and 6.6% for RedEnvelope.com.

When retailers began to notice the web, flowers and gifts merchants were among the first to take advantage of the Internet as a marketing and merchandising channel. 1-800-Flowers.com started selling online through CompuServe in 1992 and became the first web merchant on AOL two years later.

But in recent years gifts have become a commodity item on the web with even more online retailers offering gift registries, wish lists and targeted seasonal campaigns. To survive and maintain their market position, some flower and gifts retailers are making acquisitions while others have been acquired or now operate within a different organization as the result of filing for bankruptcy.

Since 2002 1-800-Flowers.com has made several acquisitions to diversify its line of business. In May 2002, 1-800-Flowers.com acquired The Popcorn Factory, followed by The WineTasting Network in November 2004, Cheryl & Co. in March 2005, Fannie May Confections Brands Inc. in May 2006 and DesignPac Gifts LLC in April 2008. By acquiring companies, 1-800-Flowers.com is building up a $250 million gifts business and targeting niches in gourmet food and gifts baskets, and a merchandising line of gifts for children and the home. “We are now at a revenue run rate of more than $250 million, making us a leading provider of gourmet food gifts,” 1-800-Flowers.com CEO James McCann told Wall Street analysts on the company’s year-end earnings call in June. “We continue to see excellent growth opportunities in this business for both our organic initiatives as well as acquisitions. In our home and children’s business, despite the economic headwinds in this category we have improved our bottom-line results significantly.”

In the online flowers and gifts market, 1-800-Flowers.com Inc. is using a mix of organic business development, mergers and acquisitions to drive sales. But many other retailers in the segment, including FTD, RedEnvelope.com and Celebrate Express are now under new ownership. In August, United Online, which also owns Internet service providers Juno and NetZero, the Classmates social network and web-based loyalty program MyPoints, purchased FTD in a deal valued at $754 million.

Two other prominent flowers and gifts retailers – RedEnvelope.com and Celebrate Express – also are now owned and operated by Liberty Media. In June Liberty Media acquired Celebrate Express for $31 million and merged the company with BuyCostumes.com, another company in Liberty’s interactive media group. In May Provide Commerce, another Liberty Interactive company, acquired the assets of RedEnvelope.com after a bankruptcy filing.

One way American Greetings, which saw revenue at its e-commerce subsidiary AG Interactive decline by 5% in the 2007 fiscal year, is trying to differentiate is by offering more digital and social network services. In December American Greetings spent $26.5 million and purchased PhotoWorks, an online photo sharing and personal publishing company that allows consumers to use their digital images to create quality photo-personalized products such as greeting cards, calendars, online photo albums and photo books. PhotoWorks offers production capabilities that position us for a comprehensive photo strategy bringing together both digital and physical products,” says American Greetings CEO Zev Weiss.

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