June 3, 2013, 12:28 PM

Constant change

(Page 3 of 3)

Oriental Trading's future was in doubt just three years ago. In the span of just a few years the private equity company and banks that owned Oriental Trading put the company up for sale at least twice and in 2011 filed for bankruptcy to reorganize and shed nearly $420 million in debt.

But today Taylor says Oriental Trading is profitable—although he won't reveal the company's financial figures—and is happy with the relationship with its new owner, financier Warren Buffet's Berkshire Hathaway Inc., which purchased Oriental Trading for an undisclosed sum in November.

But even while it was for sale or reorganizing under bankruptcy protection, Oriental Trading continued looking for ways to innovate and grow its e-commerce operations, Taylor says. In 2012 web sales for Oriental Trading only grew 6.3% to $340 million from $320 million in 2011. But the company is busy diversifying its e-commerce channel by developing more private-label merchandise, which now accounts for about half of the company's current inventory of about 40,000 products, and developing new product lines for specialty events such as proms and party merchandise, including men's Hawaiian shirts, Taylor says.

Oriental Trading also continues to invest in its 750,000-square-foot Omaha, Neb., distribution center, which has the capacity to store as many as 100 million individual SKUs and pick, pack and ship up to 77 million packages per year, Taylor says. "Ten years ago e-commerce was 25% of our business and now its 70%," Taylor says. "We've changed the mindset around here of being a catalog company treating the web as a support channel to making e-commerce our growth engine now and going forward."

Embracing change and building its niche e-commerce base also has been a top priority for Fanatics, which grew web sales 45.5% to $764 million in 2012 from $525 million in 2011. The 2012 web sales include about $100 million in revenue from Dreams Inc., a competing licensed sports apparel web merchant Fanatics acquired for $183 million in June 2012. That acquisition helped Fanatics grow roughly 65% a year over the past decade, the second-best compound annual growth rate among Top 500 retail chains, behind Urban Outfitters.

Fanatics began operating an e-commerce site in 1993 from the back of its lone store in Jacksonville, Fla. It fulfilled web orders from store shelves and dropped off packages for shipping at a nearby UPS location.

Its lightbulb moment came when company executives realized they could use the Internet to sell caps and jerseys to displaced sports fans—such as a diehard Boston Red Sox supporter living in Chicago. "Our first innovation was identifying a niche nobody else had, and that was serving the displaced fan who wanted to use the web to buy licensed gear for their team they couldn't find anywhere else," says Fanatics president Jamie Davis.

Over a decade Fanatics grew its inventory from a few thousand licensed products to more than 1 million items, including gear for more than 200 teams, Davis says. "Now we are after the local fan," Davis says. "We want the guy that wants that licensed gear right after a big event and right now, without leaving the couch."

In the next two years Fanatics plans to double the size of its distribution center network. The company already operates a pair of fulfillment centers near Jacksonville and Chicago, and in a few months will open a third 500,000-square-foot warehouse near Columbus, Ohio, and a warehouse of similar size on the West Coast in 2014 or 2015.

"We don't feel like we've peaked over the last 10 years. We think e-commerce is just now really getting started."

mark@verticalwebmedia.com

@markbrohan

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