eHobbies.com
Achieving retail success is no hobby

Since the dot-com investment bubble burst, one of the accepted wisdoms of the e-retail industry is that VC companies foolishly spent on Cadillac technology when they should have been buying tricycles. There’s some truth in that—but the reality is that the Internet was not mature enough that low-cost outsourced options were available then. But they are today, and that’s one reason some dot-com retailers who are thriving now would have failed back then—or did fail back then.

Like eHobbies.com 2003, which rose from the ashes of eHobbies.com 2000. “You couldn’t run the company then the way we’re doing it now,” says Seth Greenberg, co-CEO of eHobbies along with partner Ken Kikkawa. “There were no inexpensive, outsourced third party solutions.”

A group of investors launched eHobbies in 1999 with the goal of being a destination site. They funded it with $30 million and, at the peak, employed 175. A year later, Greenberg was urging investors to re-think their approach. Nine months after that, Greenberg and Kikkawa were picking up $1 million in hobbies and toys inventory—“that we paid very little for”—and re-launching the company with three employees as a Yahoo store. “We’re big on outsourcing,” Greenberg says. “That clears our plate so we can focus on marketing and merchandising.”

That focus has served eHobbies.com well. It allows the company to target in on 60,000+ items in categories such as radio-controlled vehicles, astronomy, model trains and slot cars, while avoiding products that mass merchants sell at lower prices. “When the person who buys the train at Wal-Mart wants parts, he comes to us,” Greenberg says. “Wal-Mart can’t support that but we can. And the margin is better with parts.”

EHobbies outsources several functions, including web hosting and CRM. But it also undertakes in-house initiatives when it can build on strengths. For instance, it manages Internet search functions in-house, and Greenberg directly oversees a new effort to market via commercials on local cable TV channels.

Now that it has the basics in place, eHobbies is turning to add-ons. It offers store-pick-up at a store attached to its warehouse and plans to open a second store. It recently started a lay-away plan though I4 Commerce Inc.’s Bill-Me-Later service. And it’s accepting international orders through Comerxia Inc., which is funded by UPS.

In spite of one analyst’s observation that the site is too visually complex, Greenberg expects sales to more than double this year over last. “We’ve surpassed the original company’s sales,” he says, “and we’re doing it with a staff of 15.” m

HancockFabrics.com
A seamless transition

For Hancock Fabrics Inc., its web site is an extension of its 430 stores. “The web site’s primary objective is to provide people with the Hancock Fabrics experience,” says David Uptagrafft, manager of online services at Hancock. That’s one of the reasons that HancockFabrics.com offers an innovation like online purchase of fractional-length fabrics—just like customers buy fabric in the store. And why it’s beefed up a feature common to most web sites operated by chains—the store locator. “We operate this web site to drive customers to retail and to grow sales,” Uptagrafft says.

While he won’t reveal sales at the site, Uptagrafft says Hancock-Fabrics.com has succeeded in both driving customers to the stores and boosting online sales. The store locator is one of the most heavily trafficked portions of the site, and an e-mail coupon to be redeemed in stores has been successful.

“This is a nice site overall,” says Jim Olamura, partner with retail consultants J.C. Williams Group. “The multi-channel tie-in with the store locator is especially good.” Nevertheless, the web site holds its own, Uptagrafft notes. “The web is consistently the top store,” he says.

While Hancock has had to refine the user interface, one of the most innovative features at the site is the fractional yard option. Especially with a higher priced fabric, shoppers don’t want to buy a whole yard if they need only a fraction of a yard. Thus Hancock believed it could increase web sales by allowing customers to buy fabric in quarter-yard increments.

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But customers had a difficult time with the presentation, Uptagrafft says, because it required making two choices in two boxes—one with the full yards and the other with the fractional yards. Hancock has posted a box with a sample order above the quantity boxes.

In addition to selling fractional yards, Hancock has taken other steps to replicate store fabric shopping online. For instance, it provides multiple views of swatches, from thumbnails up to enlarged views. And rather than just shooting photos of the fabr

ic, it actually scans a 1-inch square piece of each fabric and delivers the scanned image to shoppers. When she enlarges the image, the shopper can see the texture and weave of the fabric.
Okamura also notes that the site does a good job of establishing Hancock as an authority in fabrics and sewing projects. “I like the added content, such as the free projects,” he says. “That kind of informational and educational content provides additional value, brings authority to the site and helps position the site as a leader.”

NordicTrack.com
Exercising the web to expand a brand

Buying a $1,500 treadmill is not something most consumers do on a whim, nor, naturally, is buying a bunch of things to go with it. But selling a broad range of high-ticket treadmills and other exercise equipment—plus a growing array of complementary products—is the retail growth strategy of ICON Health & Fitness and its NordicTrack.com.

The NordicTrack brand itself has changed drastically since ICON acquired it seven years ago. Back then, NordicTrack was known for a single product category—ski-style exercise machines. Although known for quality, the machines served a limited market of consumers who could afford to pay $1,000 or more for exercise equipment that, designed to mimic actual cross-country skiing, took skill and patience to learn how to use.

ICON ushered in a new strategy of expanding NordicTrack’s market horizon to reach more consumers by offering both more conventional exercise equipment like treadmills and complementary products in exercise apparel, yoga kits, aromatic therapy packages and nutritional supplements. While ICON operates 71 NordicTrack stores in 27 states, the web is a key component in expanding its market reach as well as its level of customer service.

“NordicTrack has been a very strong niche brand for at least 30 years, but it hasn’t been able to sell to enough people,” says Duif Calvin, a retail analyst based in San Francisco. “To be successful, it had to widen the brand’s appeal. But it couldn’t do that with less-expensive equipment without harming the brand’s image, so it extended into other categories.”

For its extension strategy to work, NordicTrack has designed a web site intended to make it as easy as possible for shoppers to understand the intricacies of its exercise equipment and the benefits offered by complementary products, says Ryan Dunkley, director of e-commerce. “We’re a customer service site first and foremost,” he says.

NordicTrack.com lets shoppers navigate with single a click from each product page to a comparison chart of all similar products, or to a buyer’s guide summarizing the important features to consider in each category.

Products are also arranged to support cross-selling. The “C” series, for instance, is designed to be sold with mint-scented aromatherapy packages that eventually need to be replaced. And as with all exercise equipment, treadmills are cross-promoted with rotating special offers. “We sell a lot of accessories and our overall sales are higher with the cross-selling on our web pages,” Dunkley says.

Reflect.com
The ultimate market of one

Utility is the driver when buying a mop or broom, but it’s a different story when a woman buys cosmetics: she’s treating herself. Reflect.com has made that a cornerstone of its custom cosmetics business. From purchasing to product to packaging, the process aims, in CEO Richard Gerstein’s words, “to delight the female cosmetics shopper. Women tell us that when they get their order in the mail, they feel as though they are receiving a gift.”

With the power of key stakeholder Procter & Gamble Inc.’s science and consumer research behind it, the independent Reflect.com has been able to do what few have accomplished: successfully mass-market a custom product online. Women can order cosmetics formulated to suit their own requirements at a price that competes with the prefab offerings of prestige department store brands. Reflect.com has narrowed its return rate to about 2%, significantly below the average return rate of about 7% to 8% for department store cosmetics, with its online neural network questionnaire that ensures women find the right product before placing an order.

“50% of women believe they have sensitive skin, for example, but it’s actually a lot fewer,” Gerstein says. “We ask a women if she believes she has sensitive skin, if she has had rosacea or if she uses products from a dermatologist. She has to answer yes to two to be classified as having truly sensitive skin. We use the questions to do a diagnosis of what she really needs.”

After shipping an order, Reflect.com offers by e-mail to reformulate any product that does not meet expectations for free, which it does in about 10% of cases. That helps keep the repeat buyer rate at 40%. The rest of its success lies in a micro-manufacturing process that allows it to economically produce lots of one.

Reflect.com has begun to use the corporate name Reflect True Custom Beauty to mirror its expansion into retail. It has a store in the Chicago suburbs and a boutique in Marshall Field’s downtown. Retail, says Gerstein, is capturing customers who’ve seen the brand online but want to try it in store. That’s driving more back online for replenishment, which the site encourages with new features added this year, live chat and A/B testing capability that continues to improve the site. “We found, for instance, that people were ignoring a big icon in the center of our home page and going to product links. So we replaced the icon with four larger product links and saw conversions off the page increase significantly,” says Gerstein. “Now, there’s nothing on the site that didn’t get A/B testing first.” m

SharperImage.com
It`s easy to shop for innovation

It’s one thing to offer products that grab shoppers’ attention and fill them with “I-must-have-that” feelings. It’s quite another to do that and make shoppers feel at home, with plenty of support for making decisions about purchasing products like the Roomba robotic vacuum cleaner that can be confusing as well as innovative.

But that’s what Sharper Image Corp. strives to do, and it does it well, says Kathryn Cullen, principal with retail consultants Kurt Salmon Associates. “Sharper Image knows why people come to them—so they can buy what’s new and cool,” she says. But by mixing up its product line with traditional furnishings for the home and personal use, like the Happy Eyes desk lamp and the Human Touch foot massage chair, and providing numerous ways to shop in multiple channels—stores, catalogs, TV infomercials and SharperImage.com —it makes shopping in an innovative atmosphere easy and fun, Cullen says.

And as befits a retailer that caters to shoppers who seek out high-tech innovation, Sharper Image excels with merchandising and customer service strategies on the web, Cullen adds. “Sharper-

Image.com offers multiple access methods for finding products, so any time you go to their web site, you can get through quickly and easily,” she says.

Sharper Image also maximizes its web presence for cross-merchandising purposes. The product page for the Roomba, for example, provides links to extensive product information and a video clip of the robotic cleaner in action, showing how it would self-propel around rooms that the shopper might want to furnish with other items displayed on the same page.

The success of the retailer’s web merchandising strategy is borne out in consistent financial reports showing strong growth in all channels, but with online sales growth outpacing others. Although it has opened close to 20 new stores annually since 2001, which will bring its total to 149 by the Jan. 31 end of its 2004 fiscal year, Sharper Image’s web sales continue to rise as a percent of overall sales. For its third quarter ended Oct. 31, sales on SharperImage.com rose 36% year-over-year to $17.4 million, accounting for 13.6% of total sales, up from 12.4% a year earlier. For the nine months ended Oct. 31, web sales increased 42% year-over-year to $52.5 million, while total store sales (including stores opened within those nine months) rose 27% and catalog sales rose 16%.

“We have great sales momentum in all channels,” CEO and founder Richard Thalheimer says. Innovation in both products and merchandising, he adds, will keep that momentum climbing.