Ex-Wall Street analyst meets artists,together they craft an uncommon e-retailing site
By Andrea McKenna Findlay
A former retail analyst from Goldman Sachs, a gypsy-style artisan, a craft market and a conservative business approach minus venture capital money may seem like an uncommon combination for an enduring web business. But it’s a formula that is working for UncommonGoods.com, an online gift retailer that specializes in unusual, creatively designed products at affordable prices.
The company has survived the bloodbath of declining Internet companies and, further, has done so with only private investments. When the company launched its site in July 2000, the venture capital money that had flowed so freely in prior months had all but dried up. But New York City-based UncommonGoods was determined to bull forward. And not only has it survived, but it also doubled its planned sales for its first six months.
Praised by industry observers for its original content and exclusive, creative merchandise, UncommonGoods is maintaining its place among pure-plays who are likely here to stay. And CEO David Bolotsky says there are no plans to take the company public—or even to go outside the original investors for additional money. “The window for VC has slammed shut,” he says. “Our plan is to get to financial self-sufficiency before the cash runs out and I’m confident we’ll do that. We have enough cash to get through 2003 and we expect to be profitable by the end of 2002.”
More than just a good idea
With the demise of popular niche web sites over the last 18 months such as Garden.com, Lucy.com, Pets.com, Living.com and eToys.com, it seemed as if only mass marketers with the biggest sites could survive.
But figuring out what types of products could and should sell on the web, as opposed to products that would compete with those sold by brick-and-mortar-turned-web retailers, has been largely a hit-and-miss proposition. Not so with specialty gift retailer UncommonGoods.com.
Bolotsky’s UncommonGoods.com vision was born out of his first encounter with the Internet via a laptop in the early 1990s combined with his 14 years covering the specialty retail market on Wall Street. “When I was exposed to the Internet I thought it was a cool concept, but I couldn’t see a retail application for it at first,” says Bolotsky, noting that only a few years later Amazon.com would change the landscape entirely.
“One thing I’ve learned covering retail is that when everyone is running in one direction, it’s best to run in the other direction in order to make money,” Bolotsky says. Bolotsky was a managing director at Goldman Sachs and headed the U.S. Retail Research Division from 1995 to 1999. He spearheaded the firm’s Internet retailing research. In doing so, he saw the build-up and anticipated the inevitable downfall of new web retailers. He was leery of jumping on the web bandwagon, but he also was attracted by the counterbalancing notion that the Internet would become 15% to 20% of retail business.
Though he believed web retailing had wide-open possibilities, it was clear there was going to be a shakeout. “Don’t confuse brains with the bull market,” he says was one adage about the carnage of Net retailers, similar to the shakeout among VCR manufacturers years before who had seen 25% growth, expanded their businesses and then went bankrupt.
Taking that cautious approach, Bolotsky cast about for a web product that could be a profitable sell. “I tried to find a business opportunity that wasn’t a me-too category killer like pet supplies, but was a smaller market that was not terribly well-serviced,” he says. “I wanted to build a business that had slipped through the cracks of traditional retail and really leverage the web.”
The accidental approach
He found what he was looking for, and admits that some of what became UncommonGoods.com was planning and some was accident. He was planning to target the arts-and-crafts supplies market when he checked out a craft show at the Smithsonian Institution in Washington D.C.
It was not the arts-and-crafts supplies market he had expected. But he knew right away it was a perfect fit for a web business. What he witnessed was a generous cross-section of consumers who were seeking unique products they could not find in traditional retail stores. “I was blown away by the packed aisles of customers actually buying,” he says. “And in talking to them, I found these consumers’ needs were not being met by current retail channels. So we built the business to be a combination of artisan products—creatively designed, specialty boutique items and items that would be found at an international bizarre.” So much for selling material to the arts-and-crafts creators; he would sell their end products instead.
Fragmentation
Because the arts and crafts market is so fragmented—consumers have to go to special shows or events to buy products—it translates well onto the web simply because the web provides one distribution channel. “The Internet is pretty efficient for selling these products,” says Bolotsky. And the people looking for such products tend to be the best web shoppers today: women. The common UncommonGoods’ customer is a 35-year-old woman making more than $60,000 per year, college educated, working professional, home owner in larger suburban or urban counties. On a broader base, UncommonGoods’ customers tend to be women 25 to 54 years old who like to express their individuality and creativity with what they buy for themselves and others.
Once the niche was developed, Bolotsky set out to fund the company. But in the three months before he could actually leave his post at Goldman Sachs, the tide for web startups had turned. While some people thought it was crazy to wait to launch the company in such a hot market, Bolotsky was patient. “My experience was that businesses were not made or destroyed because of a three-month head start or delay,” he says.
UncommonGoods launched a test web site for the Christmas 1999 shopping season, funded by Bolotsky and other individual investors. But by the time the company officially launched a site in July 2000, web companies of all sorts were falling out of favor with venture capitalists.
After a board meeting, the company decided to tighten its purse strings and run the company within its means, a decision that meant ditching a big, expensive marketing campaign. The company reduced its staff, some through attrition and some through layoffs. The company today operates with only 23 employees, which includes consultants and part-time employees.
Make it work
The bottom line was the bottom line, according to Bolotsky. “Our marching orders were to make it work with the resources we had,” he says. “We were going to do a multimillion-dollar marketing plan if we raised the VC money, like our competitors, but I was not willing to make that commitment without the VC money.” UncommonGoods says it spends less than $20 to acquire each new customer.
The company has used affiliate agreements, some online advertising, traditional direct response and portals, but mainly has relied on coverage from consumer products media, such as InStyle magazine, Yahoo! Shopping, The Chicago Tribune, Modern Bride magazine and a spot on NBC’s Today Show. “We spent a reasonable amount on marketing by normal business standards but that was conservative for online retailers,” Bolotsky says. This proved to be the smart path as Bolotsky observed the market around him. “The first-to-market mindset was to drive off the cliff at 100 mph with the idea that there was something on the other side,” he says. “My attitude was that you might not make it to the other side, that the chasm may be bigger. We went slower than other online retailers and that’s what has saved us to date.”
To find unique merchandise for its site, UncommonGoods has a team of merchandisers who attend gift and craft shows around the U.S. and abroad. And the company is developing a scout program in which users can suggest artists and unique items. In addition, the company encourages artisans and vendors to send sample products to be considered for inclusion in the site’s product mix.
Although UncommonGoods goes outside the company to discover new products, it handles the inventorying, packing and shipping itself. The company has taken inventory of most of its merchandise and handles fulfillment in-house in order to control the customer experience. BizRate says UncommonGoods has done well in that regard. BizRate gives UncommonGoods.com a Gold Store rating, and customers rank the store 8.6 out of 10 overall. On-time delivery received the highest ranking: 9.2. Customer support got an 8.9 rating while order tracking got a 9.1. Fulfilling in-house also keeps costs down and gives the company a chance to build expertise in doing so. The company also does its own returns and, while returns are complex due to the different suppliers it uses, its return rate is less than 5%.
Getting attention
UncommonGoods.com’s conservative strategy is getting attention from the retail industry. At the National Retail Federation’s annual conference in January in New York City, Bolotsky sat on an Ernst & Young panel of retailers and analysts including BlueLight.com, ToysRUs and Goldman Sachs, representing the only pure-play e-retailer. Carolyn Topp, associate director of retail business strategies at Ernst & Young, notes that UncommonGoods’ business is well-placed. “David has developed a specialty niche on the Net,” she says. “And he describes building his business one SKU at a time, the old-fashioned way. His description of success is to not lose sight of the fundamentals: good customer service, a distinctive merchandise assortment and good prices. And having been a retail analyst at Goldman, he was in a position to assess the fundamentals of companies. That has to be beneficial to opening up a business.”
Bolotsky combined what he learned about retail at Goldman Sachs with an entrepreneurial drive. And he knew how to translate that drive into building a company, say his UncommonGoods coworkers. Marc Gibley, who heads up marketing and business development and has been with UncommonGoods.com since December 1999, says Bolotsky was passionate about getting the right team of people together to build the company. “He interviewed every single person we hired and spent hours with them,” he says. “David wanted people to fit culturally and have a work ethic and drive to build an enduring company.”
Bolotsky’s tenacity in building a successful web business was what kept the staff motivated even while staffers saw their VC opportunities dry up along with their plans for a big marketing launch. “Dave stayed true to his vision of having an online retail site that by consumers’ standards would be the best place to shop on the web and sticking to the fundamentals to do that,” Gibley says. “He thought about the long term and never ever talked about going public.” Gibley contrasts that attitude with the prevailing notion at the time that had companies opening up just to go public and make money, not thinking about building an enduring business. “Knowing that you have a CEO who is not going anywhere is motivating,” he says. “No matter what happens he’s not giving up the ship.” l
andrea@verticalwebmedia.com
David Bolotsky
— Background:
1999: Started UncommonGoods.com
1995-1999: Managing Director of Retail Research, Goldman Sachs
1992-1999: Institutional Investor All-America Research Team, Goldman Sachs
1987: Analyst at Goldman Sachs
— Education:
Bachelor of Arts, State University of New York at Binghamton
