Internet Retailer Top 500 Guide

Where the Internet changes the business

Internet Retailer`s Best of the Web 2005

1-800-Flowers.com
BlueNile.com
GiftCollector.com
Proflowers.com

Few categories of online retailing speak to the mainstream acceptance of the web as Flowers/Cards/Gifts. At $3.8 billion in annual sales, the category is bigger than Books ($3.7 billion) and Music/Video ($3.7 billion), the two mainstays that started the online retailing revolution, according to Forrester Research. The category will grow by more than 150% through 2010, Forrester projects, reaching $10.1 billion.

But perhaps more telling than sales numbers is the fact that online sales will account for 19% of all flowers, cards and gifts sales in 2010. By comparison, the web will account for 13% of all general merchandise sales.

And while flowers, cards and gifts sales are booming, so are the sales of jewelry and luxury goods, the other category represented in this group. Projected to reach $2.8 billion this year, such sales will hit $7 billion in 2010, Forrester projects, and account for 14% of all such sales.

The retail web sites in the following pages are exemplars of why this category has proven so popular with consumers--and why it will continue to be popular. Bluenile.com, for instance, is among a small group of retail jewelry sites that have harnessed the power of the Internet to change the way consumers shop for and buy jewelry. It has made a business out of walking wary soon-to-be-fiances through a very important purchase. Not only does it offer a ton of information about jewelry and how to buy it, but it also was one of the first to host a ring configurator and it offers serious hand-holding to the jewelry-buying faint of heart.

"Blue Nile is doing all the little things right that a specialty retailer needs to do to be a strong player online," says Jim Okamura, senior partner with J.C. Williams Group. "They are raising eyebrows in this industry."

Similarly, the flower sites have transformed flower giving. Proflowers.com, for instance, has developed a unique model in which it ships flowers direct from the grower to the consumer, significantly reducing the time between when the flowers are cut and when they land in a vase. And the company does it at a good price. "By cutting out the middlemen, they`ve not only been able to guarantee fresher flowers, but offer them at a lower cost than competitors," says Jim Friedland, senior Internet analyst for San Francisco-based SG Cowen & Co.

Further, by being a pioneer in creating a nationwide market for a flower shop brand, 1-800-Flowers.com has altered the sale of flowers. And it has used the web to create a unique flower-buying experience. "We`re about more than delivering flowers," says Chris McCann, president. "We`re about the artistry behind flower arrangements and how we reflect that artistry on our pages."

In addition, the web is changing the very nature of the highly fragmented gift retailing business. No longer reliant on walk-in shoppers, local gift shops are using the web to develop nationwide markets. GiftCollector.com, for one, has grown from a single $150,000 shop in Charlottesville, Va., to a nationwide $10 million online gift retailer.

1-800-Flowers.com
If it works for flowers...

When you`ve got a winning online sales formula, as 1-800-Flowers does, the next step is to apply it to other products. And 1-800-Flowers, a frequent occupant of Internet Retailer`s Top 50, is finding out that what works for flowers can work for other gifts.

Among the lessons 1-800-Flowers has learned from selling flowers is that the product has to be right and products displayed well. "We`re about more than delivering flowers," says Chris McCann, president. "We`re about the artistry behind flower arrangements and how we reflect that artistry on our pages. And as we`ve moved toward gift sales, we are looking at how to use the web to best display fine collectibles from Lenox and Waterford."

That strategy appears to be working: non-floral products now account for about 50% of sales compared to 35% two years ago. Some observers give 1-800-Flowers high marks for transferring its flower sales model to other products. "First, they leveraged a network of local florists to offer same-day delivery, something very few others have been able to make work," says Eric Beder, vice president of equity analysis for Parsippany, N.J.-based JB Hanauer. "Gifts are different, but again they identified the right distributors to get gifts delivered to customers quickly. That also is something few others have been able to do."

Also key to 1-800-Flowers` success is its ability to analyze customer behavior and react in real time. The company has developed the technology to watch how customers use its site--which pages they look at, which items they click on and which features and functionality they use. "If we have new text for a product, for example, we can find out within a day or two if people are responding to it," says Chris Barca, senior manager, web site marketing. "If nobody is reading the new text, we can switch back to the old copy the same day."

Indeed, 1-800-Flowers is always willing to try new technology and new ideas. "We tried interactive television in the early 1990s and when it was not going anywhere, we got out. Now we`re seeing some interest in that technology again and we might take another look. We`re already working as a partner for QVC on their online sales," McCann says.

1-800-Flowers.com Inc.
1600 Stewart Ave. Westbury, NY 11590
Date Launched
August 1995
Unique visitors (monthly)
1,804,000*
Annual Web-Based Sales
$307,470,000 (yr end June 2004)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
ATT
Site Search
Endeca Technologies
Content Management
In-house
Order Management
In-house
Payment Processor
Paymentech

Fulfillment
BloomLink, Internal, Floral and Gift Partners
Affiliate Marketing Management
LinkShare

Search Engine Management
In-house
E-Mail Marketing
Exmplar
CRM
Oracle/SAS
Web Analytics
Coremetrics

Content Delivery Network
Akamai Technologies
*comScore Networks report, October 2004

Brand equity is tough to come by for jewelers, but not for BlueNile.com. Since its debut in 1999, the Seattle-based jeweler has built national brand recognition in a business in which only a few companies come to mind when consumers are asked to name a jeweler.

"Blue Nile has built a lot of consumer trust in a short period of time despite doubts that jewelers would ever succeed online," affirms Jim Okamura, a senior partner with J.C. Williams Group. "They are doing all the little things right that a specialty retailer needs to do to be a strong player online."

Unlike many of its competitors that use the web to leverage their other retail channels, Blue Nile is an Internet pure play that has established itself as a jewelry authority whose store is online. Customers can use the site`s Interactive Diamond Search to tap into a wealth of information about the more than 50,000 diamonds in stock. The tool delivers detailed information about cut, color, clarity, and carat, a.k.a. the four Cs of diamond buying. The tutorial helps customers quickly zero-in on the type of diamond, setting and price point they want.

"The experience is different than in a retail store where consumers are dependent upon what the jeweler has behind the counter and reliant on the salesperson to lead them to the right diamond and setting," says a Blue Nile spokesperson.

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The company, which went public in May 2004, projects sales of $162 million for the year, up from $129 million in 2003. In the first nine months of the year, Blue Nile was profitable.

Much of Blue Nile`s sales comes from engagement rings, which generate an average ticket of more than $5,000.

Recent enhancements to the site include a drawing of a virtual hand that allows the customer to view how the finished product will appear from above and below when worn. Service is another hallmark of the company`s reputation. During the third quarter, Blue Nile shipped 99.9% of its packages on time and answered 85% of incoming calls before the second ring.

"Blue Nile has instilled trust in the customer, which is why they are hitting the mark just as the jewelry business is rebounding," says Okamura. "They are raising eyebrows in this industry."

Blue Nile Inc.
705 Fifth Ave. South Seattle, WA 98104
Date Launched
1999
Unique visitors (monthly)
691,000*
Annual Web-Based Sales
$162,000,000 (`04 est.)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
Oracle, In-house
Web Hosting
In-house
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Cybersource

Fulfillment
In-house
Affiliate Marketing Management
LinkShare, In-house

Search Engine Management
In-house
E-Mail Marketing
In-house
CRM
In-house
Web Analytics
In-house
Rich Media
In-house
*comScore Networks report, October 2004

Fine china with images of buffaloes or black bears may not always sell well in Charlottesville, Va., the home town of Sara Blakewood Norment`s gift shop and web site, GiftCollector.com. But they`re usually popular somewhere, and Norment finds the hot spots by analyzing her web traffic. "I`ve found that different things sell well in different areas, because we can see trends in different parts of the country," she says, adding that she looks for local and regional trends to support inventory buys.

Norment, president and founder of GiftCollector.com, a site that grew out of a tiny gift shop five years ago, is able to serve niches overlooked by major retailers, she says. "Department stores pick certain patterns of china and tableware that sold best the year before," she says. "They like to keep Lenox and other major brands, but our customers don`t always want that."

When Norment left a pharmaceutical career more than 10 years ago to buy the Chimney Corner gift shop in Charlottesville, it didn`t take long for her to realize that the web offered a way to expand her market beyond her local community. In her first year with the gift shop, she doubled its sales to $300,000, but that wasn`t enough for the ambitious Norment.

She has learned to build a national customer base with an online gift registry and effective use of Internet search marketing, and she has expanded her inventory to more than 30,000 SKUs. This year she expects to do close to $10 million, two-thirds of it on the web.

"GiftCollector fits a nice, strong niche, with good breadth across assortments," says Jim Okamura, senior partner with consultants J.C. Williams Group. "They allow for different styles of shopping, to browse by category and by brand."

Yet Norment`s real strength is that she hasn`t stopped learning how to improve, both online and offline. She`s planning to launch a catalog soon to expand her customer base. And after seeing the strength of online sales of Christmas gifts, she`s adding a holiday store this year to her gift shop.

Now years after her shop provided the impetus for a web site, GiftCollector`s online branding is helping to build her offline shop`s image. "We`re getting more recognition in Virginia," Norment says.

GiftCollector.com
Barracks Road Shopping Center Charlottesville, VA 22903
Date Launched
1998
Unique visitors (monthly)
NA
Annual Web-Based Sales
$10,000,000 (est. `04)
Vendor Relationships
Site Design
In-house
E-Commerce Platform
NA
Web Hosting
NA
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
NA
Fulfillment
In-house
Affiliate Marketing Management\
NA
Search Engine Management
In-house
E-Mail Marketing
In-house
Web Analytics
NA

In many ways, selling on the Internet is no different from selling anywhere else--a quality product is essential to success. And that is the angle that Proflowers.com promotes--spending nearly one-third of a web page explaining that its flowers come directly from the growers, bypassing the middlemen who might add a week to the age of the delivered flowers.

"When you use florist networks, as most online florists do, the flowers might be 12 days old by the time the customer receives them," says Bill Strauss, CEO. "Because we have our flowers shipped direct from the fields, it is never more than three days from the time the flowers are cut."

Indeed, knowing all about flowers is what Proflowers prides itself on. While Strauss`s background is in technology, his partner, Abraham Wynperle, president and COO, was previously CEO of a chain of flower stores. Strauss came from software developer Intuit Inc. where he saw the power of delivering goods via the Internet.

"With flowers, I saw a market that was not being well served by existing online players," Strauss says. "There were too many middlemen involved for such a perishable product. It was a perfect product to use technology to improve the supply chain."

Not only does the direct-from-the-growers aspect mean fresher flowers, but often less expensive ones as well. "By cutting out the middlemen, they`ve not only been able to guarantee fresher flowers, but offer them at a lower cost than the competitors," says Jim Friedland, senior Internet analyst for San Francisco-based SG Cowen & Co.

Proflowers also understands that a successful online model needs a good web site. "Before, we had a site that could be described as hip and young," says Strauss. "But in talking to our customers, we found they wanted something more elegant. This year, we changed everything about the site--the banners, the design, the typefaces--to be more elegant and we saw a much higher conversion rate."

The company has also put more resources into improving its search results. "We pay by the click but we closely measure what we are getting," Strauss says. "We`ll pay a little more around the peak holidays, but we find we don`t always have to pay to be on top of a list to be successful."

Proflowers.com/ Provide Commerce Inc.
5005 Wateridge Vista Drive San Diego, CA 92121
Date Launched
1998
Unique visitors (monthly)
1,500,000
Annual Web-Based Sales
$128,800,000 (FY 2004)**
Vendor Relationships
Site Design
In-house
E-Commerce Platform
In-house
Web Hosting
In-house
Site Search
In-house
Content Management
In-house
Order Management
In-house
Payment Processor
Cybersource, Paymentech
Fulfillment
In-house
Affiliate Marketing Management
Commission Junction
Search Engine Management
In-house
E-Mail Marketing
DoubleClick
CRM
In-house
Web Analytics
In-house, WebSideStory
Content Delivery Network
Akamai Technologies
Rich Media
RichFX

**includes all company sites