Leveling the playing field

East West Bookstore of Mountain View, Calif., will never overtake Amazon.com. The mind-body-spirit-focused book shop carries titles within a specific range of new-age, spiritual and health topics. It doesn`t span the breadth of Amazon`s categories, and it doesn`t drive the volume that allows Amazon to secure and pass along big price breaks from publishers.

But when it comes to the online customer who wants books, music and videos within the category East West serves, chances are it can fill the order with no trouble. That`s thanks to its relationship with e-commerce solutions provider Muze Inc., which wraps an e-commerce platform and fulfillment services around a huge content database of product information in the entertainment categories of books, music, videos and games.

Not every online retailer is an Amazon.com or a LandsEnd.com. In fact, in the 2004 Merchant Survey of Chicago-based consultants The E-Tailing Group Inc., 48% of its e-retailer sample of 350 were companies with five or fewer employees. Given a more equal playing field, the Internet offers opportunity for small players, too, and East West is one of a growing number of small retailers that are proving that new technology priced for smaller operations can help level the competitive field online, even against online retail`s giants. With the cost of some off-the-shelf e-commerce solutions coming down and their functionality going up, niche retailers are establishing a presence on the web, enjoying the same access to infinite shelf space and a geographically far-flung customer base that loads up shopping carts at their bigger competitors.

Technology has put the merchandising and marketing power of the web within reach of small businesses as never before. Innovations include such technology as order management systems that tie together multi-channel operations, customer support and service functions, providing the cross-channel customer view as well as web hosting and e-commerce functions. Small retailers are discovering they can afford to launch and grow serious businesses online that don`t need to look as though they are still operating out of someone`s garage—all without the $100,000 to $200,000 technology investment that many initially had feared.

There are many approaches to creating low-cost, high-impact web sites. Here are three:

EastWest.com: Leveraging store presence and an outside database

For a minimal set-up fee and $75 per month, EastWest.com plugs into a storefront, created for it on the Muze platform. The hosted storefront, indistinguishable by shoppers from East West`s own site, offers book, music and video titles East West has selected from Muze`s Body Mind & Spirit database, available in the inventory of Muze`s distribution partners. The Muze platform handles all e-commerce functions such as order entry, payments processing and fulfillment, which is actually executed by distribution partners that procure inventory and handle shipping. New York-based Muze takes a percentage of each sale and charges a fee for shipping and handling orders.

East West, whose retail store has been a Bay-area fixture for more than two decades, had a web site that was purely informational before it plugged into the Muze platform earlier this year. "We had really wanted an e-commerce capability, but we weren`t about to foot the bill to put it all together and hire the necessary staff to do that," says James Conti, store manager. East West had tried that four years earlier, going to considerable expense and effort to build its own e-commerce site from scratch. "There was never really the infrastructure in place, and the effort coincided to some extent with the dot-com collapse," says Conti. "There was little success and it went down in about six months."

Meanwhile sales at brick-and mortar bookstores started dipping in relation to Internet sales of books that started climbing. "Time was, when Amazon and Barnes & Noble didn`t carry the kinds of books we do. Now they do. They are absolutely our competition," says Conti.

That competition can`t be won on the basis of price, Conti grants, pointing out that his average margin on book sales is only about 40% to begin with, and that book mega-sites that deal in high volume may offer discounts of as much as 30% off the regular retail price.

"We give a small discount, but we will never be able to compete on price," he says. "Fortunately, though, there are a lot of people out there who just don`t want to buy from these large Internet companies. For a dollar or two, or even $5 more, many people prefer to do business with us."

Where EastWest does compete successfully with the likes of an Amazon is on personal service and loyalty, Conti adds, and Muze`s platform has allowed it to leverage its 25-year Bay-area store presence into an online offering for the convenience of its loyal customers, at a price it can afford. Tapping into Muze and the inventory of its distribution partners also has doubled online the book, music and video offering it carries in its 6,000-square-foot store.

Noting that the new online store has only been live for a few months so far, Conti says the relationship with Muze gives EastWest a web capability that he expects to grow over time. "Frankly, there doesn`t seem to be a way for it not to work," he says. "It costs us $75 a month and it expands our customer base enormously."

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WineAccents.com: Getting serious with a small operation

The story of Chicago-based WineAccents.com is a dot-com-classic. The wine accessories business launched in the second bedroom of a business partner`s home and expanded into a garage before relocating to a dedicated office and inventory space in January of this year.

CEO Henry Coleman, a former stock trader, saw online retail opportunity somewhere between online mega-stores and the amateur efforts of online mom-and-pops. His goal was to create an online store that, as he defines it, is run by "serious business people who have a niche market, but treat it with business processes and technology to make the site look more like the companies that got $5 million in VC or came from established brick-and-mortar companies."

The challenge Coleman faced in doing that was in matching some of the technical functionality of bigger companies without having a big-company budget. Prior to moving to the platform of San Mateo, Calif.-based technology provider NetSuite Inc., he used one company`s software to run the front end of the business plus a second software product to connect to UPS. In addition, he also used Microsoft Outlook to handle e-mail, an open-source customer invoice system and Intuit Inc.`s QuickBooks software for accounting. "We had five separate systems to run the company," he says. "When a customer called with a question, I started using two computer screens, with maybe three to four windows open at a time, to answer it. It was a nightmare."

What finally drove him to find a new solution was when the vendor whose software ran the web site and processed orders shifted its focus to enterprise systems and stopped supporting smaller customers. Coleman either had to hire someone to connect his site`s disparate systems or find a new system that would do it all in one interface. Choosing the second option, he initially found back-end systems that connected to front-end templates that would have created pages he couldn`t customize, or highly customizable products that would achieve the look he wanted but would require him to hire a database expert to connect the front end to back-end systems. Price put those solutions out of the running in any event, he adds, with the least expensive starting at about $50,000 plus ongoing support, and the most expensive running up to about $150,000.

"If you are grossing $500,000 to $1 million a year, you`re doing well, but you don`t have $150,000 around in cash," he says. NetSuite`s version 9.0, with a basis in accounting software, added enough flexibility in customizing its front-end, customer-facing templates to get Coleman to sign on as a beta user and then a regular customer. "Finally I had a system that integrated everything from customer service, ERP, UPS tracking, accounting, ordering, front end and everything else, that gave me about 90% of the design functionality I wanted," he says. "That infinitely improved customer service." Coleman has an annual contract for the hosted service, saying that volume-dependent pricing arrangements he investigated with other vendors might have had the effect of penalizing the site for succeeding.

Implementing an integrated system lightened the workload on Coleman`s five-employee company and made it possible to avoid spending $50,000 to hire technology and accounting staff to pick up the slack from the five disparate systems. Coleman put that extra staff time and the NetSuite platform to work launching a second online business, a child safety gear retail site, SafetyDepot.com, this year. "Otherwise, we would never have been able to launch SafetyDepot," he says. "With the same amount of staff that we had to run the business using the five separate systems, we were able to launch an entirely new company."

Trophies2go.com: Easing growing pains

Jeff Anderson owned the retail Issaquah Trophy & Award for seven years before he launched the e-commerce site Trophies2-Go.com in 2000. In short order, he added six more related niche web sites, and also one for the store, IssaquahTrophy.com.

Like many e-retail entrepreneurs, Anderson was initially drawn by the fascination of the web itself. "In the beginning, it was the appeal of the Internet in general. There was a big demand from people wanting to purchase online," he says. "That changed with a lot more competition on the Internet. Now, you have to set yourself apart with new products, customer service and building customer relationships."

That meant the e-commerce platform on which he`d started with the first web site was no longer up to the job. As the Issaquah, Wash.-based company grew, adding features to the existing platform was proving to be a problem. Functionality such as UPS tracking and the ability to handle promotions and coupon codes, and merchandising capacity such as cross-selling and upselling became time-consuming and expensive to integrate. His former e-commerce software provider developed the new functions and tried to integrate them with its existing clients. "But each became a $10,000 to $15,000 investment, just to add these modules to the back end," Anderson says.

With a seasonally-variable 10 to 15 employees, Anderson`s two businesses, Trophies2Go.com and Issaquah Trophy & Awards, represent eight web sites with total revenue in the range of $1 million per year. The mounting tab of trying to integrate new features with the old platform was becoming cost-prohibitive, and not having the capacity he needed stood to hinder online growth.

Anderson wanted a software solution that rolled updates into regular new releases instead of requiring a major capital outlay to add on. "I had to go out and find someone who could provide what I wanted, which was to be able to grow with me. I wanted decent customer support, and to have upgrades be more of a new software version release than something I had to pay for and go through development on," he adds. He also wanted to bring the retail store and the web sites onto one interface and knew that running them off a single database was going to be the best way to do it.

Anderson says his budget ruled out the more expensive options from providers such as IBM and Oracle right off the top. "Looking at the bottom end, some of the cheap modular options available didn`t fit either. What we wanted was somewhere in between."

Last October, he went live with CoreSense Integrated Enterprise, which runs the e-commerce operations on the sites` front end, connecting them with the back-end functions that support them. Though the implementation put all sites on the same platform and database, Saratoga Springs, N.Y.-based CoreSense can provide separate reporting for the operations of the retail store and the Trophies2Go sites, which are two separate corporations. Anderson pays a set cost per license to give a designated number of users access to the back-office system. Hosting, license fees and some custom configuration bring his costs to about $2,000 per month. Other solutions he investigated would have cost about six to eight times that amount, he estimates.

Anderson says CoreSense`s ability to make changes quickly, and the features and functionality it`s made possible were beyond what he found in other options at the time. And he`s put the functionality gained to good use. Last year, his two businesses grew a collective 130% without adding staff or extra footage to their 4,000 square feet of space. "Using the same amount of people and space to grow at that rate is a pretty decent metric in my mind," he says. "We are able to do a lot more work within the same confines because our business process has improved considerably. When I talk to people in the industry, they are amazed I can do what I can do within the budget of a small business."