5 Who Made a Difference

Every great movement in history has them—the trailblazers who show not only what can be done but also the possibilities that lie ahead.

The five innovators that we profile on the following pages showed, in various ways, what retailers could accomplish on the web—and what the possibilities were that many had yet to think about. From Jeff Bezos proving that consumers would buy products on the web, to Pierre Omidyar re-inventing eBay as he went along to the point where today it is a major factor in the liquidation of excess inventory, to Elaine Rubin, bringing e-retailers together to solve common problems and debate best practices, these five have had a huge impact on e-retailing.

These are the survivors and just the fact that they have survived makes their experience and insights valuable. But we would be remiss to leave out the trailblazers who have not survived, for they surely contributed to the web as well. They would include: Cliff and Lisa Sharples, whose garden.com showed that consumers would buy more than books online, even if they didn’t buy in large enough quantities to save garden.com; Toby Lenk, whose eToys.com demonstrated the power of the Internet in attracting families to buy online; and Joseph Park, whose Kozmo.com was a spectacular failure but also demonstrated the demand for same-day delivery, even if it’s not to be executed using the Kozmo model.

As with any movements, these pioneers will eventually be replaced by the people who make things run on a day-to-day basis and who get those margins up. But without these five, there’d be nothing for the next generation to do.

The Face of Internet Retailing

Would the Internet retailing world exist without Jeff Bezos?

By Mary Wagner

Was it just luck that Amazon.com’s Jeff Bezos started the company by selling a product so perfectly suited to online sales? Put it this way, if he’d started out with sweaters or shoes instead of books, chances are you would not be seeing his name in this magazine. Because there might not be a magazine yet—or a burgeoning online retail industry out there for it to cover.

Bezos instead picked the ideal demonstration product for the new sales channel, one that took unique advantage of technology available only on the web to make the experience of buying the product online better than buying it in a store. “You don’t have to know an author is a mystery writer to be able to find the book online like you do in the store; you just type in the author’s name,” points out Mary Brett Whitfield, director of the E-Retail Intelligence System at Pricewaterhouse-Coopers. And by harnessing the web’s interactive capabilities to generate consumer reviews and customer-specific product recommendations, Amazon.com gave book buyers more of what they couldn’t get by walking into Borders or Barnes & Noble.

Bezos’s early success in attracting shoppers to the new medium was fundamental in firing up others to create an entirely new $65 billion-and-growing industry where there was none before. “He spawned a whole legion of entrepreneurs who believed that Internet retailing was possible,” says Whitfield. That’s one reason history will remember Bezos and Amazon. “And he created this belief that selling anything online was possible,” she adds. That’s another, at least among the ranks of failed dot-commers.

Like other trailblazers, Bezos has shown not only how it’s done, but also where the pitfalls are. Buoyed by outside funding and blessed with investors who haven’t demanded returns until lately, Amazon has been allowed to experiment, winning big-time with some enterprises and losing with others, while everyone else gets to watch and learn.

“He’s certainly pioneered a lot of service techniques and has been much more forward-thinking in customer service,” says Jupiter Media Metrix analyst Heather Dougherty of Bezos. “Other Internet retailers emulate Amazon’s initiatives. One-click buying is one of the obvious examples. He’s also set the standard for taking and tracking orders by giving consumers power over their own account information through online access.”

But in addition to some big scores, the company has stubbed its toe big-time, too. Early on, the still-profitless Amazon spent wads on marketing. It invested millions in major partnerships with online companies such as Living.com and Pets.com that ultimately tanked, taking the investment dollars with them and vaporizing hoped-for revenue streams. Those experiences taught everyone a key lesson: whiz-bang technology notwithstanding, it simply doesn’t pay to sell some things—like furniture and pet food—online. “They’re still learning as they go what product categories work,” says Dougherty. “Lawnmowers, for instance, are not an easy category to sell on the web. They’re better suited to Sears than Amazon.”

While Bezos has pushed the envelope on driving retail sales over the Internet, he’s also been out in front in addressing its limits. That’s taken the form of more recent deals with retailers Toys R Us and Borders. “Amazon has proved it’s superior at Internet retailing, but the brick-and-mortar retailers still have a lot of advantages in their physical world presence and in the relationships they have with customers,” observes Dougherty. “We’ll see them move more toward that in the future, acting almost as a service bureau for others.”

The constant at Amazon is Bezos, the vision he created for the company, and the enthusiasm he brings to it. It helped charm funds out of early backers and it helps keep Amazon’s image shiny among consumers, even when it gets dented on Wall Street. You’ve got to like a major player that doesn’t take itself too seriously, and a CEO who would put his stamp of approval on something as goofy as the “Sweater Men,” a holiday 2000 ad campaign that featured a retro-looking chorus caroling the virtues of shopping at Amazon. Are they still having fun over at Amazon? You bet. Now, about those profits.

1-800-Flower Power

By planting his brand online early,
Jim McCann will harvest web site profits this year

By Mary Wagner

When the web came along, many risk-averse retailers with national brand names sat on the sidelines while the hotshot new breed of retailers jumped in. But not Jim McCann. McCann, CEO of 1-800-Flowers.com, quickly saw the value of the Internet and just as quickly saw how the value of a nationally known brand name could translate into success on the web. Now, with the web maturing as a selling medium, McCann’s insight has proven correct—online shoppers look for that brand just as much as offline shoppers do.

Always willing to try new technologies and marketing methods, McCann expanded a successful phone-based flower retailing business that relied on TV advertising onto the web. The result: McCann is the head of a $385 million-a-year flower and gift brand that is one of the best known web retailing sites. “The key is that Jim was a known figure before the web came along,” says Ladenburg Thalmann analyst Eric Beder. “His company was known, and because the name was so simple and easy to remember, it was the first one a lot of people thought of when they thought of buying flowers on the web. Today, the number of people looking for flowers who type in 1-800-Flowers first versus somebody else is over 70% almost every quarter.”

McCann, who built a single flower shop he owned as a weekend job into a chain with national clout, expects his company will reach operating profitability this year, recouping its $100 million Internet infrastructure investment in three years. And by bringing nationwide product consistency to a highly variable industry dependent on the performance of local florists, McCann has helped build e-commerce as well as his own company. That extra degree of confidence has brought shoppers online to send flowers who haven’t been Internet shoppers before.

McCann, in fact, seems just the guy you’d want to find behind the counter if you walked into a local florist. Indeed, McCann’s engaging yet direct, down-to-earth TV persona is the perfect vehicle for delivering a core company message: ordering and sending flowers on the Internet is as easy as picking daisies.

McCann’s willingness to embrace new selling media through the company’s 25-year history made him one of the early movers onto the web in 1992. Later 1-800-Flowers became AOL’s first retail tenant. It’s been one of the key drivers of his business, making 1-800-Flowers one of the first retail companies to use and promote toll-free numbers in the 1980s, and more recently, venture into wireless applications.

As a flower merchant, McCann also has had the good fortune to be in gifts, which is proving to be one of the most successful retail sectors on the web.

McCann’s drive, savvy and luck have kept his company growing like a weed, but significant challenges lie ahead. Though McCann is careful to call himself a 360-degree retailer, it’s clear that sales will grow most profitably over the web. Approximately 40% of the company’s business is on the web, and another 20% to 25% is web-influenced. Analysts say McCann is working hard to increase those numbers. “They’ve already franchised out a number of stores they used to own, because that’s such a capital intensive part of the business,” says Beder. Yet a majority of 1-800-flowers sales remain offline, and migrating customers to the web—and getting them to click and buy—will be as critical for McCann as for any other web merchant.

“For Mother’s Day, they had 5 million visitors, but of that, only 800,000 orders. So converting more of those customers into orders will be a primary focus of theirs,” says Kristine Koerber, an analyst with W.R. Hambrecht.

Still, for one who insists he’s not an Internet retailer, but a retailer who’s made the Internet a part of his business, early-mover McCann by now knows more about selling on the medium than not only much of the competition but also most retailers. If technology were a horse race, McCann has picked some winners. These days, he’s seeing two of his biggest gambles come together. “We bet on the online world that became the Internet early,” he says. “And now, the telephone and the Internet have merged.”

It`s an eBay World

Pierre Omidyar: The one-time auctioneer is transforming itself into an online retailing force.

By Peter Lucas

In every industry there are executives with the Midas touch. Visionaries who can see around corners no one else can and who light up the scoreboard whenever they want—even after they’ve turned day-to-day operations over to someone else.

It’s a rare combination known as genius. And in the world of Internet retailing, Pierre Omidyar, chairman and founder of San Jose-based eBay Inc., is one of the few to earn the right to wear that title.

Want to put Omidyar and eBay into perspective? Under Omidyar’s guidance eBay is one of the few dot-coms that are not only household names, but also hugely profitable. At the same time, Omidyar has transformed eBay from its modest origins as an auction house catering to collectors into one of the most powerful retail outlets on the Internet.

From tickets to the 2002 Winter Olympics and fine art to autos, computers and sporting goods, eBay offers a combination of merchandise unmatched by any Internet retailer or any bricks-and-mortar retailer for that matter.

Omidyar’s secret to success remains the basic business model on which eBay was founded: bringing buyers and sellers together; allowing buyers to bid on merchandise; and no investing in any inventory itself. Auctions may be a simple and millennia-old sales strategy, but Omidyar understood early on that that principal is applicable in the retail world.

IRCE 2008 Conference Multi-Media CD-ROM

What helped shape Omidyar’s retail vision is that manufacturers typically produce about 1% more inventory than their retail distributors can sell. Concurrently, retailers are always left with seasonal overstocks on which they must slash prices in order to move them off the shelf. eBay is a perfect sales channel for manufacturers and retailers seeking to opaquely liquidate inventory.

“Pierre saw the future of selling on the Internet and that is to put the buyer in control,” says Alan Alper, an analyst for Waltham, Mass.-based Gomez, Inc. “eBay sets the tone across the Internet economy because it makes a market for the supply.”

So powerful is the eBay sales model that liquidators, such as eValueville, which liquidates Bloomingdale’s store closeouts, and ReturnBuy.com sell overstocks, returned items and hard-to-move merchandise through eBay.

eBay further strengthened its ties to the retail community last year by introducing fixed pricing through its acquisition of Half.com, a person-to-person marketplace. Half.com offers more than 15 million new and used items for sale and was the third-largest Internet retailer in 2000, according to Media Metrix.

Fixed price selling is scheduled to become an even bigger part of eBay’s future. The company expects to launch eBay Storefront, which will allow Internet retailers and manufacturers actual online storefronts within the eBay web site, no later than during the third quarter this year. Storefront will complement the “Buy It Now” fixed price feature on its auction site.

“Omidyar has invented an incredible selling tool and built an impressive management team,” says George F. Sutton, managing director for Dain Rauscher Wessels Inc., a Minneapolis-based securities firm. “Anyone with a new tool for selling merchandise over the Internet is going talk to eBay first, because the company has the capital to invest in new ideas.”

eBay is more than financially well positioned to continue its strategy to serve as an outlet for retailers. Cash and cash equivalents totaled $314 million in the first quarter of 2001, up from $201 million during the fourth quarter of 2000. Net income for 2000 rocketed to $48.2 million, up from $9.5 million in 1999.

These days, Omidyar channels his energies into setting the strategic direction for eBay and identifying growth initiatives. Day-to-day operations have been turned over to Meg Whitman, president and CEO. Despite stepping out of the limelight, Omidyar continues to cast a giant shadow over the world of Internet retailing. That’s a genius at work.

Getting Back to Basics

Shop.org`s Elaine Rubin is teaching Internet retailers to focus on the fundamentals of retailing first

By Peter Lucas

When it comes to teaching Internet retailers about evolving their business to meet the needs of consumers, there is no substitute for firsthand experience.

As an Internet retailing pioneer, Elaine K. Rubin, executive director and chairman of Shop.org, the online retailing arm of the National Retail Federation, is leading the charge to educate Internet retailers about the need to focus on the fundamentals of retailing, rather than on technology or quickly building a brand identity.

“Internet retailing is not a stand-alone business, it’s about retailing,” declares Rubin, who helped launch 1-800-Flowers’ web site and later Ibaby.com. “And the pillars of retailing are relationship marketing, use of your store, fulfillment and customer service.”
Rubin has built her beliefs upon her experiences when Internet retailing was in its infancy. It was during her tenure with 1-800-Flowers, one of the savviest multi-channel retailers, that she began to realize flashy web sites and mass market brand building campaigns are not the recipe for long-term success in the burgeoning world of online retailing.

“In the early days, there was a lot focus on technology and trying to look different, but it ignored the basics of the business and wound up turning off customers,” she recalls. “We soon realized we could not ignore the basics of retailing.”

Indeed, Rubin argues the survivors of the current shakeout will be those who have paid attention to the fundamentals of retailing and recognize that consumers view the Internet as another distribution channel, such as storefronts and catalogs, rather than as an industry unto itself.

“Being a multi-channel retailer is what it takes to succeed online these days,” concurs Alan Alper, an analyst for Waltham, Mass.-based Gomez Inc. “Elaine Rubin brings tremendous perspective, having worked for a ground breaker in multi-channel retailing.”

Rubin helped found Shop.org in 1996 along with representatives from 1-800-Flowers, Eddie Bauer and Garden.com. At the time, Rubin was heading Ibaby.com, an online superstore for baby products backed by IVillage.com. Rubin, who is starting her third term as chairman, became executive director when Shop.org merged with the National Retail Federation last January.

Rubin was one of the driving forces behind the merger. With bricks-and-mortar retailers and catalogers finally entering the online game after years of standing on the sidelines, Rubin concluded that Shop.org needed to change its focus from being a support group for Internet retailers to becoming a basin of knowledge about retailing via the Internet. Hence the merger with the NRF.

This change of focus is evident in Shop.org’s annual State of the Industry Report released in May. The report, compiled in conjunction with Boston Consulting, breaks down information into three categories: store-based Internet retailers, catalog-based Internet retailers and pure-play Internet retailers. The premise is that each group faces a different set of challenges.

“How you convert browsers to shoppers depends on the type of retailer that you are,” adds Rubin, who has also headed her own consulting firm since 1998. “There is no guidebook in this business, so it is crucial to be able to compare yourself to your peers and share knowledge with them.”

Down the road, Rubin believes the next major online retailing channel will be electronic storefronts delivered to consumers’ television sets via broadband. Once again, the principals of retailing will prevail, since multi-channel retailers must learn how to present themselves in this new medium.

Because Rubin has seen Internet retailing from multiple viewpoints, industry experts have little doubt that under her guidance, Shop.org will become a facilitator for helping Internet Retailers make the transition to being multi-channel retailers.

“Elaine has the vantage point of having been there and done that,” Alper says. “You can’t underestimate that level of experience, because there are few firms in this industry that have that kind of perspective in evolving their business.”

Staying in the Game

Global Sports` Michael Rubin envisions one world for online sporting goods: His

By Andrea McKenna Findlay

The key to Michael Rubin’s web success is the brand. But the difference between him and all the others who are bringing brands online is that he doesn’t own the brand.

Rubin is chairman and CEO of Global Sports Inc. To most consumers, the Global Sports name means nothing; but to retailers of sporting goods it means success on the web. With 17 sporting web sites under its operation—the latest deal is with the Carolina Panthers and the Detroit Lions NFL teams—Global Sports is the only large online sporting goods web store operator.

The skittishness that some retailers now feel toward the Internet—as well as the renewed pressure for profits—have been to the benefit of Global Sports, Rubin says. “For us it’s been a real opportunity,” he says “The businesses that didn’t make fundamental sense or were unable to get funding we’ve either partnered with or they’ve gone under. Last year there was us, MVP, FogDog and Dick’s Sporting Goods. We acquired FogDog, partnered with Dick’s and MVP went out of business.”

While some companies such as Amazon have built a brand online and others such as 1-800-Flowers have taken a successful brand online, Global Sports is a prime example of another way of succeeding on the web. It maintains and manages inventory, operates web sites, processes orders, services customers and handles returns. Yet it relies on the well known brands for which it operates sites to do the marketing and drive customers to the sites. Its basic business is to provide economies of scale and web know-how to experienced bricks-and-mortar merchants.

On top of it all, Global Sports is heading toward profitability by the end of this year, about a year ahead of schedule. If it achieves profits, Global Sports will be among the Internet companies to make money quickest.

Rubin says he figured providing operational services to web retailers would be more in demand than new sporting goods monikers. And he was right: Several major names, including The Athlete’s Foot, The Sports Authority and Bally’s Fitness, have hired Global Sports to run their web stores. “We have a superior business model because we have eliminated the need to build a brand by partnering with brand companies instead,” Rubin says. Other clients include Bluelight.com, Dick’s Sporting Goods, Dunham Sports, FogDog, FoxSports.com, GI Joe’s, MC Sports, Oshman’s Sporting Goods, iQVC.com, Sports Chalet and WebMD.com.

Global Sports built proprietary technology and uses customized connections with manufacturers and distributors to obtain products for its retailers as well as to centrally manage inventory. The buyers from each store are able to access more than 600 branded products in Global Sports’ inventory and access a centralized database of product descriptions and images.

Global Sports also helps promote the web sites with online and offline advertising as well as portal deals, such as with Yahoo! Shopping. Global Sports owns the web sites and pays the retailers 5% in commission.

Global Sports’ financials are more impressive than even its business model. In first quarter 2001, Global Sports had net revenue of $16.2 million, a 182% increase over the $5.7 million in Q1 2000. And the company had $93 million in cash at the end of 2000, compared to $27.3 million in 1999. The company’s operating expenses were $12.4 million in Q1 2000, down from $14.7 million in Q4 1999. Rubin expects to have $100 million in sales by the end of this year.

As for expanding into other categories, Rubin says he’s content to finish dominating the online sporting goods channel first. “It may make sense to go beyond sporting goods but there is still so much growth in our existing category,” he says. “I see online representing 5% to 10% of the nearly $50 billion in sporting goods sales, and we’ll have the lion’s share of that.”