Xtreme Niches

Eight years later, Junior drops the glass mixing bowl while scraping out the remnants of Mom’s cake mix. Where does Mom find a new bowl?

If she goes online and types in “small appliance parts,” she’ll find Kansas City, Mo.-based Mar-Beck.com, an extreme niche online retailer that carries a long list of appliance parts—including bowls for mixers that are 8 years old and even older.

Mar-Beck is one of a new type of retailer finding success on the web—call them Extreme Niche retailers. And as they look at the carnage of dot-com retailers who spent millions trying to create national brand names, they are happy to stick to their niches. “Extreme niche is a word we like a lot,” says Robert G. Wheeler, president. “Words like ‘little’ and ‘small’ really don’t explain what we do.”

And it’s been so far, so good for this obscure retailer because Mar-Beck’s business is doing more than breaking even. “We make a profit on every sale,” Wheeler says.

From small appliance parts to specialized compilations of children’s music, to garland head wreaths and vacuum bags for any type of vacuum cleaner, extreme niche items are selling online. Though the items might seem mundane or far-fetched, the Internet is fast becoming the premier place for consumers from around the country and the world to find these wares that most likely are not available from their corner store.

Extreme niche retailers can succeed online if they follow some basic rules about retailing and keep in mind that they will never become another Amazon.com, although they might become the biggest player in their niche, says Leigh Duncan, manager of public services at McLean, Va.-based KPMG Consulting Inc.

For one thing, the retailer must have a core competency that is unique and for which there is market demand. Building on that, the retailer must clearly define the niche it is serving and keep in mind that it is a niche and not be seduced by visions of grandeur. A second rule is that the niche retailer use relationship marketing extensively, which means sending personal e-mails with each order and even hitting the road to meet customers at special events—tactics that larger retailers are unable to do. And finally, a niche retailer must make sure it has resources to support a good customer experience on the front and back ends, which means deliveries are on time and customer service is ultra-attentive.

As far as extreme niche expertise goes, no one knows more about vacuum bags than Greg McClellan, owner of VaccumBags.com, Lincoln City, Ore. McClellan started in the vacuum cleaner business 20 years ago, when he managed and owned repair shops. He saw an opportunity to move some of his store’s business online in 1997 when the Internet started taking off. He launched as an informational site with a toll free number for consumers to call in orders, then began selling online in the summer of 2000. “Vacuum bags are one of those products that are hard to get for a lot of people,” McClellan says. When he converted to a sales site, McClellan stocked bags from 25 manufacturers. That has since grown to more than 50. To make sure business would be worthwhile online, McClellan charged 60% more than what he charged in his store. “I wanted to make sure I covered myself,” he says. A measure of the need that his niche fills is that his volume has continued to grow since he went online—even with the higher-than-offline-store prices.

Selling children’s music is a successful niche for Redway, Calif.-based Music For Little People, whose web site www.mflp.com is slowly building its customer base. The site, which complements a catalog that goes to more than 1 million homes, generated $100,000 in sales, 3% of the company’s revenue, in 1999, its first year online. That trend is continuing, according to President and COO Sheron Sherman, who says that in 2000, online sales grew to 7% of revenue. She expects that number to grow to as high as 12% this year.

Bashoor has 10 part-time employees. It started taking wholesale orders via its web site in March to supply specialty head wreaths and hard-to-find dried flowers to such offline niche players as Norwegian heritage stores, an account Bashoor said she worked on getting for a year.

Relationship marketing is key for many extreme niche retailers because selling such specific and obscure products requires connecting more closely with customers than mass marketing allows. Some send personal e-mails, some send marketing e-mails and some—like GarlandGirl—even travel to events to meet potential customers. In the end, it’s the grassroots effort that distinguishes these niche players from their larger and more mainstream counterparts, Duncan says.

When it launched its site, Music For Little People took advantage of its customer relationships by offering a 10% discount to catalog customers who bought online. Since then, the company has been building up its relationship marketing muscle. Music For Little People sends e-mails to half of its 10,000 customers at least once a month and gets response rates of 2% to 3%. And the site, which incorporates Flash technology as well as streaming audio, gives customers a pop-up window that allows them to sign up for online newsletters. Sherman says the site gets 10 to 50 orders per day and existing customers visit the site four times per month. She says 25% to 35% of customers are repeat buyers.

GarlandGirl takes the customer relationship marketing to the extreme, which it can do, filling such a narrow niche. While the site undergoes a two-month make-over, staff is busy traveling throughout the U.S. and Canada to heritage festivals, state fairs and other celebrations from Western chili cook-offs to Scottish highland games. “We learn so much about what customers want from talking to them at festivals,” says Bashoor, who has added product lines based on such conversations. This type of hands-on research is helping GarlandGirl find new occasions for which to create products, including Italian, Norwegian and even Mardi Gras celebrations.

When customers ask retailers where they can find a new mixer bowl, say, the retailers can refer them to the Mar-Beck web site. The company also works hard to get manufacturers to put links to the Mar-Beck site on their home pages. Regalware, Eureka Vacuums, Bemis Humidifier and Norelco Shavers so far have included the Mar-Beck button on their sites. “Consumers contact the manufacturer to ask where they can find unusual parts. We are having some success with that,” Wheeler says. Mar-Beck also has links on major appliance parts sellers’ pages, such as Marcone, from which they can refer questions about smaller appliance parts to Mar-Beck.

Mar-Beck does capitalize on customer relationships in one way, though: It runs an auction site for closeout merchandise, which accounts for 60% of Mar-Beck’s online business. It cross-sells parts to auction buyers. Between the auction and the parts sites, the company is on track to do $1.2 million via the web this year, Wheeler says. Furthermore, Mar-Beck plans to combine its repair service with its online sales effort, by adding a button on the site that can give customers repair quotes.

Once established, niche retailers online face the same reality that big retailers face: keeping the customer happy is a big part of keeping them as customers. Excellent customer service may be among the reasons customers seek out the smaller players. But once they have a customer, these extreme niche retailers are grateful and look for ways to ensure the customer experience on the web site is positive, from a design standpoint as well as function.

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At the same time, though, these extreme niche retailers must keep a close eye on costs. “We put a lot of sweat equity into building our online store with less than a $10,000 expenditure,” says Music For Little People’s Sherman. “The challenge was to make the site look individual and not like any other stores online.”

Sherman created an advisory group of employees, including herself, the web designer and the publicity director to develop the web site. The group researched other popular web sites to determine which features, content and storefront they should use. They also researched placement on search engines. She saved money by hiring a part-time web designer who was also the town’s dental hygienist. Music For Little People integrated its catalog online and has relied on customer feedback for improvements. Sherman says she reads every single one of the 10 to 20 e-mails the company receives each week.

Small retailers, however, can learn from the big guys. VacuumBags was motivated to have good service by early online retailers. “Our main thrust has been to get fast service,” says McClellan. “What got me started on being service oriented is that I ordered products from Egghead.com and they got it to me within a day or two. I said, ‘This is what I have to do.’”

VacuumBags.com sends customers an order confirmation as well as an e-mail message that the order is being processed. Customers usually receive their orders within three to five days. VacuumBags.com also plans to add a live help feature to increase sales. Currently, the site offers e-mail help.

Although relationship marketing and providing service to customers are helpful in maintaining and building customer bases for small retailers, niche players also have to contend with the conundrum of getting new customers as well. Getting to be known on the Net without extensive marketing campaigns backed by capital investments is no easy task. Extreme-niche retailers say that getting listed on search engines is the primary way they get new customers. The search engines provide services that allow retailers to bid for a top billing on search result lists. Most retailers agree that with hard to find or specialty products, customers who come in through searches become regular buyers.

While Vacuumbags.com was getting a few orders from customers who knew about the web site locally, orders increased when it worked with consultants who helped place them on search result pages. The company works to keep its web site high on search lists, including Goto.com, Findwhat.com and Sprinks.com. “We want to stay on the front page of the search list if not in the top three,” McClellan says. Today, VacuumBags.com has orders from around the country and around the world, those especially coming from U.S. embassy posts in such countries as South Korea, Puerto Rico and Canada.

For Music For Little People, word of mouth as well as its web links with like-minded business sites, artist sites and family sites have filled the marketing gap for a company that had little capital to work with. “We used Google.com for awhile. But at 35 cents a click-through, the cost was too high for the results we were getting,” Sherman says. “We have never placed banners and never paid anyone to be on their site, nor have we had others advertise on our site. We rely on mutual trade for marketing.”

Part of developing an online presence as a niche player includes planning for the future. If the niche takes off online, will the retailer be able to handle it? This point is more than a quirky television commercial about handling overnight success online, it’s a reality for small retailers with big online plans and limited capital. “The big question for these niche retailers is how do you grow?” says KPMG’s Duncan.

GarlandGirl.com says its online business became so big that it closed its hometown retail store and has even had to turn down orders simply because the current staff of part-timers could not fill the orders. Bashoor says she has to consider financing in order to expand.

VacuumBags.com’s business is run by McClellan’s Lincoln City, Ore. Sewing Tech & Technique store, in which employees handle the pick, pack and ship. “Right now we are able to maintain the orders in-house,” McClellan says. “We have our own scale, we weigh the packages, put tags on them and drop them in the night box.” The retailer uses Hayward, Calif.-based Neopost Logistics Systems for shipping. “If I got more than 35 orders a day I would have to hire another person to package them up, and I might have to get some financing from the bank if the business was like that day after day. That’s a concern,” he says.

andrea@verticalwebmedia.com

In Internet Retailer’s first year, 1999, the magazine profiled several niche retailers. Revisiting one underscores the steps small retailers need to take if they want one day to be among the dot-com Methuselahs. Austin, Texas-based Complete Books and Media, which sells business and technical manuals to government and corporations, has seen its web business grow to be about 65% of total revenues of $2 million, up from as low as 30% three years ago.

How did it manage to grow its web portion even as governments and corporations cut back on spending? The company had no capital investments to fall back on and, even more importantly, staffers had to learn to do everything themselves, says Peter Coomaraswamy, president. He notes that what creates success on the web is what creates success in the traditional business world. Nowhere is that truer than in the small-business world, where it’s still important that everyone do every job.

Many retailers made mistakes online by pumping venture capital into huge marketing and staff budgets without any idea of whether consumers would buy things online. “Retailers should never have assumed that the web was going to be the end-all,” Coomaraswamy says . “Your employees and your customer service are going to be what carry you through.”

Getting the most out of his employees has improved service and cut costs. Coomaraswamy says all nine employees are trained to handle customer calls. They know how to access orders and they know how to help customers. In the end, it’s still a sales-based business and customer service is the key to success, he says. Fine-tuning internal operations—including cutting staff from 13 to nine—has helped lower operating costs. Doing multiple tasks in-house has supplied the impetus for keeping staff tight because it has made Coomaraswamy realize that he doesn’t need to add a staffer every time there’s a new job to be done.

In addition, he has found ways to make tasks more efficient. For example, he explains, he replaced a data entry employee that cost $27,000 per year with a $4,000 investment in software. “That job took an employee eight hours per day to do. The new program we had built now takes less than 35 seconds,” he says.

In hindsight, it is becoming clear that retailers who did not follow the masses down the VC trail are the ones who remain today. “We didn’t do what everyone else said to do,” Coomaraswamy says. “What people have to realize is that the web is not automatic sales. It was a ridiculous concept that people were going to shop online in droves. It has never happened. Companies have to work the sale the way they always did—with customer service, sales calls, invoicing people correctly and all the other business practices.”