A mall operator finds a market in transferring real world expertise online
By Mary Wagner
The outlet mall concept has been a hit, and Chelsea Property Group Inc. should know—it operates more than 50 in some 30 states. The real estate developer builds, owns and manages the malls, does the marketing to drive shoppers to them, and takes a portion of sales at each store.
Guess what: that works on the web, too. Three years ago, a new division of Chelsea Property Group, Chelsea Interactive, swapped out “outlet mall” for “technology platform” and moved the otherwise nearly identical model online. Instead of a physical location and services, it offers a technology infrastructure that bundles technology and services from vendors such as BroadVision Inc., Oracle Corp. and others to support e-commerce applications from the customer interface through marketing all the way to back-end functions. Today it handles e-commerce for eight major brands including Liz Claiborne Inc.’s Elisabeth.com Polo Ralph Lauren’s Polo.com and others.
Not a differentiator
Though well-known for its parent company’s outlet mall operations and to the brands it’s taken online, Chelsea Interactive has flown largely under the radar since the company made the leap from the brick-and-mortar world into the online channel some three years ago. “We spent the first three years getting it right,” says John Reilly, vice president of sales and marketing at Chelsea Interactive. Now, the company is pursuing brand marketers both in and out of the apparel sector and in and out of Chelsea Property Group’s existing client base.
Outsourcing a greater share of e-commerce operations has grown as marketers
have come to a better understanding of the web’s role. Competitor GSI Commerce
Inc.’s rapid growth and the recent debut of Amazon.com’s online apparel mall
are but two examples. Like other marketers online, brands are looking to save
cost while extending reach, which adds to the appeal of a shared technology
platform.
“Brands like Liz Claiborne and Polo could do this themselves,” Reilly says. “But it’s not strategically important to do it themselves, though it may have been at an earlier time during the dot-com craze. They’ve realized that a shopping cart, a web site and most of that functionality is a commodity, not a strategic brand differentiator. And they’re deciding they want to focus on product, pricing and image rather than the guts of operating a site.”
With about 30 clients, the former Global Sports, now GSI Commerce, towers over Chelsea Interactive’s current eight, but it’s under a different model. Like Chelsea, GSI bundles e-commerce applications and functions, but unlike Chelsea, it acquires the merchandise to resell it.
Chelsea Interactive offers another type of outsource solution, one closer to the outlet mall model which it knows already. It acts as more of a virtual landlord to the tenants on its platform in a model customers have called a “one to one” analogy to how parent Chelsea Property Group handles store relationships in the offline world. The only difference is that merchandise offered online, unlike the outlet mall’s, is full price. “They provide the shell and we build out the look and feel of the brand, do the merchandising, and run it. It’s much like leasing space,” says Brad Lenz, vice president of store visual, planning and construction/e-commerce, at Liz Claiborne.
In fact, Chelsea calls the commissions it receives from online sales “rent.” Brands on the platform pay Chelsea Interactive 10% to 20% of net e-commerce sales, depending on their individual arrangement; some choose to lower their percentage by also paying a fixed fee up front.
Chelsea Interactive also brings to its online tenants something extra: already-established relationships with the brands, some as long as 15 years, through the outlet mall connections of parent Chelsea Property Group. That trust has been a plus in enlisting brands who remain hyper protective of their image and wary of spending big while just starting to explore the direct channel offered by the web. Chelsea Property Group’s mall portfolio includes the factory stores of clients such as Armani, Versace and Gucci. Though Chelsea Interactive’s online portfolio does not at this point include those brands, it does include the equally image-conscious Polo, Elisabeth and Timberland, among others.
Liz Claiborne’s plus-size brand, Elisabeth, the apparel manufacturer’s first branded direct-to-consumer venture online, launched in November 2000 under Elisabeth.com. Of all its brands, Liz Claiborne determined that Elisabeth had the best opportunity online initially as its research showed that plus-sized women were catalog shoppers already accustomed to buying remotely. And Elisabeth already was a known presence in stores— including outlet stores operated offline in Chelsea malls. When Liz Claiborne started researching its options, “Chelsea approached us with the idea of providing a platform for brands to launch in the online sector, with a business model similar to a landlord business model,” Lenz says.
ROI right away
Today, Chelsea Interactive provides a full e-commerce solution for Elisabeth.com, though some functions are outsourced beyond Chelsea. The Chelsea platform allows Elisabeth to segment its e-mail marketing customers, but it outsources e-mail marketing distribution to CheetahMail Inc. UPS’s Logistics Group handles fulfillment. Both are integrated with Chelsea’s platform. Clickstream behavior reporting is outsourced to WebSideStory Inc., though Chelsea Interactive is developing the capacity to offer that service through a partnership with data mining technology provider Teradata, a division of NCR Corp. “Part of our mission from the company is to understand what does and what doesn’t work online,” Lenz says.
So, does outsourcing work? Lenz won’t disclose sales of the brand online, but he talks like a satisfied customer. “With the investment it would have taken up front to build out the site ourselves, we would still have been a ways off from a positive ROI. By going with Chelsea Interactive, we were able to derive a positive ROI from the site the first year,” he says.
Sharon Connor, senior director of commerce technology at Polo.com, estimates that the hardware, additional software licenses and consulting and development cost required to internally build out the e-commerce platform it wanted could have been a $2.5 million to $3 million capital investment.
Instead, Polo.com, a joint venture of Polo Ralph Lauren, NBC and ValueVision Media, re-launched on the Chelsea platform this summer. Previously, the site operated on what was in effect a dual platform, with front-end functions run on a content management application from one software vendor and commerce functions such as billing fed through an application from another vendor. The result, says Connor, was a platform that was struggling. “It was also a very segmented environment because our call center was on one application and the web on another,” she says. “We were looking for stability, a full view of the customer, and something much more integrated.”
Established base
Chelsea Interactive won out over other options reviewed by Polo.com not only because of Polo’s own relationship with Chelsea through its factory stores, but because of Chelsea’s established base in retail operations and the revenue sharing arrangement Chelsea Interactive offered. “You don’t have as much capital cost up front and it’s also a better growth model,” Connor says. “A lot of times people will go into a commerce package and build out a Ferrari when they don’t need a Ferrari now, but maybe in five or seven years. Incurring the cost of that all in the beginning is not always the smartest way to go.”
Today, call center and fulfillment functions at Polo.com are staffed via a shared function with ShopNBC. But the supporting applications are on Chelsea’s platform, as are commerce functions such as credit and billing, order management, warehouse interface and in-house reporting of financial data. Like Elisabeth, Polo.com does its own on-site product merchandising and creative work using the Chelsea platform’s merchandising and content management tools. E-mail program management is outsourced.
Infinite headroom
Polo.com did not disclose sales, but Reilly says the brand has experienced significant growth in online sales since coming onto the new platform.
Reilly says Chelsea Interactive delivers for its customers with the flexibility to merchandise creatively online and revenue sharing arrangements that lower the investment to get online. But if part of Chelsea Interactive’s appeal to brands going direct online is a lower cost of entry to those still experimenting with the online channel, does the outsource model still appeal as brands gain traction online and sales take off?
“We give the brands almost infinite headroom on bandwidth and traffic,” says
Reilly, who notes that Chelsea Interactive operates 30 servers with continuous
performance monitoring in place. “As they have more sales online, our percentage
decreases so we’d anticipate that we’d always be more efficient for the brand
than the brand could be going it alone. It’s like in the brick-and-mortar world.
Any of the brands could operate a store by themselves but the benefits of aggregation
typically outweigh going out and building it on their own.”
mary@verticalwebmedia.com
