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February 2001 |
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Behind the success of 1-800-Flowers.com is a willingness to try new things
By Mary Wagner
In the early 1970s, just after Woodstock, a kid bartender in Brooklyn considered his future every night in between pouring pitchers and wiping down counters. He’d worked in the trades while helping his dad, a contractor; he’d worked in retail shops; he’d thought of giving social work a try. He’d even flirted with the idea of becoming a cop.
The NYPD’s loss was to be the floral industry’s gain. More than 30 years later, Jim McCann is CEO of his own $385 million company, Westbury, NY-based 1-800-Flowers.com. The company has raised the bar for success in its industry by bringing a near-McDonald’s-like national brand consistency to what had been fragmented retail sector—and by enthusiastically adopting new technology.
McCann was a merchant pioneer on the web, hooking his company up with CompuServe in 1992 and going up on AOL as one if its first retail tenants in 1994. 1-800-Flowers.com went public in the summer of 1999. Several months earlier, he’d pulled in investor heavyweights such as LVMH and VC firm Softbank, also a backer of BlueLight.com and other online leaders. He’s beaten Wall Street projections every quarter since the IPO, and when he says his company expects to catch up with hefty Internet development costs and regain positive cash flow this year, Wall Street tends to believe him.
So the question is, what happened between Brooklyn and Long Island?
Breaking a sweat
Good luck had a hand, says McCann, along with a self-described “genetic predisposition” as an Irish Catholic kid from a blue-collar neighborhood to work harder and longer than other people. That led him to work weekends at and later to buy a small Manhattan flower shop to supplement his not-for-profit income as the director of a youth home. But more than anything else, a willingness to bet on new technology has been the key driver at the 24-year-old company. It pushed 1-800-Flowers.com into national prominence as one of the first to seize on toll-free numbers as a marketing platform, and it made the company one of the first direct marketers to embrace the web.
In getting on board early with new media applications, the company has been the beneficiary of industry buzz. First, there was the 800 number—a ground-breaking concept two decades ago. It came to the company attached to a small, failed flower business that McCann acquired in the mid-80s, and McCann blew it out big as part of his national brand-building strategy. Service provider AT & T asked him to appear in a TV spot as a user of one of the new 800 number products it launched in the early ’90s. The ad tested so well that the campaign ran longer than originally scheduled—right through the ’92 Olympics, where it reached the largest audience of TV viewers yet assembled.
“That pushed our company up dramatically,” he says. The early adoption of the Internet helped strengthen the brand with further buzz, and today, McCann has leveraged his company’s brand online to drive about 40% of total sales. He’s invested some $100 million over the past three years in the web site, including technology, research, people and portal deals to keep the channel growing. Already, he estimates, the Internet influences an additional 20-25% of sales that aren’t actually completed online.
“If you were to walk through our service centers, 20-25% of the callers you might listen in on are referring to the web site in one way or another when placing a telephone order,” he says. “They might be ordering right off the screen, or using a product number they could have found only on the web site, or following up on a web order. Last year, and in years before, our telephonic and Internet businesses were separate. Now, they’ve merged.”
To help recoup the Internet investment and to build on its established marketplace presence, 1-800-Flowers.com has expanded beyond its flower and candy heritage into higher-margin non-floral gift items. In time for the last holiday season, it beefed up jewelry and china offerings on the web site, adding more than 100 giftwares and collectibles from Lenox. Other partnership deals are in the works. Analysts predict that non-floral gifts could account for as much as 50% of the company’s fiscal Q2 revenues following the all-important holiday shopping blitz and help drive Internet revenue growth by 80% to a projected $190 million for fiscal 2001. The company’s telephone sales, projected at $244 million for the year are expected to grow at the slower rate of about 6%.
Thorny stems
But the rosy predictions for 1-800-Flowers.com aren’t immune to marketplace pests, and buried in a blooming business are some potential thorns. “It has to move into gifts but this is something that hasn’t proven out yet,” says Eric Beder, equity analyst at Ladenburg Thalmann. “They’ve spent 20-some years teaching people that 1-800-Flowers is flowers, and now they’re going to try to teach them that it means gifts in two and a half to three years. Do gifts have as much potential to draw customers as flowers do? The jury is still out on that.”
The move into gifts isn’t the only challenge. Whoever said the devil is in the details could have been talking about selling online. As with any company betting big on the web, there’s challenge in the execution. Waltham, Mass.-based Gomez Advisors tracked some 80 online retailers through the holiday season, simulating the user’s phone and e-mail experience across several data points that all add up to customer satisfaction—or not. Although Gomez rated it the top gift site, it found 1-800-Flowers.com’s performance in some areas to be inconsistent. The hold time on phone inquiries about the web site, for example, ranked in about the middle of the online retailers studied, but the total time needed for resolution of a question was high compared to other sites. Service center agents delivered the facts with varying degrees of accuracy when tested with questions relating to site knowledge. “They were much better at that in e-mail than on the phone,” says Jill Frankle, director of e-retail at Gomez. “One of this company’s challenges is going to be to provide really great customer service, and to do that by integrating the knowledge base across channels.”
Ready for 300,000 orders a day
That’s exactly what McCann will chip away at in his drive to be a 360-degree retailer across multiple channels, and the volume on the site makes it a tall order. The site gets 10,000 visitors an hour at peak times. The company booked 100,000 orders a day across all channels for the 10 days preceding Mother’s Day last year—150,000 on peak days. In response, McCann prepped for this holiday season by adding technology that would allow the company to handle 300,000 orders a day, integrated across channels.
While he’s careful to say that 1-800-Flowers likes customers to reach the company in whatever way they prefer, the company likes it most when they arrive via the web. McCann ticks off the value of the web customers: cheaper acquisition costs, more frequent visits than shoppers from other channels, inclination to buy more because they can see more products online, and web-based marketing opportunities such as e-mail.
“They also become better customers because they interact with us differently,” McCann says. “They use our stickier site features—gift reminder services, profiling services—all of which are possible from a technology perspective only on the web. There are distinct reasons we like customers to come to us online, and other channels try to mimic as best they can the web’s opportunities for communication, relationship and dialog.”
To bring more customers online, McCann says, the web site is merchandised “around the books and in the box.” That means the company takes every opportunity to gently push them to the web site from other channels. The catalogs feature the URL prominently. When customers get packages from the company, the packages include teasers to encourage customers to visit the web site, like the offer of an automatic thank you e-mail for gifts received. “We do whatever we can to incentivize our customers to come to our web site by showing them why it’s better for them,” McCann says.
That doesn’t mean he’s taken his eye off developments in new technology. McCann says 1-800-Flowers will roll out a series of wireless capabilities—starting with the deal it announced in December with AOLbyPhone, which allows AOL members to check e-mail on their wireless devices by using voice commands on the phone. AOL members will be able to connect with AOLbyPhone’s shopping area and hear information about flowers and gifts at 1-800- Flowers.com. They can connect by voice with a 1-800-Flowers agent to buy.
Giving technology a bear hug
Out there? Maybe. Most analysts say such wireless applications have limitations that mean their widespread use is a long way off. McCann already knows that, but true to his company’s history of climbing on board with new technologies, he wants to be there early rather than later. “We think of our web site as a big wonderful, eight-story store with everything in it,” he says. “We have a convenience store in the front, where people have a limited number of SKUs but they can get in and out quickly—that’s our telephone channel. Now with our wireless applications, we’re building a drive-up window in the front of our convenience store. We don’t think the mobile devices are going to drive a lot of new customers to us, but we know that our customers are early adopters and many of them will want that kind of access.”
Toll free numbers, the web, wireless—what’s next? In an age when this year’s Big Thing wasn’t even on last year’s radar screen, that’s hard to say. But it’s a safe bet that if the Internet continues to be the engine for 1-800-Flowers it’s started to be—and with a little more luck of the Irish—Jim McCann will be there, flowers in one hand, chocolates in the other. 
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