Madison Reed has raised $32.1 million since launching 15 months ago.
The two-car garage has become the cliché symbol for business startups. Yet it made an especially apt launching pad for fulfillment company Marketing Out-of-the-Box. In nine years of business, MOTB’s garage has morphed into a 100,000 square-foot warehouse in suburban Chicago, and its clients include designer clothing discounter Bluefly.com and specialty gift retailer Send.com.
Inside the company’s warehouse in Niles, Ill., the scene is orderly and surprisingly quiet, even though a dozen workers are assembling boxes, while pickers walk the aisles retrieving goods and small teams of employees gather around work stations arranging gift packages and unpacking returns. Ten-foot-high shelves are stacked with rugs, small appliances and office furniture. Bins stamped with bar-coded labels hold teapots, clocks and handbags. Cofounder Allison Haftl, who oversees the company’s operations, grabs a leather-covered journal encased in plastic. “These came in bulk and were not shrink-wrapped,” she says. “You don’t want oils from hands getting on them. You don’t want dust. So they needed to be shrink-wrapped.”
Whenever new goods arrive in the company’s warehouse, Haftl and her staff put them through a similar drill, considering how each item should be handled, packaged and shipped. “If I were the consumer, what would I want?” Haftl asks herself. “You really have to put yourself into that position.”
Marketing Out-of-the-Box put itself in that position out of necessity. In 1991, Haftl left a job in advertising production to start the business with David Newberger, a former consultant in packaging and marketing. Their initial focus was business-to-business direct marketing, primarily for large educational publishers and drug companies. Three years later, they branched into fulfillment when they realized the only way to deliver on their promises to a major client was to do the
job themselves. “Our clients had multi-million dollar sales on the line,” says Newberger, the company’s president. “We needed 100% accuracy and 100% control over assembly. Things had to be put together just right, but we couldn’t find a fulfillment house that really cared enough.”
The fulfillment end took off-so much that MOTB moved three times during the year it entered the business, before settling into the current location. E-commerce came in 1997, when Haftl and Newberger saw that niche retailers needed niche vendors. “The nature of the Internet is that anybody anywhere can start selling anything to anybody,” Newberger says of the decision to enter e-commerce. “But ultimately somebody has to touch the goods, and that’s a great area for us.”
A consultant brought MOTB its first e-commerce client, Bradford Exchange, a distributor of collectible limited edition plates. Bradford wanted to deliver promotional goods ordered on its Web site within two days. MOTB helped the company do that, setting a track record that attracted about 20 e-retailers, including SilverPlum.com and LuxuryFinder.com.
Yet MOTB is competing for clients in a market dominated by Goliaths: Federated’s Fingerhut Business Services handles fulfillment for Wal-Mart.com and eToys, while Hanover Direct’s Keystone Fulfillment works with Mercata, KBKids and Dress Barn.
Newberger and Haftl have positioned MOTB as a boutique operation willing to take on labor-intensive jobs such as gift-wrapping, hand-signed cards and customized gift packaging. They’re more interested in products that require special attention than commodity goods. “Customers tell us what they need,” Haftl says, “and we mold our business around those needs.” That means the inventory is always changing. MOTB’s Web site catalogues the variety-from accordions to zoom lenses.
MOTB begins each day sorting through hundreds of goods arriving at the receiving docks. Workers inspect the contents to ensure they have the right shipments, spot imperfections, and flag items needing extra care before they’re packed for delivery. About 60 workers keep the warehouse running-and double that during the holiday rush, which pushed the facility to its capacity of shipping 50,000 items a day.
Each client gets a dedicated team that includes a project coordinator and manager. MOTB has tried to stay sensitive to the needs of startups. “Running a warehouse is very, very costly and prohibitive for many startups,” Newberger says. “We offer flexibility so that they can start out at very low cost.” Pricing depends on the client. MOTB either takes an equity position or charges a per-transaction fee that typically runs $2 to $3.
The past holiday season, like the one before it, offered stark lessons in e-retailing fulfillment. Consumers gave their lowest marks to on-time deliveries and customer service during the Christmas season, according to Internet rating firm BizRate. Merchants handled nearly 34 million orders between Nov. 26 and Dec. 25, but only 74% were delivered on time, down slightly from the previous year. “Companies must wake up” is the plain admonition of a report on logistics published last August by Forrester Research. The firm foresees a fundamental shift in fulfillment as consumers and businesses send the number of online orders soaring to 2.1 billion by 2003. As small parcel deliveries expand, Forrester says the number and breadth of SKUs will explode, and customers will continue to raise their expectations.
“I think this is going to be a good year for fulfillment companies,” says Michael Petsky, CEO of Winterberry Group in New York City. “Customer service and fulfillment will be the altar where the Internet and direct marketing get married. It’s so critical that e-retailers are going to turn to direct marketing to help them get more efficient.”
Petsky expects to see specialized operations like MOTB remaining part of the fulfillment landscape, yet he wonders whether specialty services like those offered by MOTB can remain profitable in the long run. As long as e-merchants have a good pipeline of venture capital, he says, there’s money to invest in every aspect of the business-from marketing to shipping. “When profitability becomes a bigger driver,” he adds, “these merchants will cut back on value-added fulfillment.”