The office supplies retailer say it sacrificed some sales to improve online profitability. It also redesigned its business-facing e-commerce site, StaplesAdvantage.com.
Hard work and the luck of the Irish has Jim McCann’s 1-800-Flowers.com blossoming on the web. Now it`s moving beyond flowers in a big way.
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%.
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.”