Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Ashford.com’s Kenny Kurtzman is out to defy the dot-com odds.
The strength of mom-and-pop businesses is their ability to know and serve customers in a timely and personal manner. But can a model that has been successful for small shop owners work for a retailer that sells $70 million in luxury goods per year through the impersonal Internet?
Ashford.com says the answer is yes. Like a stereotypical dot-com, the company is young, its CEO is young, and its clients are young. But parting from stereotypes, Ashford.com is built around old-fashioned retail values-namely customer service.
Just like in the olden days of small retailing, Ashford.com likes to know its customers and treat them special. Each year, for example, the company hosts a Christmas party in Houston at its lone retail store. The invitation-only event is for customers and investors; most are from the Houston area. Ashford’s 38-year-old CEO Kenny Kurtzman, an accomplished pianist, provides the musical entertainment. “One time we sold about $25,000 in one hour,” he says. And intangibles like making the customer feel good may determine Ashford’s longevity in a market that is increasingly unforgiving of dot-com retailers.
A difficult market or not, Kurtzman says there’s room to grow in the online luxury sector. Ashford’s research shows that about half the 100 million people online buy luxury items. About 20% of that half-10 million-prefer to buy luxury goods online without ever touching or seeing the product. “And that’s our target,” Kurtzman says. “That is a huge market; we only have 200,000 customers now and there are 10 million of those people out there.”
Shake, rattle or roll
When Wall Street’s dot-com love affair last year turned as stormy as a Liz Taylor marriage, pure-play survival, let alone success, could not be to taken for granted. Chicago-based Analyst Keven Wilder, of Wilder and Associates, says Kurtzman has his work cut out for him. She believes there is more supply than demand in online luxury retailing, and she expects a shakeout. “There will definitely be weeding out, especially if we head into a recession,” she says. “And the people who will be left standing are the ones with a stronger brand and other channels to sell their brand. Ashford has a daunting challenge. Pure-play companies really do have a problem, especially as marketing dollars get tighter and capital contracts.”
But Kurtzman does not share Wilder’s belief that a shakeout is coming. The worst of the weeding out has likely taken place; three of Ashford’s online competitors (Miadora; Eve, which sold fragrances; and Adornis, which sold jewelry) have already closed shop, he says. “Overall, the pendulum has swung too far against Internet retailing,” he says. “There are companies that have viable, fundamentally sound business models and are managing those models effectively that are going to survive and grow. Eventually, when we get through the storm, people will begin to understand that. Just as there was an over-reaction to the category on the upside, now there’s been an over-reaction on the downside.”
Even if Kurtzman’s wrong about the shakeout, he says Ashford will survive. If anything, the challenges only make Kurtzman more determined to succeed. “He’s a very competitive person,” says Ashford Co-founder Robert Shaw. “He doesn’t like to lose, and that affects the entire culture here.”
“When someone puts a challenge in front of me, I like to prove them wrong,” Kurtzman says. “With so many people doubting whether companies like ours can make it, it’s become personal with me, and really for the whole company. We know we’re going to make it and we’ll show everyone this kind of business can be successful.” And so far Ashford is on track. The company had sales of $52.8 million for three quarters ending Dec. 31, nearly double 1999 results. Ashford executives say the company will be profitable by the end of this year.
Some assembly required
Ashford executives know that to be successful they cannot simply wind up their business model and let it run. Kurtzman has a plan not only to survive the dot-com dark days, but to flourish. Kurtzman believes corporate sales, targeted marketing, partnerships and attention to detail will lead Ashford to profitability.
A year ago, Ashford, like several other specialty retailers such as Egghead.com, waded into the b2b pool. “This year our focus is on our corporate gift business,” Kurtzman says. “Compared with the retail business, this model has higher margins, faster returns, is less seasonal, and helps build the retail brand. Sending 4,000 packages to one corporate client, each item in Ashford packaging, is a very efficient way of getting people to know more about Ashford.” Wilder agrees that the b2b angle is a good plan. “The corporate gift section is one of the best parts of the site,” she says. “They offer things that work, and all the other services like engraving.” Ashford sells corporate gifts through a direct sales force.
Ashford is also targeting its marketing efforts to reach those most likely to buy. “Spending money just to build a brand is not an efficient use of our capital,” Kurtzman says “We invest our marketing dollars in online advertising, search engines and shopping sites because that’s the lowest cost of customer acquisition.” Ashford is in its second year of a major marketing deal with Amazon, which received 16.6% of Ashford’s common stock in exchange for marketing services-namely a link to Ashford from Amazon’s home page. The deal was renewed at the start of this year. Ashford also has deals with portals MSN and Yahoo!, and is using targeted e-mail marketing.
For the past 10 months, Ashford has sent targeted weekly e-mail messages highlighting specific products customers will likely be interested in, based partly on results of a customer survey on its site. And, the company uses inserts in shipping boxes to get its message to customers. “Our conversion rates have jumped dramatically,” Kurtzman says.