Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
Those pure-plays that survived the opening rounds have had to float like a butterfly and sting like a bee to keep from getting KO’d. They’ve adopted a number of strategies to stay in the fight.
A year ago, when friends asked Paul Gilbert why he would leave a perfectly good brand manager’s job to join an unproven Internet start-up called JustBalls, he’d give the answer that still puts a gleam of excitement in his eye today. “There was an enormous amount of economic experimentation going on around the web,” recalls the vice president of marketing at the Princeton, N.J,.-based JustBalls, a seller of-well, you can probably guess what. “Here’s the web, this fundamentally new tool, and it’s so far unclear whether it’s a disruptive technology, a complementary one, whether it’s a communication or commerce vehicle. What is this thing?”
Good questions, and ones that e-retailers have spent millions trying to answer. The roadside is by now littered with defunct retail web ventures that guessed wrong or just ran out of money and time. The fast lane to e-retail success is filling up with traditional retailers and catalogers expanding onto the web for the multi-channel sweep.
But that’s not the whole story. Keeping up in the outer lanes are a number of pure-play dot-coms companies who’ve stayed in the race by figuring out how to negotiate the obstacles that tripped their competitors. In the process, many have reinvented themselves, moving into business models far different from those initially conceived. Some, like JustBalls, are going after new markets. Others have become chameleons, packing up the most valuable of their lessons learned online, leaving retail sales and re-emerging as suppliers.
Still other dot-com retailers are thriving by finding and filling less-competitive niches, identifying unserved market opportunities potentially profitable but too small or too specialized to bring in crowds of other players. And some, sniffing out shifts in the capital market earlier than most or just tightfisted from the start, conserved enough cash to allow themselves to grow the way new companies used to before Wall Street inflated expectations of the industry: gradually, and in scale with revenues.
The race isn’t over yet for these dot-com survivors, and there’s no single winning track. What’s clear, though, is that these are companies that have learned from experience-their own and others’. Their success stories so far cluster around common themes. Money doesn’t burn a hole in their pockets. When they do spend, it’s on people or technology to make buying easier, not necessarily flashier, for the consumer. Or it’s on programs that fast-track them directly to qualified buyers. Some now bless the fact that they either didn’t seek or couldn’t get funding; it toughened them up. And perhaps most significantly, all have been focused from the start on building a sustainable business and not just on a quick IPO.
Enthusiasm and curiosity swept Gilbert into marketing at JustBalls, but as his learning curve grew, it became clear the company’s existing business model wasn’t exactly going to produce a slam dunk. “It was going to be the Amazon of the balls category, but I started thinking, how often do you need to buy a basketball?” he says. “Onesie/twosie sales, high acquisition costs, a slow use-up category-it’s hardly a prescription for success.”
The VCs didn’t think so either. But founder Jim Medalia and new CEO Jim Klein, the company came up with a new plan last year. It netted JustBalls $13 million in funding last fall, one of the year’s only major rounds of venture financing for a retail dot-com. Funding was successful in part because the plan expands JustBalls beyond the retail market.
To boost sales, JustBalls reorganized itself to pitch its ball products to institutional customers like colleges, where the average order size is larger, replenishment faster and repeat purchases high. Retail shoppers can still click to buy a pack of golf balls, but a newly launched web site is geared to bringing the ease of Internet ordering to an institutional marketplace formerly served by wholesalers and local brick-and-mortar stores. But scaling itself to institutional sales isn’t the company’s only shift in strategy.
“We decided we could play in the institutional segment of the $5 billion ball space,” says Gilbert. “But the even bigger market is the $60 billion premium and affinity products space. We want to re-purpose the ball product category for gifting, commemoration, cause marketing, fund raising, promotion and recognition. We want to do for the ball category what MBNA did for the credit card marketplace, where they leveraged affinity organizations in a really remarkable way.”
Repurposing equals mass-market mindshift; not an inexpensive proposition. To sell custom-logo ball products and programs into affinity groups-and to make contact with those institutional customers-JustBalls is using some of the venture funds to build a field sales force. It’s started a paper catalog and is planning still another re-launch of its web site to focus even more tightly on affinity and institutional sales.
Under JustBalls’ new model the Internet has evolved from a costly customer acquisition tool to one that takes costs out by automating much of the customer support function on the back-end. Although it has no results yet from its new approach, in a fast-changing Internet economy, JustBalls has moved to do what’s needed to keep its ball bouncing.
Out-and back in
Faced with big competition and a dwindling cash supply, some e-retailers thought out of the box-and out of retail altogether. They are using the assets they developed in e-retail in new ways. After less than two years of operation, Furniture e-retailer GoodHome.com shut down its web site in January. But the heart of its business, the interactive imaging technology that won the site several awards, lives on as software licensed to other retailers and manufacturers by Scene7, the technology company that rose from the ashes of GoodHome.com.