March 28, 2001, 12:00 AM

The School of Hard Knocks

(Page 3 of 3)


Bellacor gives shoppers access to about 700 manufacturers in the highly fragmented home furnishings market, through the site’s secret weapon-veteran product specialists who work with shoppers on a one-to-one basis. All have long-term retail experience in home furnishings.


“It’s easy to teach someone about how to use a computer,” Andersen says. “It’s harder to teach them about the home furnishings marketplace.” Shoppers can e-mail what they’re looking for (“What can I put in my front hall?”) and get a response from a product specialist-the same one who stays with them through the entire process until they find the product. Bellacore has access to a half million SKUs, but limits the images and descriptions available for browsing on its site to 6,000 to 7,000. If shoppers don’t find what they want by browsing, Bellacore will digitalize images and push through product descriptions for additional products from the larger pool, based on the product specialist’s read on the shopper’s preferences.


“It would be bad business to keep them all up on the site,” Andersen says. “With that many SKUs it’s probable that in the first year, 90% of them wouldn’t ever be considered anyway. It’s much more cost effective to do it this way than having a permanent staff that dose nothing but try to anticipate customers’ wants and keep refreshing the content.” The personal attention from product specialists keeps conversion rates up at about 4%, average ticket price at about $400, and returns to less than 4%. About 20% of Bellacor customers buy from the site again within 90 days. While he may not know yet what to call his business model, he’s already sure about this: “No site has integrated live assistance like we have. It’s really beyond customer service-we’ve taken it to a whole new level.”



Mercedes or Toyota



Many of the dot-com survivors fly quietly beneath the radar of Internet stock analysts. Few are public, venture investment is often limited or nonexistent. Spending is limited, revenues are modest compared with what the deeper-pocket multi-channel sellers pull in, and profits are correspondingly small.


That’s called scaling the business, a proven strategy for long-term survival largely ignored in the boom climate of Internet retailing’s earliest days. For while scale is a term most often used lately to describe a company’s ability to ramp up quickly and economically for a growing customer base, understanding scale also means knowing when to slow down.



“Scale means managing expenses and revenues over time in such a way that they’re in line,” says Bob Smith, a consultant and the former executive director of e-retail trade association “If you look at an eToys or a everyone would say they had great sites and content and knew how to service the customer. There was only one problem: they were building a Mercedes when they could have been building a Camry.” l






The smell of money



As pure-play dot-coms battle each day for survival, some have an added edge. That edge is in the brand strength of the product lines they carry. Take The 3-year old New York-based company, with annual sales of about $8 million, is one of the few public e-retailers of its size. In February it did what other pure-plays still just dream about: It reported profits. For its third quarter ended Dec. 31, 2000, the company posted gross profit margins of 39% and operating profits of $239,000 on sales of $3 million; for the first nine months of its year, it reported gross profit margins of 39% and operating profits of $298,000 on sales of $6.3 million.


The site offers 3,400 fragrances. CEO Jason Apfels says the company is built on selection and customer service. Shipping charges are built into the cost structure so there’s no visible shipping charge to the consumer, and prices are set so that FragranceNet can cover the shipping, offer discounts ranging from 2% to 70% off store prices, and hit its margins at the same time. FragranceNet also saves upfront costs by not ordering from its supplier network until a customer places an order.


The model has been a winner for the company, but there’s no denying it’s gotten a big boost from the loyalty that fragrance-buyers develop toward their preferred brands. The company sells no knock-offs, only the real thing. “Certainly when Chanel does advertising it doesn’t hurt us, because people will surf the web and look for it a little cheaper and a little more conveniently,” Apfels says. Because people tend to order what they know and what they’ve used in the past, he adds, returns are kept at about 1%. Products’ built-in brand strength also helps keep average customer acquisition costs at about $7, Apfels says.


Brands also play a big role at upscale culinary web site “It helps our conversion rates,” says David Hodess, CEO. “People generally know what brand of cookware they want. It’s the same with cutlery and appliances. When people were just getting to know, at least they didn’t have to worry about the products.”

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