November 30, 2004, 12:00 AM

Flowers / Gifts / Jewelry: Where the Internet changes the business

Few categories of online retailing speak to the mainstream acceptance of the web as Flowers/Gifts/Jewelry. The category is bigger than Books and Music/Video, the two mainstays that started the online retailing revolution.

Where the Internet changes the business

Internet Retailer`s Best of the Web 2005

Few categories of online retailing speak to the mainstream acceptance of the web as Flowers/Cards/Gifts. At $3.8 billion in annual sales, the category is bigger than Books ($3.7 billion) and Music/Video ($3.7 billion), the two mainstays that started the online retailing revolution, according to Forrester Research. The category will grow by more than 150% through 2010, Forrester projects, reaching $10.1 billion.

But perhaps more telling than sales numbers is the fact that online sales will account for 19% of all flowers, cards and gifts sales in 2010. By comparison, the web will account for 13% of all general merchandise sales.

And while flowers, cards and gifts sales are booming, so are the sales of jewelry and luxury goods, the other category represented in this group. Projected to reach $2.8 billion this year, such sales will hit $7 billion in 2010, Forrester projects, and account for 14% of all such sales.

The retail web sites in the following pages are exemplars of why this category has proven so popular with consumers--and why it will continue to be popular., for instance, is among a small group of retail jewelry sites that have harnessed the power of the Internet to change the way consumers shop for and buy jewelry. It has made a business out of walking wary soon-to-be-fiances through a very important purchase. Not only does it offer a ton of information about jewelry and how to buy it, but it also was one of the first to host a ring configurator and it offers serious hand-holding to the jewelry-buying faint of heart.

"Blue Nile is doing all the little things right that a specialty retailer needs to do to be a strong player online," says Jim Okamura, senior partner with J.C. Williams Group. "They are raising eyebrows in this industry."

Similarly, the flower sites have transformed flower giving., for instance, has developed a unique model in which it ships flowers direct from the grower to the consumer, significantly reducing the time between when the flowers are cut and when they land in a vase. And the company does it at a good price. "By cutting out the middlemen, they`ve not only been able to guarantee fresher flowers, but offer them at a lower cost than competitors," says Jim Friedland, senior Internet analyst for San Francisco-based SG Cowen & Co.

Further, by being a pioneer in creating a nationwide market for a flower shop brand, has altered the sale of flowers. And it has used the web to create a unique flower-buying experience. "We`re about more than delivering flowers," says Chris McCann, president. "We`re about the artistry behind flower arrangements and how we reflect that artistry on our pages."

In addition, the web is changing the very nature of the highly fragmented gift retailing business. No longer reliant on walk-in shoppers, local gift shops are using the web to develop nationwide markets., for one, has grown from a single $150,000 shop in Charlottesville, Va., to a nationwide $10 million online gift retailer.
If it works for flowers...

When you`ve got a winning online sales formula, as 1-800-Flowers does, the next step is to apply it to other products. And 1-800-Flowers, a frequent occupant of Internet Retailer`s Top 50, is finding out that what works for flowers can work for other gifts.

Among the lessons 1-800-Flowers has learned from selling flowers is that the product has to be right and products displayed well. "We`re about more than delivering flowers," says Chris McCann, president. "We`re about the artistry behind flower arrangements and how we reflect that artistry on our pages. And as we`ve moved toward gift sales, we are looking at how to use the web to best display fine collectibles from Lenox and Waterford."

That strategy appears to be working: non-floral products now account for about 50% of sales compared to 35% two years ago. Some observers give 1-800-Flowers high marks for transferring its flower sales model to other products. "First, they leveraged a network of local florists to offer same-day delivery, something very few others have been able to make work," says Eric Beder, vice president of equity analysis for Parsippany, N.J.-based JB Hanauer. "Gifts are different, but again they identified the right distributors to get gifts delivered to customers quickly. That also is something few others have been able to do."

Also key to 1-800-Flowers` success is its ability to analyze customer behavior and react in real time. The company has developed the technology to watch how customers use its site--which pages they look at, which items they click on and which features and functionality they use. "If we have new text for a product, for example, we can find out within a day or two if people are responding to it," says Chris Barca, senior manager, web site marketing. "If nobody is reading the new text, we can switch back to the old copy the same day."

Indeed, 1-800-Flowers is always willing to try new technology and new ideas. "We tried interactive television in the early 1990s and when it was not going anywhere, we got out. Now we`re seeing some interest in that technology again and we might take another look. We`re already working as a partner for QVC on their online sales," McCann says.

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