China is one of more than 30 countries to which Newegg plans to expand its marketplace in 2017.
GSI Commerce started out providing e-commerce servicesto sports retailers—now its roster includes 50+ sites of all kinds.
Ever since Global Sports Inc., now GSI Commerce Inc., appeared on the web retailing scene seven years ago, the company has made all the right moves to become the market leader in providing turnkey third-party e-commerce services to big chain retailers and consumer brand manufacturers.
But these days GSI must put up a good offense and maintain a solid defense as it looks to fend off a number of new and existing competitors who have no qualms trying to knock GSI out of the game and grab a bigger share of the web retailing outsourcing market.
Building out from sports
GSI vaulted to the top of the turnkey outsourcing business when it parlayed an early series of third-party service deals with a few sporting goods retailers into a diversified company that today includes more than 50 major clients, including Adidas America, Levi Strauss & Co. and RadioShack Corp.
But to maintain its lead and keep pace with outsourcing rivals, including Amazon Services LLC, the e-commerce outsourcing arm of Amazon.com Inc., GSI is working to roll out even more third-party services and capitalize on new international business development opportunities in Europe and elsewhere. In early 2005, GSI formed a new partner services group and began offering retailers new programs such as search engine marketing management and e-mail marketing.
In May 2005, GSI also acquired Aspherio S.L., a Spanish provider of outsourcing e-commerce services, and is now eyeing new European opportunities, including capitalizing on helping U.S. web retailers extend their brand and business to established markets such as the United Kingdom. “As a company, we’ve done a lot, but there is still a lot we can do,” says Michael Conn, GSI senior vice president of corporate development. “We have an excellent chance to offer more services and grow as our retailers grow and we are going to take advantage of it.”
Looking like a retailer
GSI built a successful e-commerce outsourcing business by looking and acting virtually the same as a web retailer. In the sporting goods, electronics and entertainment markets, GSI performs almost all the e-commerce, customer service and order processing duties for 20 chains and manufacturers. It also owns and controls the inventory on a number of major e-commerce sites such as The Sports Authority Inc., Dick’s Sporting Goods Inc., Palm Inc. and others.
“With their expertise, they can say to a bricks-and-mortar retailer, ‘We can build and operate a large scale e-commerce site better and more efficiently than you can internally so let us do the heavy lifting,’” says Michael Golden, CEO of home accessories web retailer Home Décor Inc. and GSI’s first chief operating officer. “It’s a compelling business model that’s helped them sign up a number of big name clients.”
GSI’s biggest single market segment remains sporting goods. The company owns an inventory of more than 140,000 products that it sells on about two dozen sporting goods sites or mass merchandise sites with a sporting goods category. Under its arrangement with retailers, the retailer manages its brand and marketing while GSI supplies the inventory, provides most e-commerce operations and handles order management. With this type of arrangement, GSI collects all the e-commerce revenue and pays the retailer a royalty based on a percent of total sales.
“Sporting goods taught us all about the ins and outs of maintaining a large and diverse inventory since we carry everything from apparel to footwear,” Conn says. “The lessons we learned in sporting goods are the ones we are now applying in different segments.”
The financial transition
After seven years in business, GSI has made the financial transition from a start-up operation to an established company. GSI will report its final numbers in February, but in 2005 expects net revenues to increase 29% to about $432 million from $335.1 million in 2004. GSI also expects to post net income of around $5 million in 2005, compared with a net loss of $337,000 in 2004.
For several years, GSI has offered big box retailers a standing set of outsourcing services that range from web design and e-commerce systems operation to order management and customer service. But now GSI is diversifying and through its new partner services unit is offering other programs such as search engine marketing management, e-mail marketing and list maintenance and even interactive media. So far about 40 customers use GSI to manage all or a portion of their interactive marketing program, including Ace Hardware Corp.
GSI discovered that web retailers who already used GSI for existing services also wanted GSI to help them with marketing and customer acquisition. “A lot of the retailers we work with are developing e-commerce as a sales channel, but they also see the web as a broader means to build up their brand and multi-channel retailing,” says Steven Davis, GSI senior vice president of partner services. “In many ways we are already joined at the hip with the clients we serve and could work with them on marketing and design-related projects.”
GSI now offers a suite of additional services in four categories such as creative services, photography, interactive marketing and customer relationship management. In the future, GSI plans to offer retailers programs to introduce or enhance rich media, develop interactive programs such as videocasting or real simple syndication and even designing and mailing print catalogs. To differentiate its programs from other agencies and marketing firms, GSI prices it services based on a percentage of the retailer’s or manufacturer’s e-commerce sales instead of collecting a portion of the advertising dollars spent on search engine marketing campaigns, as traditional agencies charge. “We aren’t charging a fee that is a percentage of the total media spend,” Davis says. “We collect a fee on the back end that’s a portion of e-commerce sales. Clients tell us they like this program because our pay-for-performance is tied directly to the sales cycle.”
Straight from the client
GSI develops new outsourcing services based on market trends and annual surveys it conducts with its retailers and manufacturers at various user meetings. “We ask them to tell us about their priorities and developments and what other programs they would like to see us offer,” Conn says. “It’s a good venue for future business development.”