Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
(Page 2 of 2)
Cheryl & Co., for example, fit nicely into its new parent company’s formula when it was acquired in May 2005 because it had developed a strong brand and reputation for quality baked goods that can be used to complement floral products-and had plenty of room to grow, especially online, McCann says. “They had been growing nicely, but not fast,” he says. “But after leveraging our web marketing, our IT infrastructure and our customer base, they went from 1% of their sales online to more than one third in the first year.”
Cheryl & Co.’s web site, Cherylandco.com, now runs off of 1-800-Flowers.com’s server farm and will receive more site bells and whistles this year, McCann says. To maintain their brand identities, the parent company continues to operate separate sites as the main selling channel for its acquired brands, incorporating selections of their products into 1-800-Flowers.com.
1-800-Flowers.com already has most of the infrastructure it needs to absorb its acquisitions, and will have to make only modest additional investments in technology, Yannas says. “It will have to make some further investment, but the investment isn’t big related to the sales and gross margins it’s gaining,” he adds.
Creating organic growth
Still, the time is nearing when McCann will need to settle down and concentrate on organic growth while stemming the kind of annual increases he has been pushing in marketing and sales expenses, Yannas says. The company has impressed analysts with its ability to avoid taking on long-term debt-its under $5 million due in long-term debt payments over the next five years is “small change,” Yannas says-but its cash hoard has dwindled after recent acquisitions to about $18 million from a recent high of about $65 million. “So I think they’ll consolidate what they have and start to build up margins,” he says.
By the end of the company’s 2006 fiscal fourth quarter at the end of this month, 1-800-Flowers should show signs that its marketing and sales expenses are beginning to grow at a lower rate than its rate of sales growth, Yannas says.
“1-800-Flowers.com has been sacrificing near-term profits to expand its base of sales-and McCann has accomplished that,” Yannas says. “But he’s been playing that game long enough so that now he can concentrate on building his gross margins. And they will go up, judging by the way he’s worked things so far.” l
1-800-Flowers’ growth chart
1976: Jim McCann opens a single florist shop in New York City, building it into a 14-shop chain over the next decade.
1986: McCann acquires the rights to the telephone number 1-800-Flowers, launching a national brand.
1992: 1-800-Flowers starts taking online orders through CompuServe.
1994: 1-800-Flowers becomes the first online merchant to sell over AOL, remaining as AOL’s exclusive floral merchant into 2006.
1995: McCann launches 1-800-Flowers.com as one of the first transactional e-commerce retail sites.
1998: Acquires household goods cataloger Plow & Hearth, part of a string of non-floral acquisitions.
1999: Company sells shares to the public.
2001: Acquires The Children’s Group, which sells under the HearthSong and Magic Cabin Dolls brands.
2002: Acquires The Popcorn Factory.
2004: Acquires the Winetasting Network.
2005: Acquires baked goods seller Cheryl & Co. and Wind & Weather.
2006: Acquires Fannie May Confections Brands Inc. for $85 million in cash.
The more things change ...
Three decades ago, Jim McCann left his job as a social worker to open a flower shop in New York, where he delighted in talking with customers and getting ideas from them on how to improve his business. It was an intimacy largely lost after his business moved mostly to telephone sales in the mid-‘80s as 1-800-Flowers. But now he has recaptured that interaction and uses it extensively on the web through 1-800-Flowers.com. “We’re now able to do what we could do in our floral shop 30 years ago,” he says.
Although growing his company has involved several acquisitions, expanding staff and moving to new facilities, he spends a lot of time working directly with customers through informal dialogues as well as through a more formal and elaborate system of exchanging ideas. “What I’m mostly focused on personally is keeping and deepening relationships with customers,” he says. “I used to talk with customers in my shop in New York, now I may talk with a customer from Kansas.”
Just recently, he received an e-mail from a good customer with a great idea about meeting customers’ needs. “She didn’t realize we already have a team working on the same product line, so I asked her if she wanted to be part of the team,” McCann says.
Although that product plan was too knew to reveal publicly, McCann says 1-800-Flowers.com has incorporated numerous ideas generated with the help of customers and retail partners-enough to have formed more than three dozen online panels of contributors who work on marketing ideas as well as product lines in Expressions Exchange online discussion forums, where participants comment on posted ideas or contribute new ones. Participants can earn points in the company’s Fresh Rewards loyalty program for making purchases from 1-800-Flowers.com.
One of McCann’s favorite things generated by the panels is the “At a loss for words?” shopping-help feature, which was conceived as a way to give men ideas on how to express themselves on cards sent with flowers and other gifts. The feature, which appears with drop-down menus of suggested sayings in checkout, offers expressions for men as well as women and helps to increase the number of shoppers who complete checkout.
McCann admits he’s taking a risk in developing the consulting panels. “We’re making a big bet because they take lots of technology and lots of bandwidth,” he says, adding that he’s made mistakes before, such as when he developed a hard-to-sell line of silk robes embroidered with images of roses.
But he realizes that he needs to stay in tune with customer ideas and needs. “It’s like the good old days of running a single store, when I could pass a good idea from one customer to others,” he says. “Now online I can get the best ideas of all customers.”