Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Stacks and Stacks Homewares founder Mel Ronick refuses to get crushed by the giants.
Stacks and Stacks Homewares isn’t likely to win any awards for flashy web site design or radically innovative online merchandising. Its customer interface is workmanlike rather than cutting edge. The home page features a random, rotating selection of new items and bestsellers instead of seasonal and themed displays favored by large competitors like Target Corp. or Wal-Mart Stores Inc.
But the e-commerce site has been chugging along since 1998, profitable from the outset, growing revenue 30% to 40% per year-and vindicating founder Mel Ronick’s gamble in spring 1999 to deep-six most of his physical stores in favor of e-commerce. Stacks and Stacks shows that a solid organic search strategy combined with good prices and reliable service can help a small Internet retailer compete with the big kids without having to spend big dollars.
Ronick’s move was prescient-a strategic shift that aligns with a powerful trend of today, says Sucharita Mulpuru, senior retail analyst at Forrester Research Inc., a research firm specializing in technology’s impact on business and consumers.
“Right now many product categories, including housewares, are experiencing a significant shift in sales from the store channel to the e-commerce channel. This makes it harder for stores to achieve year-over-year sales increases when so much of the volume is shifting to the web,” Mulpuru says. “It does not seem unreasonable that a solution is to close stores and move more online because, bottom line, it’s cheaper to process a transaction online vs. in store.”
StacksandStacks.com’s relatively simple, somewhat workmanlike appearance is an outgrowth of Ronick’s software philosophy: If you build it, they will come, but don’t spend too much on it until they actually arrive. Ronick has web designer InfoGate develop new features for the site-refer-a-friend, wish lists, internal search, product reviews-and then waits for performance and reception metrics to decide which ones merit a full-blown commercial package. The retailer and InfoGate have self-developed most of the site’s infrastructure, except for the payment system (iPay Technologies LLC), affiliate marketing management (Commission Junction Inc.), search marketing management (Thyfault & Associates) and web analytics (WebTrends Inc.).
“It’s one thing to implement a program and another to actually use it,” Ronick says. “If you need a full-time employee to run something, and it generates reams and reams of reports that no one has time to look at, why spend $5,000 a month on it? You need data that isn’t going to bury you.”
Anything but conservative
If his development methodology is on the conservative side, his original decision to go online was anything but. Ronick was operating a six-store chain in the San Francisco area in 1998, facing brutal competition from big-box stores like Target, Linens ‘n’ Things Inc. and Bed, Bath & Beyond Inc. At the same time, he had been watching the development of e-commerce. He bought a few books at Amazon.com and was impressed with the potential ease of the customer web experience, and he began to wonder whether the Internet was his best bet for the future.
“We couldn’t sustain the same numbers we were used to with all of this new competition and its buying power and marketing power,” Ronick says. “As the poker adage goes, you have to know when to hold and when to fold. It was either close or figure out a new way to stay in business.”
Ronick got into housewares somewhat by accident. After graduating from college in the 1960s he went to work selling computer systems for IBM. While not a computer geek himself, he understood the power of information technology-an understanding that would come in handy later. “I’m not a technical programming type, but I was fascinated by what computers could do,” he says.
By the 1980s, Ronick was working in real estate, developing shopping malls. Interest rates were high and the mall development business was slow. In such an environment, developers sometimes will give a helping hand to fledgling retailers who look like they’ll become solid tenants. And so it was that in 1984 Ronick found himself investing in a then new concept: a store devoted to organization and storage, back before the ascendancy of California Closets, The Container Store and other current household names.
“We weren’t doing much developing, and I was getting a little bored. So I made a deal with this fellow to roll out 50 stores and go public. And I was going to go skiing in Aspen after that,” Ronick says. The new venture was dubbed Stacks and Stacks because the store was piled high with crates, boxes, bins and cubes.
However, the partnership went downhill after a year or so, and he was faced with three options: close the company, bring in someone else to run it, or run it himself and see how he liked it. “I liked it, so I bought my partner out,” he says. Retirement in Aspen was postponed indefinitely while Ronick built six stores around San Francisco and Seattle. He also expanded the product line from storage to housewares, and later into furniture, redefining the business’s mission as “everything for the home.” By the late 1990s he had 50 employees, a warehouse, trucks, and high overhead that couldn’t sustain a major hit to revenue. With the big boxes looming, Ronick decided to move to the web-one of the first housewares retailers to take that step.
“It felt like a humungous gamble,” he says. “It was a nail-biting time.”
Problems at the in-laws
StacksandStacks.com was up and running in spring 1998. By December things were going smoothly enough that Ronick felt safe going to Germany to visit his wife’s family-a mistake he will never make again. No sooner had he landed than his staff was frantically trying to reach him to ask how to handle the sudden influx of online Christmas shoppers and their orders, inquiries and demands for prompt service. So Ronick drafted Stacks and Stacks bricks-and-mortar stores employees to aid e-commerce operations.