Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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Chains and the web
Office supplies chain Staples, the second-largest online retailer by revenue after Amazon.com, also has stepped up its use of drop-shippers, one of many steps it has taken to make extra sure it meets the needs of its core small business customer during the recession, says Pete Howard, senior vice president of Staples Business Delivery.
“We’re accelerating everything we can do to keep our best customers, to make it easy for them to do business with Staples, even if they happen to be spending less,” Howard says. “We want to emerge from this recession with a healthier customer list.”
With the help of drop-shippers Staples has added such product categories as janitorial, mailroom and security supplies. Aiming to be the source for more of its customers’ needs, it also has added an online bookstore selling business-related books, something Howard says would be hard to do in every Staples store because of limited shelf space. “Assortment expansion is something you can do online that you can’t do in a store as much,” Howard says.
The web also offers ways to cut costs. Another retail chain, Title Nine, which sells yoga and running outfits and other activewear for women, has trimmed costs by mailing out 6% fewer catalogs this year, while sending marketing e-mails just over twice as often as it had been. The e-mail click-through rate has held steady, “which is great since we have increased our e-mail marketing,” says Janis Abbingsole, operations director.
The chain also has introduced web-only specials each Wednesday. “Many weeks we’ve sold out,” Abbingsole says. Online sales are up modestly this year over last, she says.
Junonia, a manufacturer and online retailer of swimsuits and other apparel for larger women, also has cut back 30-40% on catalog mailings to new customers, because they are not responding as well as before, says Anne Kelley, founder and chairman. But she says Junonia has held steady on catalog mailings to previous buyers, as their conversion rate has not deteriorated.
At a time when more consumers are looking to the web for bargains, online retailers are providing more of them. Drugstore.com is offering coupons that instantly reduce the price in the customer’s shopping cart, Johnston says.
More suppliers are willing to offer coupons now, and Drugstore.com has made them more visible, putting a coupon tab on the home page of the e-commerce site early this year. The retailer rotates 75 to 100 coupon offers each month, Johnston says, and consumers are responding.
“We’ve seen over a 100% increase in our redemption of coupons over the last six months,” she says. In terms of traffic, the coupon tab is now among the top five of the 24 tabs on Drugstore.com’s home page, she says. Drugstore.com reported sales were up 2.9% over the previous year in the fourth quarter when the online retailer attracted 406,000 new customers, 8% more than during the same period a year earlier.
Recognizing that more consumers are bargain hunting, shopping search engine TheFind.com recently began highlighting in search results products that are on sale or for which coupons are available. The site presents coupon offers it obtains directly from manufacturers or from sites like Savings.com. Initial findings show search results with such offers were being viewed 30% more often than others, says Siva Kumar, CEO of TheFind.com.
Newegg.com has responded to the economic downturn with more promotions, including a daily Shell Shocker offer on its home page that it introduced in the middle of last year and emphasized more in the fourth quarter. Luthi attributes the heavy promotions with helping increase sales on the Friday after Thanksgiving by 169% in value and 193% in total orders. The number of buyers nearly tripled, he says.
Newegg.com, whose sales increased 10.5% last year, has stepped up its marketing slightly in 2009. And while putting an extra emphasis on sale items, Luthi says the retailer continues to emphasize what it sees as the pillars of its business: product selection, informational content and customer service.
Those selling points are crucial for taking advantage of the opportunity to attract new online shoppers. “We’re going to continue to market that,” Luthi says, “because the typical bricks-and-mortar customer still needs more convincing to come online for that first purchase.” Once someone makes a purchase, Newegg is confident that shopper will come back: about 70% make repeat purchases, Luthi says.
Other online retailers are hoping to keep customers coming back by offering rock-bottom prices, among them Appliance Zone LLC, which offers a low price guarantee to consumers shopping for parts. The web-only retailer is intent on keeping costs low so it can live up to that promise, but faced a problem recently caused by its rapid growth.
The e-retailer has doubled its sales to $750,000 per month since relaunching its site as ApplianceZone.com in October, and was planning to add three customer service agents to answer the phones. Instead, CEO Jim Allen pulled the toll-free number from the web site early this year and now encourages customers to ask questions by live chat, making use of the BoldChat system from Bravestorm LLC the retailer employs. He says some of his agents can handle as many as a dozen or more text chats at a time, whereas a typical phone call ties up an agent for four to six minutes.
“Taking down the phone number was kind of a risky move, but we did have a record week last week,” Allen said last month. Allen says cutting phone center expenses helps keep prices low and meet the needs of consumers who may be trying to fix appliances themselves rather than call a repairman. “A few dollars means a lot to a lot of people,” he says.
Given the reduced level of consumer expenses, many web retailers are cutting back on expenses, and one of the easiest spending categories to tweak is bidding on search engine ads, because it can be quickly raised or lowered as business dictates. Spending in that area was flat to slightly down during the first several weeks of 2009 for retailer clients of online marketing firm SearchIgnite.