Taking On The Big Dogs
How smaller e-retailers make their case to value-conscious consumers, stand out from the crowd—and stand up to the likes of Wal-Mart, Amazon and Costco
By Paul Demery
Talk about ambition. David Redlich has a vision of his tiny-by-comparison office and business supplies e-commerce site, ReStockit.com, breaking into the list of top 100 online retailers and reaching sales of $100 million.
No matter that the economy has been in a downspin that has tended to favor huge retailers known for low prices, both online and offline. That means ReStockit competes in office supplies against such top 10 online retailers as Staples, OfficeDepot, OfficeMax and CDW, and in computer and consumer electronics against the rest of the top 10: Amazon, Dell, Apple, Sears, Newegg and Best Buy. To top it off, ReStockit goes up against the likes of mega-wholesale club Costco.com in selling restaurant supplies.
As deal-seeking shoppers flocked to the likes of Wal-Mart Stores Inc., Amazon.com Inc. and Costco Wholesale Corp. in the past year, many smaller e-retailers responded by emphasizing their own value proposition—through deals, free shipping and improved service.
ReStockit's sales were up 28% this year as of August, and Redlich says he's not intimidated by his giant rivals. "We see ourselves competing against the big boys because we're nimble and flexible," he says. "We're like the little prize fighter who jabs quickly back and forth, going up against the bigger stalwart that doesn't move as quickly."
The economic downturn just made smaller merchants work harder and smarter, Redlich and others say.
"2009 got us to work more on what's worked well in the past, and really use that data to market to customers better than we've done in previous years," says Brian Schwank, director of marketing for Rock Bottom Golf, a web-only golfing equipment and apparel retailer with about $28.3 million in 2008 sales that competes against larger rivals like multichannel retailers Golfsmith International Holdings Inc. and Edwin Watts Golf.
To hold their own against larger competitors, e-retailers like ReStockit and Rock Bottom Golf are leveraging the accessible and powerful marketing and merchandising resources the Internet offers. Their tools range from steep discounts and free shipping offers prominently displayed on home pages to a special emphasis on customer service and unique efforts to engage shoppers through social marketing.
ReStockit is the 414th largest online retailer, with $14.5 million in 2008 sales—one-half of one percent of 8th-ranked CDW's sales of $2.6 billion, less than 0.2% of No. 2 Staples' sales of $7.7 billion, and 0.07% of No. 1 Amazon's sales of $19.17 billion. It has its work cut out for it, as do online retailers of comparable size.
But this year, teams of ReStockit employees and managers are fine-tuning their merchandising strategies more in depth and more frequently than in the past.
"We have a daily huddle, discussing what we've learned from the day before, and we're having more pricing meetings and merchandising meetings to address how to get our customers to take action," Redlich says. "People are looking for savings in this economy, and we're providing quality of merchandise and selection at a great price."
110% Price Guarantee
ReStockit involves all employees in frequent discussions about how to improve core operations like merchandising and customer service, including an ongoing review of the best uses of such technologies as live chat, site search and navigation, and personalized cross-selling.
"As a small company, we don't have the brand power the big guys have," Redlich says. "So while building our brand, we need a constant call to action—so our customers have a reason to place an order today or this week."
One new technique that hooked many shoppers is a 110% price guarantee: ReStockit offers shoppers a coupon valued at 110% of the difference if they report a lower price within three days on an item similar to one purchased on ReStockit.com, Redlich says. ReStockit promotes the 110% offer across the top of its home page and authorizes customer service agents to use live chat sessions to check prices and, if warranted, immediately issue a coupon code.
To maintain profit margins amid the price discounts, ReStockit gets suppliers to agree to wholesale price rebates for hitting retail sales targets.
"Simply asking them to lower their prices doesn't always work, especially if you want them to stay in business," Redlich says. "The rebates help with our margins and in setting low pricing for our customers."
Finding An Edge
To build on its niche in the golf equipment market, Rock Bottom Golf is complementing its off-price strategy with online affiliate relationships through the LinkShare network with coupon sites including CouponMountain.com and CouponCabin.com. And, in a potentially more significant initiative, it's using social marketing to build on the loyal following it has developed among customers who value its fun-to-shop environment as well as its low prices, Schwank says.
Rock Bottom, which operates on a Yahoo Store e-commerce platform, has worked with search engine optimization firm McDougal Interactive to build an online golf game that lets visitors compete against one another if they submit an e-mail address. The game features Rock Bottom's cartoonish mascot, Scratch the Caveman, who also appears regularly in marketing and merchandising content. To score points, players click their mouse to make Scratch swing his club in time to hit a moving target.
For now, players access the game by clicking an obscure link at the bottom of Rock Bottom's home page. But the retailer and McDougal Interactive are building a widget that, before the holiday shopping season, will let Rock Bottom's several hundred followers on Facebook download the game to their personal pages on that social network; Rock Bottom is also offering the game widget for download through its e-mail newsletter, which goes to about 350,000 consumers.
"Social marketing is tricky because it's hard to throw promotional deals to people in their personal space on networks, but this gives us some skin in the game while people are having fun interacting with our brand," Schwank says.
To further expand its brand as a fun and value-oriented place to shop, Rock Bottom is also developing a series of advertising videos featuring golf-playing Scratch. Developed at a cost of about $2,000 each, the 30-second videos will initially run on YouTube; if they prove popular, Rock Bottom will probably run them as commercials on televised golf programs, Schwank says.
'If there's anything we can do'
At the online health and beauty products site AmericaRX.com, which did $14.3 million in 2008 sales and competes against the 25-times larger Drugstore.com and Drugstore's sister site Beauty.com, founder and CEO Pavankumar Darisi says he's expecting to eventually hit $100 million in sales through an emphasis on value and personalized customer service.
"We have a 30-40% repeat customer rate," he says. "When customers come to us the first time, they often don't go back to other sites."
AmericaRX.com emphasizes value in ongoing promotions across the top of its home page, as well as in other prominent positions, including free-shipping offers and a 5% discount on any repeat order within 60 days.
When callers to its customer service line are put on hold, they hear recorded messages such as, "If there is anything we can do to improve the quality of our relationship, please let us know. In today's automated and impersonal world, we still retain that old-fashioned personal touch."
Building Customer Loyalty
Customer service and free shipping offers also play important roles at CWDkids.com, the e-commerce site of cataloger Children's Wear Digest Inc. With $15.8 million in 2008 web sales and competing against major apparel retailers like Gap Inc.'s GapKids.com and Walmart.com, CWDkids has been growing sales through promotions that increase average order values, such as free shipping on orders of $125 or more, says Tracy Schneider, vice president of marketing and operations.
"If a customer knows she is going to receive free shipping on an order of $125, she's more likely to add an extra item or two to her order to hit that cutoff," she says.
The retailer has also found shoppers are willing to pay more for items they perceive as offering extra value. "For example, search results and comments from customers have let us know that 'Made in the USA' is important," Schneider says. "We plan to continue to offer items made domestically to meet the demand."
Some smaller retailers believe they can offer shoppers a better experience than the giants can, which will ensure loyalty in good times and bad.
Powell's Books Inc., No. 364 in the Internet Retailer Top 500 Guide, for instance, competes in the same market with Amazon.com and web-savvy, industry-leading retail chains Barnes & Noble Inc. and Borders Group Inc.
But Powell's, with six stores and about $19.3 million in 2008 online sales, knows it has something its rivals don't—an in-store shopping experience based around its own style of coordinating categories of books and media products—and it's determined to improve how it offers that shopping experience online as well as in its stores, says Emily Powell, vice president and head of e-commerce, who is taking over leadership of the company following the pending retirement next year of her father, company founder Michael Powell.
"We can't compete on the same level with Borders and Barnes & Noble because we're not in everyone's backyard like they are, and we can't compete on the same scale as Amazon," Emily Powell says. "But we're doing what we do best online as well as in our stores. Our stores offer a wonderful process of discovery—for example, a customer might walk in one of our stores looking for a book on how to repair cars, then also find books on old cars, on travel destinations, then how to learn a foreign language—almost like walking through a Google search. We plan to offer that kind of shopping experience online too through improved site layout and site search and navigation."
Also leveraging its multichannel expertise to grow sales both online and in stores is Christopher & Banks Corp., No. 403 in the Internet Retailer Top 500 Guide. To compete against retailers like J.C. Penney Co. Inc. and Macy's Inc., Christopher & Banks has deployed new online gift centers that are increasing click-through rates on its e-commerce sites. That web feature also expands product offerings in stores, as shoppers can check computer monitors for suggested gift arrangements.
The multichannel strategy, launched earlier this year, boosted click-through rates in a special Mother's Day gift center on ChristopherBanks.com, the retailer's main e-commerce site, and cjbanks.com, its plus-size women's apparel site. "It also drove more store sales," says Monica Dahl, senior vice president of planning, allocation and e-commerce.
She adds, "2009 will be the first holiday shopping season that we've had this multichannel functionality, and we believe there will be a myriad of benefits." Christopher & Banks operates its e-commerce sites on a platform developed and hosted by GSI Commerce Inc.
The retailer is also beginning to test self-service online kiosks in stores, in addition to existing monitors on checkout counters that promote displays of merchandise not available in stores.
Bringing the e-commerce experience into stores, where shoppers can place online orders for items not available in the store, Dahl says, is helping Christopher & Banks compete against larger rivals by increasing selection without expanding in-store inventory. "This allows us to say 'yes' to every customer, and to show them entire assortments of products they otherwise wouldn't have seen in the store," she says.
Carrying out an e-retailing strategy that can compete effectively against the largest retailers requires the right mix of technology that can help a relatively small retailer stand out against the behemoths with much greater resources.
One advantage small retailers have to start off, Redlich says, is the ability to view and compare the merchandising and marketing strategies across the e-retailing industry. "The great thing about the Internet is that everything is visible," he says.
The challenge is to adopt growth strategies that match a small retailer's resources.
ReStockit operates on a homegrown e-commerce platform based on ASP.net, a web site development technology that Microsoft Corp. makes available for free to developers who use Microsoft's .Net technology environment.
While also developing its own personalization and cross-selling applications, the retailer has selectively chosen commercial technology that it figures add more value than it could develop in-house. These include: Omniture Inc.'s Test and Target analytics and page optimization, Silverpop e-mail marketing, Bold Software's BoldChat live chat application, and Endeca Technologies Inc.'s site search and navigation system, which ReStockit gets at a discounted rate through marketing services and software reseller ThinkMedia Inc.
Rock Bottom expects to continue growing on its Yahoo Merchant Solutions platform, commonly known as Yahoo Store, Schwank says, but it also works with ChannelAdvisor Corp. to extend its market reach with product listings on eBay.com, Amazon.com and comparison shopping engines.
With its combination of e-commerce technology and strategies for engaging shoppers, Rock Bottom figures it has a good chance of catching up to its larger rivals in good economic times or bad. "We don't quite get the business they get yet," Schwank says. "But we're coming after them."