The Promise Of E-Commerce
Sramana Mitra, 04.09.10, 6:00 AM ET
Whichever way you look at it, the Web has become the place for commerce.
Online spending grew 18% in March compared to last year — the eighth consecutive month of double-digit growth, according to MasterCard Advisors’ SpendingPulse. The growth rate has outpaced that of traditional brick-and-mortar stores. While many chain retailers’ online sales are growing, their store sales are shrinking. At 41 of the 50 biggest retail chains in 2008, e-commerce revenue grew as store sales declined, says InternetRetailer.com.
For the longest time entrepreneurs wanting to venture off on their own would open a store downtown where foot traffic abounds. But that trend, it seems, is changing. Today’s equivalent of foot traffic is eyeballs. Much of that traffic flows from search engines and mega-marketplaces such as Amazon.com and eBay. Today an entrepreneur contemplating a retail business no longer leases space on Main Street. She opens a Web site. Her market is no longer local.
There is much discussion today about how we will reverse this recession and why entrepreneurs are a key piece of the puzzle. The U.S. Census reports that there are 19.5 million nonemployer firms — mom-and-pops — and a large portion of this segment operates retail stores. Another 4.5 million firms operate with less than 10 employees, a segment that is also heavy in retail. In this recession many of them have gone out of business.
For an economic recovery, the small, specialty retail segment will need to get back to a healthy state. E-commerce may be the answer. Evidence suggests many small online retailers are doing quite well.
Take FineArtAmerica.com, an online marketplace and social networking site for painters, photographers and other visual artists. Artists can use to the site to connect with collectors and other buyers and, says founder Sean Broihier, put the business side of their career on “autopilot,” leaving them more time to create art. FineArtAmerica.com (FAA) has more than 28,000 artists who upload new images to the site each day; 6,000 of them offer prints for sale.
FAA has been profitable since launch in 2007, thanks in part to its low overhead. Founder Broihier is its solo owner, and the company has no employees. Revenues were $175,000 in 2008 and $1 million in 2009, and the company projects revenues of $2.5 million for 2010. Broihier says that FineArtAmerica.com currently attracts 175,000 unique visitors a day, and traffic is growing by 10%-15% a month.
Broihier is a very good example of someone who has taken destiny in his own hands by embracing the Web rather than joining the 10% unemployment pool in America. (See my post Deal Radar 2010: FineArtAmerica.)
Another entrepreneur, Jeff Taxdahl, founded Thread Logic in 2002 to create custom-logo-embroidered apparel for businesses and organizations. Products range from polo shirts to aprons to fleece blankets. In a business that has been slow to go online, Thread Logic has focused almost exclusively on Internet sales while keeping in close touch with customers. In 2009 sales were $1.1 million, up 27% over 2008. (See my post Deal Radar 2010: ThreadLogic.)
North of the border in Montreal, Beyond the Rack is a private sale shopping club serving members throughout the U.S., Canada, and elsewhere. The company sells designer fashions, hosiery, underwear, swimwear, jewelry, cosmetic and beauty products, and accessories from recognized brands at prices up to 70% off retail prices. Beyond the Rack was founded by Yona Shtern and his business partner, Robert Gold.
Beyond the Rack has more than 750,000 members and continues to grow. Site traffic is currently in the range of one million page views per day based on 200,000 daily visits. For the past 12 months, both membership and revenue are up 35% month-over-month, and the monthly revenue run rate exceeds $2 million. The company says that earnings before interest, taxes, depreciation and amortization (Ebitda) — excluding marketing expenses — is approaching break-even. Beyond the Rack has raised a total of $4.5 million in venture financing. (See my post Deal Radar 2010: Beyond the Rack.)
These are a few examples of how a high-tech spin is being put on a quintessentially old school business. Providing the high-tech spin are companies like Austin, Tex.-based BigCommerce founded by Mitchell Harper and Eddie Machaalani, who met in an online programming forum. Harper and Machaalani, a Web designer, founded BigCommerce because they saw that there was no e-commerce product really designed for the nontechnical business owner.
BigCommerce currently has 3,000 customers and yearly recurring revenues of $1.5 million. It is forecasting 13,000 customers by the end of 2010 and says it is growing at 114% month on month. The company is 100% bootstrapped. (See my post Deal Radar 2010: BigCommerce.)
For retailers confused about how to manage their inventory and marketing budgets across their own Web site, eBay, Amazon, comparison shopping engines and search engine marketing, a company called ChannelAdvisor offers some answers. CEO Scott Wingo says, “By our estimation, 80% of e-commerce begins through one of three channels. If you’re a small business, you have a good shot at getting in front of consumers if you can be aggressive on eBay, search engines or comparison shopping engines. If you’re not [on these channels] then you are missing 80% of the opportunity.”
Wingo’s company helps retailers manage inventory and traffic acquisition across various channels from a single integrated platform. From 3,000 customers, ChannelAdvisor pulls in$30 million in sales, and has raised $80 million in financing. (See Scott Wingo’s Entrepreneur Journey.)
A major movement from brick and mortar to online retailers is taking place, especially in North America. In a few years, this will change the look of Main Street, but hopefully, it will give small retailers greater leverage and more efficient access to markets, including international markets in some cases. As emerging markets embrace e-commerce, large populations of both consumers and retailers will be buying and selling online.
Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy . Her three books, Entrepreneur Journeys, Bootstrapping, Weapon Of Mass Reconstruction, and Positioning: How To Test, Validate, and Bring Your Idea To Market are all available from Amazon. Her new book Vision India 2020 was recently released. Mitra also runs the 1M/1M initiative.