Home > 09/01/06 Growing Pains

09/01/06 Growing Pains

Living the e-retailing dream—but looking for the right size e-commerce platform By Paul Demery An entrepreneur at heart, Diana Nelson left a career as a big-chain retail executive in the late ‘90s, having racked up experience running merchandising operations for venerable names like Gap Inc. and Marshall Field’s in Chicago. She headed west looking for something new, and when she came across Kazoo & Co., a promising and innovative toy retailer in Denver, decided to buy it and plant some new roots. The promises of e-commerce were buzzing all about and Nelson figured she had found her future.

Kazoo offered from its single location unusual and educational toys that sold at higher prices than found in most toy and department stores. It had been founded by a group of educators from Kalamazoo, Mich., who had condensed their hometown’s name and set out to offer an atypical toy shopping experience, where customers would find toys like Beka wood toys that cost more but were educational and longer-lasting. Nelson, a mother as well as veteran merchandiser, immediately saw the store’s potential for growth—but more on the web than in the store itself.

200% annual growth

Within a year, Nelson had launched her KazooToys.com on a Yahoo Stores e-commerce platform, expanding her retailing market reach as well as reputation. “We’ve been growing about 200% a year,” she says.

But like most retailers that start out small and reach a certain level of volume, Kazoo & Co. took a hard look at its e-commerce platform to see if it was up to the job of providing the functionality and scale necessary to support its intended growth. Yahoo Stores, now know more formally as Yahoo Merchant Solutions, has worked well up to now, Nelson says, but approaching about $1 million in sales, she and a consulting firm earlier this year began scouring the market for other platform options. “We looked at about 14 vendors,” she recounts.

Kazoo’s Yahoo platform has been reliable and effective as a starting point in e-commerce, but Nelson wanted to be sure her site operated on a platform capable of keeping her in the game and growing. “Kazoo wants to increase site functionality and sales as soon as possible,” says Janine Ward, vice president of client services for Nelson’s consulting firm, Los Angeles-based Infuse Creative.

Kazoo isn’t alone among small but growing retailers facing a turning point that requires them to reconsider their existing e-commerce platform. There may be hundreds of thousands of merchants operating on Yahoo, eBay and in-house platforms nearing the level of e-commerce volume that will make them re-think their platform strategy, experts say. “There are lots of companies that, when they get from $1 million to $5 million in sales, they feel they’ve outgrown their Yahoo platform, and they’re looking for a low-cost, high-function solution,” says Tamara Mendelsohn, retail industry analyst at Forrester Research Inc.

Be prepared

The motivation is usually to be more prepared for whatever comes along, experts say. “They want to be able to change things faster, and have flexibility in being more dynamic in merchandising based on what shoppers are looking for,” says Patti Freeman Evans, retail analyst with Jupiter Research.

The same can be said for retailers operating on eBay or in-house technology, experts say. The ProStores division of eBay estimates that 400,000 small online retailers—many operating on in-house platforms—are candidates for platforms such as ProStores. “We expect that number to increase to 900,000 by 2008,” says Julian Green, director of ProStores.

But the decision on which platform to choose isn’t easy. Not only are plenty of vendors ready and willing to take on these growing merchants, but Yahoo and eBay themselves are trying to stay in the game with upgraded platforms of their own.

The key to finding the right match, experts say, can depend on several things ranging from the vendor’s fee structure and infrastructure to the particular features a retailer wants to deploy. Retailers in the Yahoo environment might work with Solid Cactus Inc., for instance, a vendor founded by pet supplies retailers that specializes in adding marketing, merchandising and navigation features to the Yahoo Merchant Solutions platform. And Yahoo itself has been expanding its own set of optional site features. “Retailers can start out with us as a mom-and-pop shop, then grow their business up through various customization capabilities,” says Jimmy Duvall, director of e-commerce for Yahoo Small Business.

Among the capabilities he cites in the Yahoo Merchant Solutions platform: a new tool that lets retailers customize the checkout process, such as by consolidating multiple steps on one page; product image downloads expedited by Akamai Technologies Inc.; and the ability to conduct real-time look-up of inventory—an option Kazoo has used in a shipping system integrated with UPS.

Considering channels

EBay’s ProStores platform, based on the technology of Kurant, which eBay acquired last year, offers page design features that let retailers customize merchandising and promotional efforts, integration with shipping systems and upgraded search optimization techniques to assure that search spiders capture information about new products, Green says.

Yahoo Merchant Professional requires a $50 set-up fee, $299.95 per month, plus 0.75% fee on sales. eBay’s Pro Stores runs $29.95 a month for its most popular version, plus 0.5% fee per sales transaction. ProStores also offers ProStores Enterprise at $249.95 a month plus 0.5% which integrates into inventory management systems. Both Yahoo Merchant Solutions and eBay ProStores can accommodate retailers as large as about $5 million in annual sales, according to Yahoo and eBay.

The actual quality of experience a retailer may have on a new or revised platform can depend on several factors, including a retailer’s need to integrate with an existing legacy infrastructure, its expected near-term volume, the range of shopping and merchandising features it wants to manage and the number and type of channels it wants to sell through, experts say.

A retailer that wants to graduate from selling only in eBay.com auctions to also sell through its own site may wish to go with the eBay ProStores platform if it wants to maintain tight integration with its eBay.com business. But if the retailer wants to spread its business more widely through Amazon.com, Yahoo Shopping and shopping comparison sites as well as through eBay.com auctions and its own dedicated site, it may want to consider a platform vendor like Truition Inc., Marketworks Inc., Mercent Corp. or ChannelAdvisor Corp., each of which provides e-commerce to support a retailer’s own web store in addition to integrated shopping and inventory management across multiple online channels, Mendelsohn says.

Expanding

“From what I’ve seen of eBay ProStores, they serve sub-$1 million retailers very well, but now are expanding their enterprise edition to serve more sophisticated sellers with more headroom to grow,” she says. “And its integration with eBay.com is very tight and sophisticated. But if the same retailer wants to sell beyond eBay and its own store, it should take a hard look at platform vendors like Truition and ChannelAdvisor.”

Other e-commerce platforms for small but growing e-retailers include Monster Commerce; Everest Software Inc.; osCommerce, to which 4inkjets.com migrated from Yahoo Merchant Solutions earlier this year to get a higher level of customer tracking and content management; Venda Inc., to which Danskin.com migrated off Yahoo this year to benefit from features such as running more promotions and tracking orders; and Demandware Inc., which gets about 20% of its clients from Yahoo-based retailers, according to CEO Stephan Schambach.

“Our only consistent source of retailers is Yahoo Stores,” Schambach says, adding that he rarely sees eBay sellers because they usually sell low-margin products. Because Demandware caters mostly to retailers with at least $10 million in sales, its Yahoo clients tend to be retailers on the verge of doing that much or more in sales, he adds. Demandware starts out at about $10,000 per month for its front-end e-commerce and merchandising platform, which can integrate with back-end third-party inventory and fulfillment systems.

Venda also gets about 20% of its clients from Yahoo, and caters to retailers ranging in annual sales from about $1.5 million to $200 million, CEO Jeff Max says. Although Venda’s flat fee of $10,000 per month per web site may seem steep for the average Yahoo Stores retailer, it’s often competitive for larger merchants who must pay Yahoo a percentage of sales and may pay extra to third-party partners for additional site features, he adds.

MarketLive, which caters to mid-tier retailers with a licensed platform that starts at $75,000, has about 30 clients who migrated from Yahoo and represent about 10% of its business, says director of marketing Lisa Duryea.

Hitting a growth surge

The need to take a harder look at e-commerce platforms is even more crucial when a young retailer suddenly hits a growth surge, as did Ty’s Toy Box LLC. The company is a home-grown retailer that started out of Ty Simpson’s home after he realized there were few U.S.-based sellers of Wiggles-licensed toys based on an Australian TV show that his daughter liked. After launching his retail business with auctions on eBay.com in 2003, founder and CEO Simpson steered the business through rapid changes that took him from being solely an eBay auctioneer to that plus an operator of multiple sites for multiple retailers within three years. And last month he launched a site within Amazon.com as a new toy partner of the leading online retailer.

Along the way, Simpson has worked with several e-commerce platform providers—and is still considering changes as his combined retailing and retailing services business has evolved from a focus on toys to a broader focus on licensed products, including apparel, toys and other items, whose sales can suddenly surge along with the popularity of a particular TV show or movie. “When you hit a good one, it can be big,” he says.

Simpson’s goal is to find the right mix of technology that can support his need to maintain direct control over his back-end operations like inventory management, while letting technology partners host the e-commerce front end, including order management and checkout, across multiple online channels.

Simpson left the auction business after about a month to sell through TysToyBox.com, which he launched on an ASP platform hosted by Nexternal Solutions Inc. “It was fine at that early stage,” he recalls. “We could upload products, get real-time integration with our shipping application, and we had all the basic things we needed to start a web store.”

But then Simpson decided to sell through eBay auctions again as well his own site, and brought in ChannelAdvisor to integrate with eBay.com. “We thought we could use eBay again as an alternate channel to sell things, and we wanted to treat every customer the same,” he says. But Nexternal Solutions didn’t work well with ChannelAdvisor, and he had to manage things like newsletters, shipping information and merchandising separately for each channel, Simpson says. “We had to set up SKU information multiple times and go with two checkout systems,” he says. “Then we were saying, ‘This isn’t fun.’”

In the market again

Simpson then brought in Truition, which provided a hosted platform that, so far, has provided a more customizable e-commerce storefront and integrates with orders received through a growing list of partner sites, including uBid.com, Overstock.com and Amazon. “It worked well,” he says. “We could work with one set of product descriptions, one set of inventory records, and consistent shipping information as we became more multi-channel on the web.”

The Truition e-commerce platform requires a set-up fee that can range from $40,000 to $100,000, depending on the amount of customization and channel integration, plus a monthly fee based on about 2-3% of sales, says president and CEO Butch Langlois. Truition generally serves retailers with $1 million to $50 million in annual sales, he adds.

But now that Simpson is also growing his retail services business, he’s again investigating the e-commerce platform market to see how he can get the best mixture of direct control of back-end inventory systems and hosted applications from outside providers for his e-commerce storefronts. “We’re moving beyond the sweet spot for a traditional ASP, so we’re looking at technology platforms all over again to make sure we can be totally scalable,” he says.

“We could still keep someone like Truition or ChannelAdvisor in the mix because we need an integration partner,” Simpson adds, “but we want to own our core technology to generate purchase orders, warehouse pick sheets and have the ability to turn on and off certain products for certain channels, then let Truition or someone plug into our back-end platform to run the front end and web design.”

The lowest cost option

Whatever platform decision a growing online retailer makes, it shouldn’t overlook the option of expanding on its existing platform and avoiding the unknown of migrating to a new one, experts say. “You may get some additional flexibility and features by switching to a new e-commerce platform, but you may not get the ease or speed of upgrading to the enhancements that you’re looking for,” Freeman Evans says. “Retailers should first look seriously to see that they are maximizing the opportunities they have with their current platform, because a lot of times they’re not, or maybe they haven’t upgraded to the latest version.”

That, in fact, is the approach that Kazoo & Co is now taking. After taking a hard look at options other than its Yahoo Merchant Solutions platform, Kazoo owner and president Nelson has decided to stick with Yahoo. With the enhancements added to the Yahoo platform for merchandising, marketing, inventory control and other things, it made more sense to stay on the platform, she says.

The Yahoo Stores platform supports Kazoo’s ability to reach two of its main goals: to make the site more user-friendly with fewer clicks to find a desired product and get through checkout, and to better optimize the site for natural Internet search results, she says. Plus, it can support Kazoo’s goals without taking on the additional and unneeded complexity that might come with a new platform, says Ward of Infuse Creative. “We’re finding Yahoo Merchant Solutions to be more organic search friendly,” Ward says. “So why add complexity with a new platform when you don’t need it?”

Still, with her eye on long-term growth, Nelson figures it might not be long before she’s again reconsidering her platform options. “We’re staying with Yahoo as of now because its platform works for KazooToys.com,” she says. “But as we continue to grow and outgrow what Yahoo has to offer us we will have to develop a new platform.”

ecommerce provided by Yahoo! Small Business

Image

Email Updates & Promotions    
close
09/01/06 Growing Pains