Dot-Com Survivors - Industry Trend or Event

Industry Standard, The, July 9, 2001 by Miguel Helft

MASTERS OF THE RICH NICHE

Company: RedEnvelope, an online gift site in San Francisco

Annual sales: $50 million projected

A mere 60 days before Christmas 1999, RedEnvelope was thrust into the world on a tidal wave of red gloss. Seemingly overnight, the retailer's sleek ads blanketed buses, transit shelters and billboards and graced the pages of the New Yorker, Vanity Fair and other highbrow magazines. Amid that season's advertising glut, RedEnvelope seemed no different than a slew of other overhyped e-commerce startups.

Now the differences are becoming clearer: The high-end gift seller is heading toward profitability in the fourth quarter, says RedEnvelope CEO Martin McClanan. He says sales are expected to grow about 60 percent this year to $50 million, as the company adds 300,000 customers to its base of 400,000.

McClanan showed restraint early on. He says the firm's splashy marketing launch was frugal compared with other dotcoms' TV spots. And while billboards were not as effective as he had hoped, the magazine inserts worked. By Mother's Day 2000, 20 percent of RedEnvelope's target audience of upscale shoppers recognized the brand.

Since then, RedEnvelope has added a catalog strategy with a twist. While other retailers aggressively push catalog sales, RedEnvelope's catalog is little more than a showcase; threequarters of orders are placed online. "The Internet is a pretty poor vehicle to introduce customers to an upscale brand," McClanan says. Thanks to the catalog, RedEnvelope has been able to pare marketing expenses to less than one-third of sales.

While many troubled e-retailers were selling commodity products at low prices, RedEnvelope chose high-margin proprietary items such as a Japanese bath kit and silver locket cuff links. Some 35 percent of Red Envelope's products are exclusive, a tactic mirroring that of successful offline counterparts like Crate & Barrel and Pottery Barn.

The key to RedEnvelope's success: careful selection of products. It sells only items it can buy, store, pick, pack and ship at a healthy profit. While many other surviving e-retailers, including Amazon.com, have been forced to fine-tune their business time and again, RedEnvelope has been able to stick to its original strategy.

BUY THE BOTTLE

Company: eVineyard, an online wine seller in Portland, Ore.

Annual sales: $50 million projected

You shouldn't rush a cabernet. Or an online wine seller.

A year ago Wine.com and WineShopper.com were the talk of online wine after raising more than $200 million from marquee investors. They merged last August under Wine.com's label and appeared ready to dominate the online wine industry. But an overzealous attempt to go national -- confronting a maze of liquor regulations -- tripped up the new company, and it closet in April.

That was the lucky break the lesser-known eVineyard needed. Backed by $31 million in funding from VCs and the food industry, eVineyard swooped in and paid less than $10 million for access to Wine.com's 210,000 customers and its Web address. Suddenly, eVineyard, which did less than $10 million in business last year, saw monthly sales surge about sixfold. Now it's the leader in online wine sales.