Have you heard of FragranceNet.com? Chances are, if you’re buying beauty products online, you have. In September of last year, FragranceNet.com ranked just behind its top competitor, Eve.com, in PC Data and Jupiter rankings. BizRate.com chose to list FragranceNet.com in its listing for the top 20 e-tailers of the holiday 2000 shopping season. Oh, and while its competitors burned through literally tens of millions of dollars in venture capital, FragranceNet.com has gotten by with about $150,000 in seed money.
The site’s got all the trappings of dot-coms funded by millions of dollars. It features free shipping, a large selection of over 3,000 products, a lowest-price guarantee, and discounts of up to 70 percent on popular perfumes and fragrance products. And like Amazon.com, it throws a little gift into each box, too.
Last year FragranceNet.com racked up nearly $5 million in sales. It’s got a relatively small location, fewer than 30 employees, and basically no inventory. Orders come in, and the company gets a delivery from its suppliers the next day and ships the orders out.
And it’s profitable. Yup, while competitors such as Eve.com, clickmango, and BeautyJungle.com burned through vast fortunes in incredibly short amounts of time (clickmango spent most of its $4.4 million start-up money in just four months) on expensive marketing campaigns, huge staffs, and expensive offices, FragranceNet.com spends only 21 percent of its revenue on marketing, just up from the 16 percent it spent in 1998 and 1999. The company claims to spend only $7 to acquire a new customer and boasts an average order size of $50 (compare that with clickmango’s meager $12,000 per month in sales after 250,000 visitors).
How has the company done it? How has FragranceNet.com managed to build a profitable pure-play dot-com in a particularly competitive space? The answer may lie in its constant attention to the bottom line and pay-for-performance advertising.
While many of the dot-bombs in its sector spent millions on mass-market campaigns, expensive partnership agreements, and heavy banner-saturation buys, FragranceNet.com pays only for the clicks it receives. Advertising on sites such as AT&T and iWon, FragranceNet pays a commission of 8-10 percent of each sale driven through one of the banners. All of its advertising is performance based. And it works.
FragranceNet.com’s frugal philosophy extends even down to shipping and packing supplies: It buys supplies only as it needs them and keeps little on hand. That the company is in a fairly high-margin business helps, but that it leases its computers and even outsources its hosting services also helps. Reportedly, the company spent around $100,000 to design and implement its current site — not millions as so many others have.
Will this kind of model work for every company that goes into online retail? To some extent, yes. As the old saying goes, “Retail is detail,” and only paying attention to the details of making money, building traffic, and satisfying customers will result in a successful business. Building brand, a brand that lasts longer than several seconds between commercials, requires a lot more than expensive campaigns and cute mascots; it takes a commitment to hard work, customer satisfaction, and fair pricing.
As more online retailers start to feel the pressure from a sinking stock market and brick-and-mortar competitors, looking back to practices that have served small businesses well since the beginning of time may just be what saves them. As Pets.com found out, selling things for less than they cost isn’t a winning strategy, even if your sock puppet is almost as recognizable as Mickey Mouse. The investors of today (and the foreseeable future) are looking for a reasonable business plan and marketing campaigns that make sense.
The bottom line is back. It may not be sexy, but it’s real.
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