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Innovation economy

Up-and-coming sites may make Boston a leader in e-commerce

By Scott Kirsner
Globe Correspondent / July 10, 2011

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In a Back Bay building that once housed Shreve, Crump & Low, husband-and-wife entrepreneurs Greg and Dina Selkoe are building an e-commerce company that is already bigger than the upscale jeweler ever was. With about 100 employees in Boston, Karmaloop expects to generate $130 million this year peddling hoodies, sneakers, and shades to the uber-hip.

A few blocks to the west is CSN Stores, an online seller of furniture and home décor items that attracted $165 million in funding last month. It has set its sights on becoming the “clear destination for the home’’ on the Web, according to chief executive Niraj Shah. He says the company will likely surpass $500 million in revenues this year.

The two are part of a small cluster of companies that could turn Boston into a high-profile hub of e-commerce. We’re already home to the number two online merchant, Staples Inc., which sold just over $10 billion worth of office supplies online last year. But Staples and every other player exist in the shadow of the big kahuna, Amazon.com, which raked in $34 billion in revenues last year.

As is often the case, Boston’s status deficiency stems from two failings: that Olde Yankee distaste for self-promotion, and too many entrepreneurs selling their companies too soon. Shoebuy.com, an online footwear retailer, sold to InterActiveCorp in 2006, for instance, and Rue La La, a site that conducts time-limited “flash sales’’ of high-end apparel and services, was acquired by GSI Commerce in 2009. Companies tend to attract less attention once they’re tucked inside big conglomerates.

“I think that Boston can be too quiet sometimes about what it does well,’’ says Shah. “But I also think we’re seeing a critical mass of e-commerce talent and excitement starting to build.’’

CSN Stores built its business on the strength of logistics expertise - not many e-tailers like to handle shipping and returns of exercise equipment, for instance - and ability to show up prominently in all sorts of Web searches. Looking to buy a new vanity cabinet for a bathroom recently, I found myself at a CSN-operated site, JustVanities.com. The company also operates MoreTVStands.com, DiningSets.com, and about 200 other specialty sites.

But CSN’s biggest deficiency has been its inability to build brand loyalty and spur repeat sales. Someone who buys a vanity from JustVanities.com may not know the same company also sells dining room sets and holiday decorations. While we think of Amazon as the place to buy almost anything, CSN customers think of it as a place for purchasing a very specific thing. (WickerChairs.com, anyone?)

Shah’s plan is to consolidate 200-plus CSN sites into about four brands, and replace the generic-sounding CSN with the brand Wayfair, which the company developed with help from BrandEquity, a Newton consultancy. The company’s two main sites, launching later this summer, will be known as Wayfair and Wayfair Office.

Separately, CSN will continue running a flash sale site called Joss & Main, and a site for higher-end home goods called AllModern. Shah says we’ll likely see some splashy advertising to support the new Wayfair brand in 2012.

CSN has about 800 employees, and could surpass 1,000 by year-end. Shah says the $165 million his company just banked may be used for international expansion or acquisitions.

Karmaloop, which raised $30 million in venture capital in 2008, is hunting for about $50 million in new funding.

Chief executive Greg Selkoe says the site targets the 18-to-25 age group. “We call our demographic ‘verge culture,’ ’’ he said. “It’s the first generation that has grown up on the Internet. They’re multiracial and multiethnic. They’re into the newest stuff, and they approach dressing from a collector’s standpoint. Our audience collects hoodies and sneakers the way others used to collect baseball cards.’’

The Karmaloop site sells products such as a $25 printed T-shirt from Fly Society, but the company expects in September to launch a new site, Boylston Trading Co., to offer more expensive, slightly more dressy attire, Selkoe says. The new site will be accompanied by an invitation-only showroom in the old Shreve building at Boylston and Arlington streets.

Selkoe also has plans to launch a new cable channel, KTV, featuring video content about music, food, street art, and fashion trends, geared to a young audience.

The wild card in Boston e-commerce is what happens with Rue La La. Among the first to offer flash sales on pricey clothing and accessories, Rue last year expanded into the increasingly crowded business of offering “daily deals’’ from restaurants, spas, and other local firms.

But Rue was acquired in 2009 by a Pennsylvania company, and eBay bought that company earlier this year. Then, eBay subsequently said it would spin off Rue and another site as part of a new holding company, retaining a 30 percent stake. Will that newfound independence help Rue regain momentum? Rue CEO Ben Fischman wasn’t available for an interview last week.

According to Internet Retailer’s rankings, Boston isn’t doing too terribly: Staples moves more product online than Apple or Dell. VistaPrint, which sells custom-printed products such as T-shirts and business cards, is at number 36 on the Top 100 list; CSN is 51; and Shoebuy is 87. But vaulting new ventures onto the list, and improving the position of those already there, would change the way Boston is perceived.

Writing about CSN Stores on his blog, Boston venture capitalist Larry Cheng predicts the e-tailer “could be transformative for this town. You have former private equity professionals, recent college grads, rising stars in corporate America, and other walks of life all going to CSN Stores to learn the nitty-gritty of building an e-commerce business.’’ (Cheng’s firm, Volition Capital, isn’t an investor in CSN.)

“I fully expect that 5 to 10 years from now, the legacy of CSN Stores will be a vibrant community of next-generation e-commerce companies started by CSN alumni,’’ Cheng writes. “And that’s exactly what Boston needs.’’

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.