Tiptoeing to online success
The company that Scott Savitz and Craig Starble formed 10 years ago was, well, a classic 1999-era start-up. The pair ditched their high-paying jobs in financial services to start a website that sold shoes. They snatched the domain Shoebuy.com and rented 200 square feet of office space in Brookline. The crux of the idea was that they would own no inventory: They'd simply build a website, attract customers, take orders, and have the shoemakers ship the product.
Like a zillion other dot-com ideas, it should have tanked. Who wants to buy shoes online? Shoes are the ultimate "try it on and see how it feels" product.
Shoebuy survived by being frugal and focused. They've been profitable since late 2001. In 2006, the company was acquired by Barry Diller's Manhattan-based Internet conglomerate, IAC. Today, it employs 160 people at its headquarters in Boston, a call center in Quincy, and a warehouse complex in Woburn. Revenue grew last year at a double-digit rate, and Shoebuy does about $180 million a year in sales, according to a recent estimate from Internet Retailer, a trade publication. (IAC doesn't break out Shoebuy's financials.)
And yet, when you ask someone for the first online shoe store that comes to mind, the answer you get is another business founded in 1999: Zappos, a Henderson, Nev., company that, like Shoebuy, was also funded by venture capitalists (mainly Sequoia Capital, which also brought you Apple, E-Loan, Symantec, and Google).
Zappos, like Shoebuy, is profitable, but it has 1,400 employees and last year bragged about surpassing $1 billion in gross merchandise sales (that figure doesn't subtract merchandise that was returned). According to Compete Inc., a traffic analysis service based in Boston, Zappos's site had more than twice Shoebuy's traffic in April.
When I conducted a quick survey on Twitter last week, seven respondents said they'd purchased shoes from Zappos, one said she'd purchased from Shoebuy ("I had to find the perfect pair of navy blue slingbacks for a wedding"), and one said she liked Endless.com, a shoe site operated by Amazon.com.
Shoebuy says that almost 65 percent of its revenue comes from repeat customers - but Zappos tops that, claiming 75 percent.
Shoebuy is one of the biggest e-commerce companies in Massachusetts, and it has a brilliant business model: of the $3.5 billion in inventory it offers on its website, it keeps just about 5 percent of those products in its warehouse complex. The vast majority of the site's 700,000 products are shipped directly from more than 800 manufacturers, and Shoebuy only sees the merchandise if it is returned. (Shoebuy and Zappos both offer free standard shipping on purchases - and returns.)
The company focuses on controlling how much it costs to acquire a customer - whether that's through online advertising or the occasional cable TV campaign. The site's home-page design is based on an analysis of consumers' shopping behavior. Savitz says the company has always tried to "treat every dollar as if it was our last, in good times and bad," and that's true even of its low-cost signage in Woburn: a piece of cardboard from a Shoebuy shipping box with the company's name on it is taped to the front door.
As a private company, Shoebuy raised a little more than $11 million, and though the amount that IAC paid when it bought the company in 2006 was not disclosed, it was north of $60 million, according to several sources.
Zappos seems to spend a bit more on traditional print and TV advertising than Shoebuy, and the company has begun mailing out a quarterly "magalog" called Zappos Life to prospective customers. But the company also talks about spending money to wow shoppers with things like 24-hour phone service and occasional shipping upgrades to reward its most loyal customers.
While Savitz touts the importance of selection, convenience, and the customer, at Zappos they rhapsodize about happiness.
"We want to make people here happy, because happy employees lead to great customer service," says Aaron Magness, who runs brand marketing for Zappos. (The company eschews formal titles.) "Good customer service makes our customers happy and loyal, and that makes our investors happy. . . . Happiness is a big word that we use here." For a lot of intangible reasons, Zappos customers just seem to buzz more about the experience to others.
Both companies target the same kind of consumer with a similar mix of products. They've both expanded into products beyond shoes, like clothing and luggage. New for Shoebuy this year are watches and sunglasses, and there are plans to launch a luxury-oriented area of the site soon. But Zappos executives seem to have even bigger ambitions. When I asked what brands they compare Zappos to, Magness said it was Richard Branson's Virgin empire.
"If you focus on what the brand is about - and our brand is about providing the best service and shopping experience - you can expand into different categories," he says, noting that Virgin has sold mobile phones, air travel, and books.
When Savitz talks about comparable brands, he is more pragmatic, praising Netflix's skills in running distribution centers and L.L. Bean's legendary customer service.
Monika Desai of Roslindale says that she buys from Zappos about once a month, though she has also purchased a pair or two from Shoebuy. "For some reason, I always go to Zappos first," she says. "I think a lot of it is the brand."
Desai follows Zappos chief executive Tony Hsieh's messages on Twitter (he has more than 600,000 followers, while Shoebuy's Twitter account has only about 500), and says she likes the way most products at Zappos have gotten at least a few customer reviews. (Desai is planning to launch her own online shoe business, Sole Envie Inc., this fall; it will offer customers the opportunity to customize high-fashion footwear and have the shoes made to order in Brazil.)
Shoebuy is profitable, which is commendable, and it's still hiring even amidst a recession. (Zappos cut about 8 percent of its staff late last year.) But I can't help wondering whether Shoebuy would have been an even bigger success if its corporate culture had a more dominant marketing gene, or if the founders had harbored the ambition of creating an independent, stand-alone entity rather than joining Barry Diller's stable of companies.
I asked Savitz whether being number one matters to him. It doesn't, he wrote in an e-mail: "We think the Internet and Shoebuy are in their infancy, so I guess as long as we have a great team that keeps innovating and building value for the consumer, and continue to build a very real business . . . I think we'll keep finding ourselves happy."
That's good enough. Right?
Scott Kirsner can be reached at kirsner@pobox.com. 