You launched your site in the UK in February and have been stepping up marketing in the last couple of months – how has initial interest in the site been?
Buy.com has a lot of history in the US – we were one of the dotcom pioneers, launching in 1997. We operate a virtual stock model, which means everything is drop shipped. A major part of our strategy in Europe has been with our eBay partnership. As well as that, we operate a very successful marketplace business in the US, which has around 1,500 to 2,000 merchants. We wanted to bring those two parts of our business to Europe. When we launched in the UK initially last year it was all focused on eBay.
We launched our own site in February, and so far so good. Rather than spend the marketing dollars on pushing the name at this point, we’re focussing on the very bottom line channel. And we’ll be putting a lot more resources into expanding the catalogue and getting distributors on board. Our goal for the UK is to get a very broad range of tech and media products this year.
Tell us some more about the firm’s history in the US.
Founded in California in 1997, the firm achieved records for revenue in its first year, so it was very much a dotcom whirlwind company. The business grew rapidly over its first few years – recording 1998 sales of $125 million and 2000 sales of $787million.
The company was taken private in 2001, after the dotcom bust happened, and refocused on its core business. Since 2006, the company has been profitable every quarter, and we’ve been getting stronger since then with efforts on the Buy.com Marketplace paying significant dividends in recent years – as of Q1 2010 Buy.com Marketplace orders accounted for over 50 per cent of the company’s orders for the first time in the firm’s history –this is something we are proud of and it is an achievement we will build from.
In the US you appear to sell all types of products, while in the UK the site is just technology. Why have you decided to focus on that area here?
Although we have about five million lines of stock in the US, tech is the category we’re most familiar with. And
when it comes to drop shipping, generally we find the big tech players are the most efficient. So we have our own specific protocol that we operate for drop shipping to keep that customer service at a very high level.
Drop shipping is not something companies really did when we started out; now a lot of distributors do it, but it’s generally tech guys that are best. So we’ve started relationships with the likes of C2000 and Ingram Micro, and we’ll be adding a lot more as we get familiar with this market.
Do you believe you can take on companies like Amazon in the online retail space?
We wouldn’t be going into the market if we didn’t think we could compete, but we look at it as a very long-term game. On the customer side we do think the market would benefit from a big multi-category brand with a very strong, broad offering. And competition is always healthy.
In terms of the long run it really is an efficiency thing; we don’t need to make a big bang. We’re launching in several European markets all at once and each market is very unique. We need to get the launches right so that we can get the loyalty that any retailer needs in this modern day. You can’t afford to market to the customer every single time, again and again; you really need those repeat purchases.
How do you think you’ll compete with the specialist retailers in the UK, such as PC World and Comet?
From a consumer perspective, we have a significant advantage in the breadth of offering that we have and the overall price. Because we don’t operate on individual mark-ups per product, we have very strict margins operating across the board. We look at it as a very long haul to win customers, and we don’t really look that much at the competition in that respect. If you focus on your own business and set your own benchmarks really high, you begin to see the results over time.
Is there anything unique about the UK market that you think will cause you problems or prove beneficial?
One thing about the UK is that it has a large population for quite a small area. So we’ve actually been able to achieve consistency on service levels of drop shipping that is maybe more challenging in other markets, especially in the US. There you can say there’ll be a shipment in 24 hours, but depending on where the warehouse is it can take two or three days to get to the house. You don’t have those sorts of problems in the UK.
The unique challenges would be making sure we can get the right vendors on board. There are some brands that are unique to the UK, and the relative strength of vendors is different from country to country. That’s something we’ve had to build an expertise in.
What do you think of the current state of the bricks and mortar retail market?
If you look at the US, you’ll see that a lot of the smaller single store bricks and mortar guys have come up with very innovative hybrid models. Some have used their physical bricks and mortar buying skills to turn that into a great hybrid business, where they sell through their own site, through Amazon Marketplace, through Buy.com Marketplace and eBay. And they’ve become very nimble effective online marketers. Maybe not on the scale of bigger firms, but they are a very important contributor to the market.
For those guys that begin to buy and sell and treat online like an additional channel, albeit with a completely different margin structure, you’ll find they have a lot of success because they tend to know a lot about products and have a feel for them – that’s not to be underestimated.
You’ve arrived in the UK at a similar time to Best Buy – do you think there’s any reason international retail giants seem to be taking a greater look at the UK at the moment?
Companies that went into the recession in a relatively strong position, as would be the case for us, saw opportunities to improve their position in relative market strength terms. This is an opportunity to move. In the UK, Amazon has made great strides in the last few years by being very, very aggressive and it’s almost used the economic climate to its advantage. The move is something we would have been looking at nearer 2005, and it was a coincidence that the recession hit – but it definitely provided the impetus for us to accelerate our efforts.
What do you think the defining factor in the technology market will be over the next year?
Service to the customer is going to define who comes out with the best hand and who is in the strongest position. Margins are going to be extremely thin across the board.
Where will you be in a few years?
We’re looking at five or ten years to get into the very top tier online resellers and online destinations for customers to shop. In two years you will see us listed top ten and top five in certain categories and hopefully a lot more customers will know about us. In the two to five-year period we will be competing with what the top guys do and setting down our marker.