Staying Pure in a Multichannel World

A year ago, pure plays still handily outnumbered the multichannel retailers doing business both on the Net and in the malls.

Now, following the dot-com shakeout, e-businesses that don't have a brick storefront or catalog presence as well are nearly extinct. Even pure-play old-timers eBay (Nasdaq: EBAY) and Amazon.com (Nasdaq: AMZN) have brick-and-mortar alliances these days.

"As the economy gets worse, there's an increasing desire by consumers for online retailers to have a brick-and-mortar presence," Forrester analyst Christopher Kelley told the E-Commerce Times. "It has a lot to do with their peace of mind."

However, before anyone writes off the pure-play business model, it is a good idea take a look at the companies that are showing stubborn resolve -- and even profitability -- while doing business on the Internet only. Although their path might not be easy to travel or to follow, they're proving that with the right format, it is possible to flourish as a Web-only seller.

Pure Luck?

To succeed as a pure-play merchant, e-tailers need to offer products that are not found on many other Web sites -- and be certain that those products yield high gross margins, Strategic Research Advisors managing director Paul Ritter said.

Bellacor.com, a home furnishing e-tail site that offers over 500,000 high-end lighting products and home decorating products from 700 manufacturers, does just that. Although the pure play has only been online since September, it reported a profit in April and expects a profitable second quarter as well.

"I think that pure plays have become a convenient thing to blame, as if it's the law of nature," Bellacor.com chief executive officer Jan Anderson told the E-Commerce Times. "The principle is to find something that's inefficient and use the Web to make it more efficient, rather than just to find something it can do regardless of whether it already works pretty well. If you do this, pure play vs. non-pure play isn't a factor."

'Decent Profits'

Bellacor was completely self-funded, and its goal has been profitability from the outset.

With average sale amounts ranging around US$400, no warehousing costs other than shipping, and gross margins in the 40 to 50 percent range, Bellacor has taken a traditionally inefficient distribution channel and made it more convenient for consumers -- and lucrative for itself.

"Their visitor traffic is small at the moment, and they will have to pursue sound customer acquisition strategies in order to scale the business model to the point where it is generating decent profits," Ritter said. "However, they have built a sound business model to this point and have a solid chance at reaching their financial goals."

Online Rebels

Another one of the few pure-play e-tailers to show a profit is FragranceNet.com, which sells brand name fragrances at a discount. Because the company is Net-only, it avoids the high overhead of running real-world stores. The company also works without significant inventory on hand.

"An effective cost-saving strategy is not paying for products from its suppliers until after customers have placed an order, so critical operating funds are not tied up in accounts receivable," Ritter said.

According to Ritter, FragranceNet's customer acquisition costs are reported to be in the $7 range, "which is impressive for a profitable pure-play. That tells me their business model is scalable."

FragranceNet offers discounts of up to 50 to 60 percent off retail prices, and throws in free shipping and a gift for orders over $25. The company showed a profit in both the third and fourth quarters of 2000, Ritter said.

Without A Cause?

Despite the successes of pure plays such as Bellacor and FragranceNet, some analysts believe that ultimately, the biggest pure plays will succumb to the multichannel party or be left off the most successful list.

"At least to some extent, e-tailers will need some brick-and-mortar backbone, unless they're a very small niche site," Kelley said. "But in terms of being a first-rate retailer, every one will have some kind of multichannel presence."

Even Ritter, who believes both FragranceNet and Bellacor will still be around in a year, issued words of caution.

"They still face formidable competition from their multichannel competitors," he said. "As this phenomenon takes hold by a growing base of multichannel retailers, it will become increasingly difficult for new players in the pure-play world to ever get enough traction to get out of the box."