In 2012, online home décor retailer One Kings Lane doubled revenue, to $200 million. This year, after raising a massive $50 million, Series D round of venture capital, the company expects sales to surpass $300 million, with at least a quarter of purchases coming from mobile phones. Inc. senior writer Burt Helm recently spoke with Doug Mack, the chief executive of the three year-old company, about the latest round of funding, the fate of flash sale sites--and why typical discounting doesn't work for home goods.
You recently announced One Kings Lane received $50 million in new venture funding. How do you plan to use it?
There were two key things about the investment: We wanted to raise a large round of capital to fund our business plan through to profitability, and we wanted to bring the right investors in.
You probably saw that Scripps Networks was a strategic investor in the company. They're the parent company of Home & Garden Television, and DIY, Do It Yourself. From our point of view, there's an increasingly tight tie between broadcasting and the web. When we've done promotions on broadcast TV, it's pretty unbelievable how quickly consumers take action on their phone or tablet. Scripps will be a partner in experimenting in future convergence scenarios.
Tell me more about 'funding your business plan to profitability.'
There have been a handful of meaningful e-commerce businesses built so far: Amazon, Zappos, Netflix. What you see is these companies invest really aggressively to grow the business for the first five years, and then they flip and begin to focus on profitability. When i started I set that as a mental milestone, and we're about three years into that.
In the short term, we'll invest in marketing, merchandising, and technology. We've started to do television commercials, and we invest significantly in internet marketing. We built out our tech team to 60 or 70 people, and its on the way to 100 people. We're not planning any particular exit strategy. If we build a company that lasts for the long-term, we'll have plenty of options.
What's changing about merchandising on your site?
In the beginning, flash sales were all about finding excess inventory from vendors that they needed to liquidate. But there's an opportunity to bring better, unique, harder-to-find products--the types of things interior designers get in antique markets and boutiques--to customers who don't want to get the same cookie-cutter stuff from places like Crate & Barrel, but can't afford to hire a designer.
We've launched a model called tag sales. For example, Michael Smith is the interior decorator for the Obamas. He'll pick 200 items from his private collection, and he'll make them available on One Kings Lane. We probably do five-to-seven tag sales like this a week. We also do contextual marketing, where we marry inspiration and advice with sales--like here are five ways to use an ottoman in your home. Last but not least is our vintage designer place. We created a marketplace where third parties can submit product for sale on One Kings Lane and it works like a traditional marketplace and everyday vintage art and antiques show up for sale.
We're not going to pound our chest too much, but we definitely think sales will be north of $300 million [this year].
How much revenue comes from these tag sales now? And where do you see sales coming from as you evolve?
Seventy-five percent of what we do is working with brands and presenting either standalone brands or events around a theme: contextual retail. Twenty-five percent of what we sell is around designers, celebrities, and the vintage marketplace. That's been a pretty big evolution; 25% of the business is new stuff that didn't exist two years ago.
Why is that happening? Why is it necessary to do all this additional marketing to show consumers how they can use your products, or associate them with big names?
Home is a unique market. There was never a place you go to learn how to decorate, or how to entertain.
Meanwhile there aren't the kind of well-known, aspirational brands that exist for shoes or handbags.
You've actually nailed it. In the apparel market or the automotive market, people say 'I want a Mercedes,' or 'I want a Gucci handbag,' or 'I want to own a Macbook, I don't want to own a Lenovo.' In this market it's so much more subjective and personal and it's about my taste and style. But there's no brand that can help them achieve that. We educate people on what's there, help them find the pieces that create a home they want to walk into after a hard day of work.
When the flash sale model was first introduced, people found it incredibly novel. As it has become more familiar--are there types of things that continue to work, and things that don't? How do you see this ecosystem developing?
When we first started we had a very good business in candles and stationery and decorative accessories and things I'd call reasonably safe purchases. Over our three-year evolution, we've seen customers get comfortable buying big-ticket items: furniture is the biggest category by revenue. We've sold things for as much as $20,000 and have had an order for as much as $50,000. These aren't just one-off situations, they're happening more and more routinely.
The other thing that's happening is mobility. Twenty-five percent of our revenue comes from mobile. In the original flash-sale model it was all about logging on to the website at 11 AM eastern to see the new stuff for sale today. We're now, because of mobility, seeing much more extended engagement. Mobility is definitely going to create the winners and losers as much as anything in e-commerce to date.
How do you see this industry shaking out? Will there be one massive Amazon-like seller of limited time offers--a T.J. Maxx online--or maybe a handful of smaller ones?
I think we're there already. The vertical players have won, and are only going to win more. Early on companies tried the department store model of selling women's and men's and kid's clothing, and home, travel, and food, and none have achieved particular success.
What about Gilt Groupe? That company follows the department store model, and it says it turned profitable in the fourth quarter of 2012.
If they are truly, genuinely, sustainbly proftiable, then I'd count that as a success. I'm not privy to their financial statement. We'll have to wait and see. But anybody who has crossed over to sustainable profit is a winner.
Other companies, like Gilt Groupe, have said they expect a 20 percent to 40 percent growth rate going forward. Is that what you see for One Kings Lane as well?
For us, frankly, that would be a dramatic drop-off. I'd be disappointed with that. If we grew 100 percent year-over-year, you should certainly remain above 50 percent growth. If we went to a 20 percent after being 100 percent, that would be super disappointing. We're not going to pound our chest too much, but we definitely think sales will be north of $300 million.