When Something Clicks
Sometimes it seems as if the Web has turned the world upside down. In the hype-ridden landscape called "dot-com," it's easy to assume that only the young, the new, the original idea conceived by two kids in their basement will survive. Out with the old.
How untrue that is. The two companies profiled here, Plural in " The Metamorphosis" and Camera World in "When Something Clicks," are hardly start-ups. Their leaders have been running steady, profitable companies for years. They're taking those years of experience managing entrepreneurial brick-and-mortar companies and using every ounce of their knowledge to transform their businesses into winners in the online world. CEO Roy Wetterstrom, never a guy to fear change, is rebirthing his 11-year-old company to take great advantage of the new economy. And Camera World has built on its 22 years of experience fulfilling customers' expectations to transform itself into an E-commerce business.
BRAVE NEW COMPANIES
Over 22 years Camera World Co. honed its expertise in fulfillment, customer service, and supplier relationships. Today, as Cameraworld.com, it can teach Internet start-ups a thing or two about what matters most
It's a sodden, gray pre-Christmas workday in Portland, Oreg., but the jeans-sporting photographers who handle incoming calls at Camera World Co. (a.k.a. Cameraworld.com) are oblivious to the weather. Sitting in their white cubicles, they dispel the clouds with their cheerful "Thanks for calling Cameraworld- dot-com!" They repeat order information and occasionally murmur soothing guidance to Ansel Adams wanna-bes on the other end of the line, who need to know things like the difference between the Hasselblad 203FE Medium Format Chrome single-lens reflex camera and the 202FA model.
In the 20,000-square-foot warehouse behind the front office, 15 workers scurry down long concrete aisles, clutching sales orders fresh off the network printer. To the casual observer, these warehouse folk seem to have X-ray eyes. Quickly scanning the metal racks loaded with thousands of indistinguishable-looking boxes of equipment, they have an uncanny ability to tell a box holding a $10,000 lens from a virtually identical package bearing a $1,000 one. When they locate the box they're after, they place it in a plastic tub; a bar-code check at the packing station ensures that the order is complete. There, a young man nodding to rock music on a boom box pours Styrofoam peanuts into labeled cardboard shipping boxes and then seals the goods with a deft pull and twist of tape.
Camera World's order-fulfillment and delivery systems have stood the company in good stead. During the 1999 holiday season many of the company's stalwart 300,000 customers came back and spent an average of $600 a pop. And thanks largely to the explosion of interest in digital cameras, sales soared last year, growing from $80 million in 1998 to more than $115 million.
Last December the company's Web site handled an average of 25,000 unique users a day, and Web sales rose by 245% over the previous year's figure for the month. (At the same time mail-order business shot up 67%, and sales at the company's downtown Portland store were up 22%.) Some 90% of Web and mail-order shipments left the warehouse within 24 hours. Return rates for Web sales hovered around 4%, paralleling the rate of returns from the store and the mail-order business. "We maintained heavy inventories to ship on time, and it all worked pretty well," says Camera World's new CEO, Terry Strom. "But one thing's for sure: the Internet is raising the standard of performance for any retailer."
No kidding. This past Christmas season, during which shoppers spent an estimated $6 billion online, saw many a Web site disappointing customers. According to a November 1999 report by the New York City Internet research firm Jupiter Communications, 46% of business-to-consumer Web sites took five or more days to respond to a query, never responded, or failed to post an E-mail address on the site for customers' inquiries.
"If we didn't make our goals," says Walt Mulvey, "we couldn't make payroll."
"An awful lot of Web sites don't realize that customer service should be a priority," says Jupiter analyst Cormac Foster. "They focus on customer acquisition but don't spend time on the unsexy stuff, like customer-support infrastructure. Infrastructure doesn't get you headlines, but if you don't have a staff of people to take care of business behind the firewall, you won't get much." Case in point: Toys "R" Us, whose online subsidiary ToysRUs.com (announced with great fanfare in June 1998) found itself suffocating under the rush of online holiday traffic and was unable to fulfill orders on time. The company's back-end infrastructure was built to send truckloads of products to hundreds of stores -- not to ship single orders to millions of consumers.
Don't call Camera World a "click-and-mortar" or an old-fashioned retailer with a Johnny-come-lately Web site. Call it, rather, a dot-com with lots of back-end "not-com" experience. Camera World has long known that the boring stuff -- attention to the fine details of customer service, simple and solid fulfillment processes, and trusted supplier relationships -- is what really matters. Unless you master those three areas well before you put up a Web site, no amount of bells and whistles or transactional and design prowess online will make the Web component of your business successful.
To understand how Cameraworld.com operates, view the company through a wide-angle lens. Founded in 1977 by a Korean-born businessman, Jack Shin, Camera World began as a 4,000-square-foot mom-and-pop shop for shutterbugs in a musty downtown area of Oregon's sprawling, river-straddling city. Shin had come to Portland by way of New Jersey, where for about two years he'd owned a camera store that catered to well-heeled amateur photographers with National Geographic daydreams.
From the moment he began his business until the day he said good-bye to Camera World in 1997, Shin refused to sell the cheap "gray market" goods that many dealers were hawking at the time -- a practice that stood him in excellent stead with his suppliers. ( Gray market refers to goods that are not meant to be sold in the United States and generally are not covered by warranties.) Building on the relationships he'd established in New Jersey, Shin developed close contacts with executives from Fuji, Canon, Nikon, and the other rulers of the photo world. Ultimately, he constructed an intimate universe comprising 15 primary suppliers.
"The gray market is a big problem for the industry," says Eliott Peck, director and general manager of the camera division of Canon USA. "Canon has had an excellent relationship with Camera World because the company adds value to our products. It's always provided the best customer support, sold only fresh merchandise, stocked all our products, and had very loyal repeat customers." On a scale of 1 to 10 among camera dealers, Peck adds, "I've always given them a 10." In return, the manufacturers saw to it that Shin was first in line to receive new or on-order stock.
The Internet is raising the standard for retailers.
Shortly after opening the retail store, Shin added a mail-order component to the business. "Mail order was easy -- we didn't have to speak much English," explains Young Ui Shin, who acted as her husband's business partner and interpreter. The Shins and Young Ui's brother ran the mail-order business in a space five floors above Camera World's street-level retail store, which also doubled as a warehouse. Their goal was for customers to receive their merchandise within five days of placing their order, compared with the standard mail-order lag of three to six weeks. Within 10 years the company was earning close to 70% of its revenues from the distant customers it reached through back-of-the-book advertisements in magazines like Popular Photography.
On the back end, Shin put together a supersimple order-fulfillment and shipping infrastructure that the company still uses today. Prior to computerization, sales staffers would write a phone order on paper, then send along a copy to the warehouse for picking, packing, and shipping. Working with those paper "pick tickets," warehouse workers would pull the cameras and lenses (and occasionally camcorders and televisions, which Camera World also sold) from the shelves and place them in plastic tubs. Before the items were packed, other workers checked to make sure that the products matched the order, recorded the product serial numbers, and filled out a receipt. Then shippers packed the items and loaded the boxes onto a waiting UPS truck, which carted off the packages every afternoon.
If an item was out of stock, the warehouse workers would pass the information along to the sales reps, who would find out from Shin when the shelves would be replenished, so they could tell the customer when to expect the order.
Returns were handled similarly: When a customer called, a sales staffer issued a return number and ordered a UPS pickup at the customer site. When the product came in, the return number was recorded; if the package had been opened, the product was sold at discount, since it could not be returned to the manufacturer or sold as new.
The paper-based system stayed in place until 1992, when Shin discovered that a networked computer system could increase efficiency. He purchased a set of Compaq 386 computers, one of which was installed in the warehouse area, and a Platinum database-management system for which he had a consultant design a unique order-fulfillment, inventory, and shipping program. Using the new system, salespeople keyed in orders on PCs at their desks. Hourly, a warehouse worker would download and print out a batch of orders for picking and packing. The computerized system allowed Camera World's sales reps to maintain an easy-to-access record of customer purchases; it also allowed Shin to keep better track of inventory and to speed up deliveries. The Shins' five-day shipping goal had become a consistent reality.
Shortly thereafter, Shin added a bar-coding system. By passing a wand over the various products prior to packing them up, workers were able to match orders in the database to actual shipments, and the inventory manager was able to see which models had gone out the door.
From the get-go, Shin went the extra mile for his customers, retail and mail-order alike. He staffed the phones with a sales force of professional photographers (or photographers with day jobs), who could guide callers through the technical complexities of camera selection. If customers weren't happy with their purchases, they could return them for a full refund, no questions asked. In one instance, a company selling five-year extended warranties on Camera World's equipment went belly-up. Though Shin was under no obligation to do so, he set up a fund to cover the cost of repairs for the customers who were left hanging. "We make customers very happy, and they remember we give service, service, service. Repeat customers big part of our business," Shin recalls in emphatic, if stilted, English. "We never cheat. If customers happy with service, they trust us."
"We had to completely change the mentality of the organization," says Mulvey.
In the early 1990s, despite Camera World's computerization, a confluence of external and internal problems began to slow the company's growth. The market for the high-quality 35mm single-lens reflex (SLR) cameras in which the company specialized had flattened by the late 1980s and stayed that way, thanks to a saturated market and a recession. Until digital cameras appeared on the scene, in 1998, the market for SLRs never moved substantially beyond the 700,000-units-per-annum mark. By 1999, according the Boston-based market-research firm Lyra Research Inc., the number of 35mm SLRs sold in the United States had actually declined to 600,000.
Shin's management style also kept Camera World from rising off that plateau. His operations gave new meaning to the phrase lean and mean. He selected office supplies, shipping companies, telephone services, and other necessities on the basis of low price, and replaced equipment only when it fell apart. The company had long outgrown its warehouse, but Shin balked at moving from the low-rent building.
"Mr. Shin ruled with an iron fist," says the company's longtime buyer, Shawn Weishaar. From a glassed-in loft perched above the retail store, Shin would keep a sharp, Big Brotherlike eye on his workers' activities. Employees did stay -- they were well paid by Portland standards -- but because promotions were few and far between, their motivation waned as the years passed. "Mr. Shin had great insight, but he didn't allow mistakes," says Weishaar. "He wanted full control over everything."
In 1996, frustrated by flat sales and worn out by the demands of the business (according to company veterans, Shin never took a day off in all his years at Camera World), Shin decided to sell. He hired a retail-management veteran, Walt Mulvey, to help ready the company for sale. A former banker who'd had experience in helping stagnant companies improve their operations, Mulvey saw a profitable company with a good reputation -- but one with cramped quarters and lackluster employees. Mulvey reorganized, setting up an incentive program and a "no-blame" management system that allowed workers to air problems openly. Within a year, sales had climbed 31%, and Mulvey helped Shin put out the word that the company was for sale.
Word of the sale reached Alessandro Mina. A gentle native of Sweden who'd lived in Italy, Switzerland, and France, the multilingual entrepreneur came to the United States in 1989, at the age of 27. While working on his M.B.A. at Stanford, he embarked on an investment project with two fellow European students. In 1993 the trio founded Sverica International, an investment fund designed to help transform old-fashioned companies into aggressive-growth companies and often into Web-based businesses, and rounded up contributors. Camera World "fit all our criteria," Mina recalls. "It was profitable. Sales were stagnant, but there was growth opportunity. The owner was retiring, and there was a successful mail-order business in place. It had a huge database of happy customers who came to Camera World in the same way people go to Amazon.com for books or Dell Computer for computers -- they go there pretty much knowing what they want. I held the view that Internet and mail-order sales are basically the same that way, so I thought it had all the ingredients for a great Web business."
Another plus: Camera World had a sound infrastructure; there was no need to develop one from scratch. The company had already figured out how to take in orders, process them, and ship them out. Moreover, Shin had long-established relationships with top-tier suppliers and innovative systems in place to provide customer service. The company even had a Web site, though visitors couldn't use it to buy products. And unlike any pure-play dot-com, Camera World had the unheard-of pedigree of profitability. "We saw this terrific sleeper and thought we could turn it into a full-fledged Net business," Mina recalls.
Mina and his colleagues bought Camera World Co. and named the online arm Cameraworld.com. Temporarily taking over the reins as CEO, Mina -- along with Mulvey, who stayed on as chief operating officer -- set about morphing the company from a primarily mail-order business into a primarily online business, knowing that companies like Dell (which had gone from no revenues to $26 billion in 15 short years) had followed the same path.
As Mina had predicted, the path was clear of the thorny issues that trip up novices. The niche was already nailed: unlike pure dot-commers, he didn't have to spend time and money on brand development, market research, and focus groups. Mina and company preserved and expanded the long-standing relationships with suppliers and customers that Shin had built. "We made it a point to visit every supplier personally, take them out to dinner, and assure them that the business would continue," Mina says.
"Walt and Alessandro had a vision," says Canon's Peck. "At first we had some doubts about their ability to take over the business and move it to the Net, but they were able to build on the infrastructure to handle it."
The nitty-gritty back end has come to matter enormously to investors.
In forging a new business plan for the company, Mina spelled out his goals. For starters, the company's Web pages would have to be transformed from simple brochureware into a true transaction site. And its back-end systems would have to be married to whatever happened on the Web. The company itself would have to move into a larger, better-organized space, with a warehouse that would allow orders to be shipped within 24 hours, as opposed to the five days required by the mail-order business. "We wanted to one-up everyone else," Mina says. "To speed everything up, we had to cut out obstacles. We needed to staff up, to fix the bugs in the computer systems, to upgrade the telephone systems for more lines. In the past Mr. Shin had to check everything. Things were duplicated. We decided to streamline processes and empower people."
The toughest challenge was time. Mina wanted Cameraworld.com to become the leading online vendor of cameras -- before a competitor could. "We had to completely change the mentality of the organization, from collect-a-paycheck mode to survival mode," says Mulvey. "We ran the company on two urgent premises: We assumed that there was a competitor out there who would beat us to market with the biggest Web site in the world. And we told ourselves that if we didn't make our goals, we couldn't make payroll."
Camera World moved to a less expensive location in Portland four times the size of its former quarters. Though the order-fulfillment process remained the same, Mina and Mulvey reorganized the warehouse to speed up shipping. Frequently ordered products, like film, were kept closest to the packing and shipping stations, while rarely ordered equipment was kept in the back. The company added inventory and packing stations; instead of one packing station, for example, it now had four. And it upped the number of PCs in the warehouse from one to five.
The move, Mina estimates, saved the company $7,000 a month in rent and about $4,000 in reduced manpower requirements in the shipping, receiving, and returns departments. (The displaced employees were reassigned elsewhere in the company.) "Because the warehouse was larger and better organized, we made more shipments on time with fewer errors," he says.
To turn the existing, 300-visitor-a-day Web site into an E-commerce factory, Camera World hired the company that had designed its original Web site, Web Northwest. With just six months in which to transform the site, Web Northwest owner Pete Chiboucas teamed up with a Camera World veteran, Internet administrator Gil Rocha, and together the pair hand-coded the pages as Active Server Pages to create a visually appealing, highly interactive site. Visitors could click on an image of a camera, a lens, or another product and order it using a shopping cart. The Webmeisters also cranked up the fire under the site, spending $20,000 to install a network of six high-powered Windows NT-based servers that could handle thousands of concurrent users at a time.
Today Camera World's site, which costs roughly $10,000 a month to maintain, handles at least 15,000 unique visitors and 400 transactions a day. It's now a full-fledged community for shutterbugs. It keeps visitors interested with increasingly snazzy features -- 3-D images of featured products, an online auction area, forums, online chats with celebrated photographers, a selection "wizard" that helps customers choose the right camera by assessing their expertise and frequency of use, and so on.
Customers can also get quick answers to their E-mailed questions. Professional photographers respond to them by E-mail or phone -- and customers even receive a notice via E-mail showing them where their question is in the queue. ("We try to get back to them within 24 hours," says Rocha.) And for those who eschew telephone handsets, an Internet-telephony feature lets customers whose computers are equipped with a sound card and a microphone connect over the Internet to talk with the sales and support staff.
When a customer orders a camera through the Web site, the transaction is zapped from the servers to the order-fulfillment database via a dedicated high-speed T1 line. A software interface between the Web site and the database reads the order and translates it into the order-entry system. Sales reps, customer-support personnel, and shippers and other warehouse workers can review the order by tapping into Camera World's database from PCs.
Every few hours, warehouse personnel print out a batch of 50 or so orders. Rush orders are printed on red paper; white paper signifies a standard UPS ground order. After a worker locates the correct product and places it in a plastic tub along with the paper order, he carts it to the shipping station, where the bar-code checking occurs. If the bar code doesn't match the order, a computer screen at the station notes the mismatch. If the match is correct, the inventory database records the product model number; when inventory reaches a low-enough level, Camera World reorders. Once the product is packaged for shipping, it's loaded onto a waiting UPS van, which departs at the end of the day. Meanwhile, an E-mail message is sent to the customer, noting the time the package is scheduled to ship. Using a confirmation number supplied by the company, the customer can check the Web site to track the order.
Picking and shipping, of course, are hardly sexy stuff. But in the crazed world of cyberspace, the nitty-gritty back end has come to matter enormously -- especially to prospective investors. "Back in 1996, when I was looking at Camera World, the guiding principle for Internet start-ups -- according to venture capitalists -- was to start from scratch with the model based on the new paradigm, and everything traditional was bad," Mina recalls. "Early on, VCs were not interested in us because we had a history. But now infrastructure, customer service, and the ability to ship on time with inventory on hand are all key elements when the VCs come knocking."
So far, Camera World is keeping customers happy. "The consensus is that there are a few retailers out there that have a great reputation and that Camera World is among the few," says Richard Rabinowitz, vice-president and group publisher of Popular Photography and American Photo.
One of the happiest customers is Aneel Bhusri, who -- like Victor Kiam of the old Remington razor commercials -- liked the company so much that he bought (into) it. Bhusri is a partner with Greylock, based in Palo Alto, Calif., one of the six venture-capital firms that have just poured $60 million into Cameraworld.com. (The other major investor is Technology Crossover Ventures, also of Palo Alto.)
Bhusri also happens to be an amateur wildlife photographer and a repeat customer. "I bought my first camera from them four years ago, and their staff were very helpful in explaining the pros and cons of the different models," he says. "I found it unique that their customer-service people were trained professionals."
Last summer, when Greylock was looking for a photography Web portal to back while casting an eye at a future initial public offering, Bhusri remembered Camera World. "I gave Alessandro a cold call," he recalls. "I said, 'I've been a customer for a while. Are you interested in outside capital to help the business?"
The infusion from Greylock was welcome. The cash, the executives say, will allow the company to move to an even larger physical site this year, add more products to the 7,000 items it currently offers, hire 20 more sales and support people, and keep the computer system shipshape. The marketing mix will remain roughly the same as it has been for years -- mailing out catalogs and advertising in photography publications, on the radio, on television, on the Web, and on outdoor billboards -- "but it will scale up," says vice-president of marketing Tom Steele.
The venture funding also frees Mina, the serial entrepreneur, to hatch another company. "Alessandro did a fantastic job of running the company, but his goal was never to run Camera World for the rest of his life," says Bhusri. "So he helped us look for a new CEO." Bhusri and Mina chose a man who had lots of experience with fast-growth and Internet companies: Terry Strom, who had been the CEO of Egghead Software and the marketing vice-president for Digital River Inc., a Minnesota service provider for E-commerce sites. (Bhusri is now chairman of the board, and Mulvey has moved to the president's office.) Mina, now living in Boston, is glad to let others grow the company. "Aneel, Terry, and Walt can take the company from an Internet start-up to an established E-commerce player," he says. "I can go back to what I do best -- finding good companies to invest in."
For his part, Bhusri is thrilled to be the rudder of a company that, as he says, "gets it." "If you look at what makes a Web site successful, most of it is logistics," he says. "Camera World had this figured out a long time ago. Why don't others? I honestly don't know the answer. These guys are rare. I think they can be the Dell of the camera business."
Bronwyn Fryer is a contributing writer for Inc. Technology.
Read about another Brave New Company in " The Metamorphosis"