Mike Kormos, president of Footwear Consulting Group, in Nashville, says it's no surprise that Shoebuy has met with resistance. For one, he says, manufacturers fear channel conflict. More important, says Kormos, is the traditional, hidebound nature of the footwear industry. "There's typically a lethargy in adopting new technology," he says.
Savitz says that manufacturers have gradually embraced the Shoebuy concept. One thing that's worked in Shoebuy's favor has been the attraction of one-stop shopping. "It's hard to make money on the Web when you're only selling a single brand," says Savitz. But what really convinced manufacturers of Shoebuy's value, says Savitz, was their own botched E-tailing efforts. "Some companies have tried selling online on their own," he says. "And they've seen what a costly procedure it is, from building the site to installing in-house customer service. It actually becomes a losing proposition for them."
Savitz admits that launching the company would have been a lot easier if it had maintained its own inventory. "But then you start taking away all the things that make our business model so appealing," he says. Under its current system, Shoebuy can offer a selection of products that would have been impossible if the company had kept its own inventory. The arrangement is also good for cash flow. "We don't pay for shoes until after we sell them," says Savitz.
Savitz believes that Shoebuy's cash-flow advantage explains why the company is still around and onetime competitors like MyFavoriteShoe.com aren't. "They immediately went out and put good names on the site, signed deals with the Bruno Maglis, and bought a boatload of inventory," he says. From Savitz's perspective, that approach was flawed. Even if the folks at MyFavoriteShoe had perfectly forecast their prospective customers' buying patterns, they still would have tied up their cash for six or seven months while they waited for their inventory to sell.
Shoebuy takes on a limited number of each new manufacturer's products on a trial basis. Companies that sign on with Shoebuy agree to ship shoes within an average of three to five days after an order has been placed. "We can't explain to the customer that it wasn't us; the manufacturer screwed up," says Savitz. He and Starble monitor each manufacturer's sales history, and unless a particular style meets their sales expectations, it comes off the site.
Given Savitz and Starble's careful calculations, Shoebuy's 2001 revenue projection seems jarring: somewhere north of $30 million, up from $1.8 million in 2000. How can the founders justify such a "hockey stick" trend line? "We're in a very scalable position," says Savitz. "We have a large market with virtually no competition and more than $60 million in 'inventory' available on the site. We have the infrastructure to sell at that rate, but we don't have the actual inventory risk." Savitz admits that if the company stays at its current run rate, 2001 revenues will be closer to $4 million. "But we went up over 100% from third to fourth quarter 2000 without hiring anyone, and that momentum hasn't stopped," he says.
But for the company to make those projections, will Savitz and Starble need to seek additional outside funding? "No, but we probably will anyway," says Savitz, "because the environment is so good for acquisition targets." Possible candidates might sell similar or complementary items that Shoebuy could roll into its model and scale up appropriately. "But we will never hold inventory, and you can quote me on that," emphasizes Savitz. "I can't see that we'd ever go against our model or abandon the metrics we've established."
With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any "new rules," but there are rules, and we suspect every one of them will look familiar.
DVD Empire: The Bootstrapper
SitStay.com: The Mom-and-Pop
Shoebuy.com: The Scorekeepers
Accuship.com: The Traditionalist
Fashionmall.com: The Conservative
Healthcommunities.com: The Underwriter
Commentary
E-tailing
Intermediaries
The Markets
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