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Profitable dot-coms not a myth

Though "profitable dot-com retailer" may seem an oxymoron, a few companies are proving you can build an online store and turn a profit. What is their formula for success?
Written by Laura Lorek, Contributor

Though "profitable dot-com retailer" may seem an oxymoron, a few companies are proving you can build an online store and turn a profit.

The formula for success includes working offline connections, keeping advertising and marketing expenses low and running lean operations with little overhead.

That's the story at FTD.com, a spin-off of floral giant FTD, which sells products and services to florists and owns 84 percent of FTD.com. FTD.com reported profits of $253,000 on revenue of $18.2 million during the quarter ended Sept. 30. FTD.com takes orders and sends them to one of its 6,500 florists nationwide. It receives a cut from every sale and had gross profit margins of 31 percent for the latest quarter.

"Two reasons business-to-consumer companies will succeed is brand recognition and a solid distribution network, and FTD.com has both," said Michael J. Soenen, FTD.com's chief executive.

The FTD brand has 96 percent consumer awareness, Soenen said. The brand strength is continuing to allow FTD.com to increase market share and acquire customers less expensively than most e-commerce companies, he said.

Customer acquisition costs fell to $17.22 last quarter, compared with $36.13 for the same quarter a year ago, he said. FTD.com has also moved from print and television advertising into direct marketing and e-mail marketing.

Its distribution network is another key to its success. FTD.com can deliver floral arrangements on a same-day basis to nearly 100 percent of U.S. households, usually in four hours or less, and to 150 countries worldwide on a next-day basis, Soenen said.

FragranceNet.com also counts itself among one of the Internet's first profitable pure-plays. The company reported profits of $100,000 on $1.7 million in revenue last quarter. "In the beginning we made a decision we were not going to be like the others," said Dennis Apfel, FragranceNet's chief financial officer.

FragranceNet buys more than 3,000 perfume brands from distributors and sells them at a discount on its site. Its margins are now 40 percent, and its customer acquisition costs are just $7 per person, Apfel said.

"We were never blessed with millions of dollars in venture capital to spend," he said. "We just wanted to build a solid base to the business and we did."

The Few, the Proud . . .

Some publicly traded business-to-consumer sites are turning a profit:

CompanyRevenue last quarterProfit last quarterWhen last profitable
eBay$113.4 million$0.5 million1996
FragranceNet.com$1.7 million$0.1 millionOctober
FTD.com$18.2 million$0.25 millionOctober
Homestore.com$62 million$0.55 millionOctober

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