Update on The A to Z of B-to-Bs

One year after a spurt of new b-to-b online gift sites debuted, the Internet landscape has undergone a dramatic transformation.

By Meredith Schwartz -- Gifts & Decorative Accessories, 3/1/2001

When Gifts & Dec began to research the story "The A to Z of B-to-Bs" for the March 2000 issue, three business-to-business sites had announced their entry into the gift industry. By the time the article was printed a few weeks later, it contained information on some 14 sites. More came online during the following year. Of course, it was clear from the beginning that there were more sites than the industry could support. But proliferation wasn't the only cause of the demise or consolidation of so many sites over the past year. Wall Street, having terminated its love affair with e-commerce retail sites, momentarily turned its charms on the b-to-bs. But then tech stocks as a whole fell out of favor and funding for them dried up. Another problem has been the lack of technological sophistication among independent retailers. Most of them think computers are for their kids to do homework on. Very few use them as business tools. The gap between providers (the Web sites) and users (the retailers) turned out to be much wider than anyone had expected. It will take longer to bridge than most business plans provided for.

The result, one year later, is a transformed Internet landscape. Much has been learned, and those that have survived are applying the new lessons. We take a look at some of the biggest changes that have occurred since we first reported on "The A to Z of B-to-Bs."

The Affiliates

Many of the sites that have evolved into the major players are affiliated with brick-and-mortar brands. These connections between start-up sites and established industry players take advantage of gift industry expertise, experienced marketing departments, acceptance by vendors and retailers, and deep pockets necessary to survive the learning curve. AmericasMart.com is a subsidiary of AmericasMart-Atlanta. It offers both e-commerce and information for the Atlanta Market Center's buyers and sellers. Currently the site has 325 exhibitor/suppliers offering 360,000 SKUs of merchandise, and 12,000 registered buyers. The number of suppliers represents about 10 percent of the total number that exhibit at AmericasMart-Atlanta. The site averaged 1.5 million hits per month since July 2000, according to the Web Trends Data Report.

In the near future, Americasmart.com plans to increase the number of exhibitors and buyers as well as add more services such as order and supply chain management, front and back office integration, and customer relationship management. The company will also enhance pre-show research and post-show ordering capabilities for AmericasMart show attendees.

"One of our key competitive advantages is that we've been doing this in the physical world for 40 years," noted Amerciasmart.com CEO Joseph Farrugia. "People can be sure we'll be doing it for the next 40."

"Given the demise of some of the competition we're very pleased to be standing a year later," said CEO Debra Janssen of Ebizmix.com. "Our partnership with Hallmark allowed us not to have to worry about the financial aspects of the business and enabled us to focus on building relationships." The site's 160 suppliers, including United Design, Thomas Nelson, and Coyne's & Co., offer a total of 110,000 SKUs.

So far, the Hallmark connection has also provided most of the business. At press time, the site had processed 103,000 individual transactions, or $66 million at wholesale. In January 2000, when the site launched to Hallmark stores only, 98 percent of the volume came from Hallmark stores buying Hallmark products and 2 percent came from Hallmark stores buying products from other vendors. By the end of 2000, 70 percent of the volume came from Hallmark stores buying Hallmark products, while more than 29 percent came from Hallmark stores buying products from other vendors.

In July 2000, Ebixmix.com launched to other specialty gift and florist stores. These non-Hallmark retailers represented less than 1 percent of the total transactions in 2000. A "Christian special community" was recently added, and Ebizmix is exploring the party-goods segment as well. The site hopes that its partnerships with the FTD Association, the Gift Association of America, and others will help drive more volume from the independents.

Ebizmix.com will continue to work with Hallmark, which remains the site's sole investor. But separation is foreseeable. In August 2000, Janssen was brought in "to focus on independence." The site will move out of the Hallmark Kansas City facilities next month and take up residence in the newly renovated Kansas City Union Station.

Another major site with a relationship to an established gift industry institution is USGift.com, founded by the national sales rep organization OneCoast Network Corp. USGift, which has 300 suppliers and 20,000 retailer members, is a wholesale distributor. The site makes its money on the spread between the wholesale price and the discount it gets for volume, rather than charging a transaction fee. USgift.com did not respond to Gifts & Dec's inquiries for this story, and is rumored to have recently laid off as many as 10 percent of its employees.

The site continues to garner praise and support, however. It received an additional $8.5 million in financing from Internet Capital Group in November 2000. The site was named by Forbes.com as one of the Best of the Web. It has partnered with Service Merchandise.com, Kmart's Bluelight.com, and home-improvement retailer OurHouse.com. Previously, USGift.com encountered difficulties when another online retailer partner, Furniture.com, filed for bankruptcy.

USGift also announced that it is in the process of buying OneCoast Network, and will provide financial and marketing assistance to OneCoast sales agencies.

Whereoware.com has undergone dramatic changes since it was launched last spring. Formerly independent, the site is now part of an alliance of several of the biggest names in gift show management: DMG World Media, the Dallas Market Center (DMC), George Little Management (GLM), and, most recently, Western Exhibitors (WE). Whereoware's partners have invested $21 million in the site.

As a result of the alliance, DMC has abandoned its attempts to create its own b-to-b marketplace, and while GLM still maintains a relationship with WorldGift.com (formerly GLM-marketplace), the thrust of all these companies will be to promote Whereoware.com as their b-to-b Web site of choice. According to Eric Dean, Whereoware's president and COO, the four show management companies give Whereoware a potential audience of 320,000 retail stores. Currently, Whereoware offers more than 300 suppliers and 35,000 SKUs of merchandise. It is working to standardize product categories so that retailers and suppliers will always know where to find product, whether on the site or at the shows.

In another development, Forretail.com has agreed to forward all of its customers to Whereoware.com, while it focuses on being purely an application service provider.

The Independents

A newcomer to the scene is Decorize.com. While the company has existed since January 2000, it provided services only to large retail chains. The company's main selling point is that it sources partners in the Far East that ship directly to the U.S. Large retailers can get 10,000 SKUs of product at 50 to 70 percent below wholesale. Beginning in January 2001, Decorize addressed the smaller retailer by providing direct shipments of 3,000 SKUs of product from the Far East at about 30 percent below wholesale. It also offers a few one-of-a-kind antiques and limited editions "to create excitement," explained CEO Jon Baker. The company was formed by a group of private investors, and board members have backgrounds ranging from Compaq to Chanel to Guildmaster. One of the things that interested investors, according to Baker, is that the company doesn't depend on technology for its whole revenue stream. If the Internet shut down tomorrow, he said, "We're at market, we'd survive."

FarCountries.com focuses on providing overseas product to independent retailers. "We are structured as a trading company. We never really positioned ourselves as a pure dot-com," said president and CEO Anthony Capa. "Everyone knew that 2000 would bring about some shakeout. It pretty much fell out as we had expected it to, with people working in alliances or expanding their models as we have." FarCountries has an alliance with sales representative Sue Sanderson Inc.

While FarCountries has "many thousands" of products, Capa declined to offer an exact SKU count. According to him, FarCountries is not focused on providing maximum selection, since searching through huge catalogs online is both difficult and time-consuming. "While there's an advantage to having depth and variety, it can become more of a hurdle for the retailer," said Capa. Instead, Farcountries aims to offer unique merchandise that represents trends.

MarketsByWeb.com took a slightly different approach to alliances. Instead of partnering with a brick-and-mortar institution, in October 2000 the company merged with another Internet site: the business-to-consumer collectibles retailer GoCollect.com. The goal of the two is to build a company that looks at the whole supply channel from supplier to rep to retailer to consumer. ByWeb brings the supplier portion to the table: The company builds custom catalogs for suppliers and reps. The catalogs are available both on the individual company sites and on a central portal, which showcases 50 so far. Lynn Aylsworth, president of ByWeb, explained the company's position by saying, "compared to exchanges that are trying to be a sales rep by charging a transaction fee, we're more like marketing. We're purveyors of information. We're not competing with the sales channel."

The Niche Players

Gift retailing overlaps with a variety of related categories, each with its own Web resources. A sampling of sites that cater to these niche markets includes Efloralz.com (florist supplies, wraps, and gourmet foods), Mayfairmarket.com (tabletop and related products), and Whatshotnow.com (licensed products). The International Housewares Association partnered with Crossmarket.com to offer a b-to-b housewares marketplace at Housewares.org.

Steals and Deals

There are also a number of sites featuring closeouts, surplus, and other inexpensive merchandise, either at fixed prices or at auction. Because of the erratic nature of the selection and the fact that most of these sites cover a wide variety of products, they're not safe choices to rely on for bread-and-butter items. They can, however, be good places to check for "finds" for extra margin, promotional items, or corporate gifts. Sites include Isolve.com, Retailexchange.com, Dollardays.com, Hotoffthewire.com, Rebound.com, Surplushut.com, and Crossmarket.com.

What's Next?

This time last year it was impossible to predict what the b-to-b landscape in the gift industry would look like in a year's time. Today, it's probably equally impossible to predict what it will look like next year. But the consensus seems to be that the shakeout has been a good thing. "With so many [b-to-b sites] out there, it caused confusion in the marketplace," said Americasmart.com CEO Joseph Farrugia. "To speed up adoption you need a higher degree of certainty." Farcountries' Anthony Capa thinks that most of the consolidation is over, and the sites that have survived will settle in and expand as buyers and suppliers accept the new medium. He said, "Last year was the birth of the Internet in the gift industry, this year the relationships get solidified; and next year the businesses will really boom."