Pure Play

May 2010

Shoplet.com shows how a web-only David can succeed against three retail chain Goliaths.

By Zak Stambor

Tony Ellison is the type of web-only merchant who gives retail chain executives nightmares.

He doesn't have the overhead of stores or inventory since he takes orders online and has suppliers drop-ship merchandise to customers. His company, Shoplet.com, has 66 employees. That's about the number of employees you'd find in a typical Staples, Office Depot or OfficeMax store, says Nikki Baird, managing partner at consulting firm Retail Systems Research LLC.

Those cost advantages over its three big chain competitors enable Shoplet.com to keep its prices low, and offer a 110% refund if customers find most items online at a lower price. And low prices is a big reason Shoplet hit an Internet Retailer-estimated $100 million in online sales in 2009, growing revenue by about a third from the previous year. The privately held company doesn't disclose its sales.

Ellison points out that office supplies are a good fit for online retail, as most shoppers don't feel the need to see paper, staples or printer toner before making a purchase. Thus, Shoplet doesn't face the challenges to selling online that many other retailers do, such as those selling clothing.

But there are elements in Shoplet's strategy that any e-retailer can deploy. These include ways to make navigation and ordering easier, a clever way of stamping Shoplet as environmentally friendly that would be hard to do in stores, and an almost fanatical attention to making sure Shoplet appears high in natural search engine results.

Shoplet is exclusively focused on online shopping, and ultimately that's what makes the difference, Ellison says. "Shoplet has the web in our DNA whereas our competitors have bricks-and-mortar in their DNA," he says. "We understand the needs of customers shopping online."

Three big rivals

Shoplet's growth moved it to No. 134 among North American retailers in online sales, according to the 2010 Internet Retailer Top 500 Guide. That's still a far cry from the Big Three—Staples, Office Depot and OfficeMax are Nos. 2, 5 and 7, respectively in the Top 500—but it makes Shoplet the biggest online-only player in office supplies and furniture.

Shoplet plays to its strengths—big selection and low prices—in order to offset the advantages that the Big Three have, such as the brand power reinforced by their stores and their ability to source private-label goods that they sell at high margins.

Its drop-ship model enables Shoplet to offer a wide selection. In fact, the 1,000,000 SKUs on offer at Shoplet.com are 170,000 more than the selection Staples.com advertises, and nearly 190,000 more products than OfficeMax says it stocks at a typical store

Shoplet features brand names as a centerpiece of its strategy, says Leslie Scharf, senior vice president of business development. "By choice we've chosen to be manufacturer-centric," he says. "The big boys have made it clear that they want to drive consumers to buy private-label products, driving out the vendors in the process by selling inferior products that carry a higher margin. But that's not the way to satisfy customers' needs."

Not all observers are convinced, however, that brand matters much in this category. "Office supplies are a commodity," says Paula Rosenblum, also a managing partner at RSR. "For most people, paper is paper. People don't care what manufacturer produced that paper."

Sandra Gebhardt, an office supplies buyer for Schonfeld Securities LLC, agrees, but she still shops at Shoplet.com. "I just want a good price, as well as the assurance that it will be there tomorrow," she says.

Shoplet, she says, provides both. Shoplet offers free standard shipping for orders of $45 or more, as well as options for next-day or two-day shipping. And a survey of a few popular products shows prices on Shoplet generally are lower than those of its competitors.

For instance, a ream of HP multipurpose paper sells for $6.13 on Shoplet, $7.29 on OfficeMax.com, $6.99 on OfficeDepot.com and $6.99 on Staples.com. A dozen Bic ballpoint pens sell for $1.97 on Shoplet, $2.29 on OfficeMax.com, $2.99 on OfficeDepot.com and $2.29 on Staples.com, and a Safco Uber high back chair sells for $292.48 on Shoplet, $399.99 on OfficeMax.com, $438.99 on OfficeDepot.com and $349.99 on Staples.com. Beyond the cost of its products, as an online-only retailer Shoplet doesn't collect sales tax, except in New York and California.

Green credentials

But Shoplet does not rely just on price to win customers. It also presents itself as environmentally friendly and came up with an innovative way to offer consumers the 8,000 items it deems green.

The retailer has a pop-up window that allows shoppers to replace conventional items in their carts with more eco-friendly options, such as products made of recycled material or that are more energy-efficient. When a shopper adds an item to her cart a green logo notes "Green Replacement Available." If the shopper clicks on the logo, a pop-up window shows images, product details and prices for both the item currently in the cart and the environmentally friendly alternative.

In addition, the Shoplet.com home page highlights its contribution to saving the planet, noting, for instance, that its customers have saved 29,593 trees by buying recycled paper products. Shop Green is one of 10 major navigation options across the home page, along with such basics as Office Supplies, Furniture and Paper.

The e-retailer revamped the home page as part of an overall redesign that went live in December, a product of work by in-house developers. "We wanted the site to be more customer-centric, easy-to-use and search-engine friendly," says Ellison. Shoplet based many of its changes on feedback gathered through e-mail surveys, e-mail comments and customer calls.

Mousing over each of the 10 categories listed in the top navigation bar produces a fly-out listing of products available in that category. Shoplet also rebuilt its site search engine to make it faster and added an autofill function that offers both keyword and category matches. For instance, typing in "paper" brings up keywords such as "Paper Mate" as well as categories such as "paper bags."

The result is a site that is as easy—and in some cases easier—to navigate than those of the Big Three, says Betsy Emery, CEO of Tellus, a web site design and consulting firm. For instance, Shoplet makes shopping for printer toner convenient by returning a search result for HP toner with useful information, such as the yield a consumer can expect to receive. "That surpasses the ease of use of its larger competitors," Emery says.

Instant ordering

For repeat customers, like Schonfeld Securities' Gebhardt, who know exactly what they need, Shoplet added a quick-order feature that allows a shopper to log in to her account and type in a product's six- or nine-digit SKU. Those unique product identifiers are listed in Shoplet's 96-page annual catalog that it sends to more than 100,000 customers. The site also recognizes Shoplet's competitors' SKUs.

The quick-order feature streamlines the ordering process, says Scharf, since it eliminates the need to search for each item, add it to the cart and then search and add the next item. Instead, customers can enter all their items' SKUs on a single page.

The retailer's home page also highlights its free eProcurement tool that allows business customers to manage their purchasing. The program allows companies to set budgets, create preapproved shopping lists by location, department or user, view their purchasing history, and set up automated reorders of frequently purchased items. "It shows they know their audience and speak to them," says Emery.

Indeed, Gebhardt says the system's lists of preapproved items help her company's various office locations keep their office supplies ordering in check. "It means that one office can't just order a $5 pen without getting it approved," she says.

Name recognition

Those features may appeal to office supply buyers that find Shoplet.com. But Ellison acknowledges that his big challenge is attracting new customers to his site.

That's a common problem for online-only retailers that don't have thousands of stores across the country acting as bricks-and-mortar billboards. "While stores are expensive to operate, in addition to revenue they also provide a source of brand recognition," says RSR's Rosenblum.

The discrepancy in brand recognition shows up in data from Compete Inc., which tracks web traffic. The paid search terms that produced the most traffic to the e-commerce sites of Staples, Office Depot and OfficeMax in March were all variants of those retailers' names. But for Shoplet, three of the five top terms were for specific products, such as a particular variety of Scotch packaging tape.

Besides showing that Shoplet is not as well known as Staples, that also reflects Shoplet's strategy of bidding for ads on less expensive long-tail keywords, such as "discount office supplies" and "ink pencil" and on specific brand name products. "Our big competitors have deeper pockets than us so we have to be conscientious about where we're spending our money," Ellison says. As a result, only 26% of clicks from search engines to Shoplet.com were from paid ads, whereas the three big chains get 28-35% of their search traffic from ads, Compete says.

Shoplet tries to make up for what it can't spend on paid search by doing everything it can to show up high in natural search results, especially for the 10% of the 6 million keywords it monitors that drive about 90% of sales, Ellison says. "We make sure that everything throughout the site promotes those keywords," he says.

The store has 3,000 SKUs, all personally vetted by Morris and her staff, and not available through mass retailers. "Going green really helps my business," she says.

Common search terms

That includes tagging products with all the terms people commonly type into search engines. For instance, Hammermill Fore MP Multipurpose Paper is tagged "Hammermill Paper," "White A4 Paper," "Hammermill Colored/Design Paper," "Hammer-mill Laser Paper" and with several other phrases. It also means using that nomenclature in product names, descriptions and the product page's "Also Consider" recommendation section.

The result is a shopper using almost any common term to search for Hammermill multipurpose paper is likely to come across Shoplet on the first page of Google or Bing search results.

Shoplet uses a similar approach with products that shoppers don't normally search for by brand name, such as dividers for looseleaf notebooks. Shoplet is the first natural search result for "subject divider" on Google because the retailer figured out that customers searching for multiple-subject notebooks and those searching for tab dividers are both likely to use the search term "subject dividers."

Clicking on the Shoplet link on the Google search results page leads to Shoplet.com's "Subject Dividers" subcategory page that features 189 products that have either subject or divider in their product descriptions. Those products include tab dividers, index dividers and multiple-subject notebooks.

To ensure the products come up when a shopper searches "subject dividers," the products have "subject divider" as one of their tags and the recommended products on the page include other similar dividers, reinforcing for search engine spiders the link between those pages and the search term "subject divider."

Search engine optimization is an ongoing process, and just one of the ways Shoplet seeks to use its web expertise to compete against much bigger companies. Ellison knows that taking on the Big Three is an uphill battle. "We just need to keep working to show the purchasing community we're the better option," he says. Shoplet's growth suggests the web-only retailer is more than holding its own.