SportStation Sells Up the Amazon

You can call what the Web does a form of “direct marketing”, but a lot of it is becoming less direct as time goes by. Many Web merchants rely for a proportion of their online sales on shopping portals and third-party merchandisers such as Amazon Stores or Froogle. And those proportions are likely to grow: Forrester Research estimates that such channels will account for $54 billion in gross merchandise retail online sales—or 27% of all online retail sales.

This introduces a new channel opportunity for Internet merchants, but it also leads to a new problem: how to coordinate the different integration needs for each of these marketing channels. “Within two years, you will have to be on these channels if you’re an Internet merchant, or you’ll only be addressing 75% of your market,” says Eric Best, CEO of Mercent, which launched the 4.0 version of its Commerce System platform last year. “The problem is that you’re dealing with a separate integration for each marketing channel you elect to support, and typically a separate vendor. And the channels are continually changing their technical standards as well as their merchandising capabilities.” Keeping up with those shifting targets can divert too much attention from the merchant’s primary sales aims, making third-party selling a difficult proposition.

While Mercent’s software lets online retailers hook into a number of different sales sites, including BizRate, Froogle and AOL InStore, in spirit at least it is most closely linked to the Amazon channel. That makes sense: Best used to work for Amazon and was instrumental in setting up its first major retail partnership, with Toys R Us. Mercent is one of five software companies Amazon has sanctioned to be its interface to retailers.

And JR’s Sports Collectibles is parent to one of those online merchants. The company began life about 10 years ago as a regional player selling licensed sports apparel to retail stores, as well as collectors and autograph hounds. But the company jumped onto the Web about five years ago as SportStation.com, and since then retail has come to represent a larger portion of annual business: about 40%, according to operations chief Matt Bowen. The company also now operates a drop-ship service conveying the goods of about 50 other sports Web sites, and a brick-and-mortar shop in Anaheim, CA.

“We’re a $4 million to $5 million company, but we have eight full-time staff and three pretty major business channels,” Bowen says. “So we keep busy.”

And the company got a lot busier in April 2004 when it decided to open a store on Amazon’s Web site, known as “SportStation.com on Amazon”. Actually, Bowen says, the company received an invitation from Amazon to join the beta version of its sports-collectible mall. The company decided to try it, thinking that an outlet on Amazon would provide an answer to its multi-channel dilemma: how to sell from its own Web site without cannibalizing sales from-- or incurring the wrath or—its reseller customers.

“We couldn’t really be aggressive about marketing our retail Internet site,” Bowen says. “We have loyal customers who find us and value us for our selection and customer service, but we have to protect our wholesale customers too. Amazon presented a unique opportunity because they handle all the marketing for their stores, and their Web sites appeal to a certain customer who is a good fit for us.”

Within the first eight months, that Amazon store did about $500,000 worth of business. That’s when the company knew it would pay to look for a platform that could automate all the details required.

“When we started with Amazon, we gave it a couple of months to see what results we’d get,” Bowen says. “Once we knew that the return come 4Q 2004 was going to be substantial—and since we’re in retail, the holidays are killer for us—we started investigating different third-party software that would allow us to automate completely the whole Amazon experience.”

SportStation was already using Mercent’s Net Suite operating system for its own Web site, and so gave the Commerce System platform a try. Bowen says the results have been completely satisfactory. “It’s easier for us to process an order through the Amazon store than one through our Web site,” he says. That’s primarily because Amazon requires that merchants let it handle all portions of the credit card transaction; the sale is charged to Amazon, which then passes the revenue along to SportStation minus a commission. All SportStation has to do with those orders is fulfill, pack and ship.

The effort has worked so well that SportStation now operates stores on a number of different shopping portals and comparison shopping engines, including BizRate.com, MSN, Froogle and Shopping.com. And it uses the Mercent interface to manage all of them from a central point.

One benefit of hooking into the shopping sites using a platform such as Mercent’s is the ability to feed inventory data in real time. “One of the issues we had early on is that orders would come in for items that were out of stock,” Bowen says. “We were providing static inventory data to these shopping portals. Now we can provide real-time data, and we don’t risk disappointing customers.”

Bowen says that prior to opening its Amazon store, SportStation had tested many of the other typical ways to increase online sales, including affiliate programs, coupon codes, banner ads, pay-per-click advertising and even selling in eBay’s merchant program. None of those methods held the same appeal as the fixed cost of Amazon’s program. “When you look at the cost of sales for those different means, you can be paying 15% to 20% per sale on pay-per-clicks and banner ads,” Bowen says. “With Amazon, we’re paying from 5% to 15% per sale instead.”

That kind of fixed sales cost is appealing, especially in light of SportStation’s multi-channel business model. “There’s a 70% chance we’re going to be shipping that product for the seller, no matter who it’s bought from,” Bowen says. That will be particularly true once the company builds a planned East coast distribution center later this year.

The Amazon store will play a part in increasing that drop-ship business too. Bowen says he was recently approached by a small start-up manufacturer that was using a fulfillment company to take orders, pack and ship and handle returns.

Bowen told them SportStation could do that fulfillment work without a fee. “I told them that based on the technology we have, not only would we be able to provide them the full fulfillment service from order-taking to returns, but we could also expose them not only to our Web site but to our 5000 wholesale customers, to our fulfillment partners at more than 50 Web sites, to our retail store and to all the Amazon shoppers,” he says. “That gives them immediate exposure and returns on their work, and it allows us to grow as a small company without investing capital in inventory. For a small business without a lot of money and no intention to sell off portions of the company, that’s one way we can grow.”