E-commerce king Featured

7:00pm EDT February 28, 2006
Before the Internet was a mandatory second storefront for retailers and was the first stop for shoppers, and before broadband was mainstream, GSI Commerce was already building online showrooms for retailers.

“When we started in e-commerce, the total industry revenues were 5 (percent) to 10 percent of what they are today,” says Michael Rubin, president and CEO of the King of Prussia-based company. “The big challenge was establishing (a business) in a new industry.”

Six years ago, when Rubin launched GSI from the e-commerce division of his company, Global Sports Inc., the industry was young and its inherent challenges steep: Start-up capital for technology was costly, many retailers weren’t hip to online sales and competition was stiff. But this didn’t prevent Rubin from acting on his intuition.

“We saw a gigantic business opportunity, and we wanted to build a significant infrastructure that could handle that,” Rubin says.

To fund the venture, GSI raised nearly $200 million in capital from three primary investors, and Rubin allocated funds toward infrastructure, fulfillment and cost centers, and intellectual capital — people. In fact, he hired a few hundred employees before GSI earned its first dollar. The company lost money for the first four years, but Rubin was confident that GSI’s sales pitch would win over big-time retailers and that he would recoup this loss.

The key to winning over high-profile retailers was to sell GSI’s e-commerce solution, and Rubin knew his vision was different.

“It wasn’t that (retailers) lacked the capital (to start their own e-commerce divisions), it’s that they lacked the experience,” Rubin says. “We timed the market perfectly with a great offering — e-commerce was needed, and we solved the problems that CEOs were having in 1999.”

GSI’s offering consisted of a neatly wrapped e-commerce package. As GSI’s partners, big-name retailers no longer had to worry about staffing an e-commerce division or building internal systems to support online sales. Large retailers’ assets are branding and products; GSI’s strengths as a soup-to-nuts e-commerce provider are its technology platform, fulfillment and customer service capabilities.

“Our sales pitch today is the same as it was when we started the company,” Rubin says. “E-commerce is really big, but it will never be more than 10 percent of our partners’ businesses, and for that reason, by building a superior platform and leveraging (our technology) across all of our partners, we can give them each better e-commerce capabilities.”

Building on the vision
Rubin initially grew the company by taking this proposition to retailers he knew in the sports industry.

“The great thing about sports was that it gave us experience in many different product categories: apparel, footwear, licensed products, hard goods,” Rubin says.

But Rubin knew GSI needed to expand its partner universe beyond sports, which represents only 3 percent to 4 percent of total e-commerce. So he translated this sports background into a selling point when he pitched GSI’s solution to retailers outside the sports industry in 2001 and 2002.

“It was harder to convince some of the partners in new product categories to work with us than it was to get the sporting goods partners to work with us,” Rubin says. “But partners are our best assets in getting new partners.”

Rubin plays a key role in building relationships and selling GSI to new retailers, among them Estee Lauder and Palm, two of GSI’s first clients outside the athletic arena. The retailers GSI was going after were larger than its existing sports partners, but Rubin broke down doors with a simple, honest pitch and proof of satisfaction from existing clients.

“The pitch is that our partners will do more business and make more money because we have more capabilities,” Rubin says.

He shows CEOs that to launch a successful e-commerce division, a company must build out an organizational team and invest dollars in management and technology. Though retailers were interested in e-commerce capabilities and online exposure, many did not want to build the infrastructure or hire more staff. At the same time, Rubin recognized that GSI needed big-name retailers to continue to grow.

“We knew the big-brand retailers would be successful online, not upstart Internet companies,” he says.

He also focused on providing infrastructure for established retailers rather than trying to sell their products under the GSI name.

Rubin’s strategy proved correct. The overall growth of e-commerce has ushered new partners to its door, and its portfolio includes 50 partners such as Polo, Timberland, kate spade, RadioShack and Dick’s Sporting Goods.

Growing beyond the basics
GSI continues to play outside the sports field, adding new categories each year. Today, it services retailers in apparel, health and beauty, sporting goods, consumer electronics, entertainment, jewelry and luxury goods, and home.

To continue growing, Rubin has stepped up the company’s service offerings to meet the more sophisticated e-commerce demands of its partners.

“It’s not that we reinvented ourselves,” Rubin says. “But we offer more value today than we originally did.”

GSI has added multichannel initiatives, customized products, online personalization and international services. And if GSI can’t build it, it partners with others to provide customers with everything from new technology and best-of-breed software to e-commerce customization tools.

“Customization and personalization is a theme we’ve been pushing for a few years,” Rubin says. “We talk to our partners about how they can integrate that into their businesses.”

While Rubin says partners sometimes approach GSI with ways online shoppers can personalize products, GSI’s business management teams are assigned to clients, and together, they brainstorm customization concepts. Rubin figures this will continue to drive growth.

“If we continue with our existing business model, over the next couple of years, the growth for us is enormous,” Rubin says. “We’ve added 10 new partners a year, and I think we will continue to add five to 10 more a year. And we do more for our existing partners.”

GSI builds the relationship side of its business by offering robust services that allow retailers to give their customers the same personal service online as they expect in physical stores.

“(Our clients) want a business partnership and experience,” Rubin says. “We go to our partners and say, ‘Look, not only can we give you great infrastructure, we can help you grow your business.’”

And the partners are buying it. GSI is consistently beating the industry growth average each year and is projecting net revenue of $432 million for fiscal 2005.

Rubin measures success by how much of the e-commerce pie GSI consumes, and its portion is a low-single digit of total U.S. e-commerce sales.

“Our growth mirrors, at a minimum, what the growth of e-commerce has been,” Rubin says.

GSI’s compounded annual growth rate on revenue from 2000 to 2004 was 67 percent.

Growth for both is partners and for GSI is what Rubin’s vision is all about, and he has targeted about 1,000 companies as potential partners.

“We look for the big, established brands that have a lot of meaning in the marketplace,” he says.

The larger the retailer, the more e-commerce business it will do dollarwise and the more that will feed GSI& #x2019;s piggy bank — and reputation. That’s useful because GSI doesn’t market its services; it relies on referrals and interest from retailers who hear about it from other big brands.

Rubin doesn’t expect this demand, or the e-commerce boom, to slow down. Estimating that overall e-commerce represents about 5 percent of total retail, he figures this number will double.

“Lots of things will drive that,” he says, pointing to broadband Internet availability, consumers’ increasing comfort with navigating the Internet and growing trust with online shopping.

What’s more, improved e-commerce services will elevate retailers’ and consumers’ expectations for how they conduct business online.

“Being online is a mandatory thing for companies today,” Rubin says. “It is not an option — consumers demand it. Retail consumer brands need to be there, and that is an important opportunity for us.”

How to reach: www.gsicommerce.com or (610) 491-7000