E-tailer’s New CFO Spells Out Survival Strategy

A new CFO explains how his B2C firm will avoid being Web road kill.
Joseph RadiganNovember 29, 2000

The dot-com shakeout is far from over. Hardly a day goes by without another E-tailer turning its server off for good.

But if you talk to Paul Williams at Cyberian Outpost, he says his company has a blueprint for outlasting its weaker rivals. Good thing. Williams was promoted to the CFO spot on Monday after nearly a year at the firm. The strategy includes lowering the cost of acquiring new customers, improving relationships with suppliers, and guaranteeing customers good service.

Williams had been the company’s senior vice president for business development and finance. Before joining Cyberian Outpost in January, he had been president of a cable TV subsidiary of the Connecticut telephone company, Southern New England Telecommunications.

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“I have no idea who’s going to survive and who’s not,” remarks Williams. “But what the market is saying right now is that those that have a profitable business model will survive, and those that don’t, won’t.”

One business model that has fallen out of favor is the strategy of selling below cost. A year or two ago, it was almost de rigueur for start-up E-tailers to launch a Web site, gain a lot of publicity by selling below cost, and promote their ability to make up the difference with ad revenue.

Williams says that phenomenon has all but disappeared. The plunge in tech stocks has dried up sources of capital for tech start- ups. The absence of these competitors has given Cyberian Outpost some breathing room.

“In the past, we’d have to react to a lot of little different players,” says Williams. “That really doesn’t exist like it did a year ago.”

Apart from a competitive environment that is far less feverish than it was, Williams also points to the firm’s slashing of its costs of acquiring new customers.

A year ago, Cyberian Outpost spent more than $100 in marketing and promotion costs for each new customer. By the second fiscal quarter, ended Aug. 31, that figure had dropped to $38.

“We’re almost at a point where the profitability is on first purchase,” he says. “Plus, our repeat buy rate is very strong. That helps drive down our cost of acquisition.”

The company’s finances improved enough in the August second quarter to cut the loss to $6.7 million on sales of $72.3 million compared to a loss of $8.4 million on sales of $36.7 million in the year ago quarter. According to the most recent financial statement, the cash on the balance sheet also grew to $24.6 million as of August 31, compared to $13.3 million at the end of February.

Williams notes customer retention is helped by practices such as delivering products overnight when they are ordered before midnight East Coast time.

The company has also moved aggressively into relying less on distributors and more on direct shipments from manufacturers. For example, the company now gets products directly from Apple Computer, and Williams says this is helping to lower costs.

The changes have driven an improvement in gross margins to 14.1 percent in the August quarter.

Cyberian Outpost has also created a new revenue stream by running the Web sites for traditional retailers like Tweeter Home Entertainment Group, Wolf Camera and Brookstone Co. In Wolf’s case, the business partnership also includes a pilot program with kiosks in the company’s stores that lets customers order products directly from Cyberian. But the kiosk program is at too early a stage to be contributing a significant amount of revenue.

If all goes according to plan, Williams says Cyberian Outpost should achieve profitability by the second half of its 2002 fiscal year, which ends in February 2002.