Multi-store Merchant Recaps 2011

With 2011 winding down, we recently asked an ecommerce merchant to recap his firm’s achievements for the year. The merchant is Chad Weinman, founder and CEO of Cat5 Commerce, which operates 10 different online shops — such as RunningShoes.com and TacticalGear.com — from its base in Missouri.

Weinman is an ecommerce pioneer, having founded the business in 2004 with one shop. Fast forward to 2011 and Cat5 Commerce records about $12 million in sales — a 50 percent increase over 2010 — all from a customized, single-administration shopping cart platform. His acquisition before in 2011 of the domain”RunningShoes.com” set an apparent record for its $700,000 price, which we discussed with him in “Domain Name’RunningShoes.com’ Sells for $700,000.”

Practical eCommerce: You run 10 separate ecommerce shops. How was 2011 for Cat5 Commerce?

Chad Weinman: “2011 was a positive year for us overall. Certainly from a growth standpoint, we achieved a great deal of the goals we had set at the start of the year. The economy wasn’t as strong as it might be within the last couple of decades. So I think that we have certainly endured those consequences, but generally, so far as our expectations were worried, we’ve met our objectives. ”

PEC: Can you experience a gain in same-store earnings from 2010 to 2011?

Weinman: “Yes. We did enjoy a gain in same-store revenue by-in-large. Our business is focused on growth and earnings beyond anything else. Profitability is actually a secondary element for us at this stage. We’ve got an eye on the future and we have a bigger business in mind as we sort of develop our procedures and build out our infrastructure. We are doing it with a greater revenue company in the back of our heads; that is something we are focused on. Six of our ten shops are concentrated in 1 market: military and public security; those shops trade clients between themselves and cannibalize each other’s sales, based on what sort of marketing efforts we are doing. So, same-store sales may vary, but normally that sector and that class is definitely up for us throughout the course of the year.”

PEC: To help our readers know the size of your organization, what was 2011 gross earnings versus 2010?

Weinman:“In 2010 we were doing approximately $8 million in sales, and in 2011 the amount will be closer to $12 million. I am talking to’pre-return’ numbers — footwear retailers encounter heavy returns. However, the period between 2010 and 2011 has probably been one of our more substantial concerning growth up to now. So we are pretty proud of this.”

PEC: that’s tremendous growth. Congratulations.

Weinman: “Thank you. When you are smaller I think it’s a lot easier to hit those sorts of double digit growth figures as you attempt to take part in new markets and identify opportunities in them. It would probably be unrealistic for us to expect to sustain 50 percent growth year over year, each year. But generally we have been sort of chugging along since we began; so far so good”

PEC: You started the company in 2004. Is that correct?

Weinman:“Yes, 2004, at the spring, we found our first store, which is BDU.com. Since then we have focused on that industry dramatically for several years before we got into some new markets, which we’ve done this past year.”

PEC: That initial market being military and law enforcement, for the most part.

Weinman:“Yes, military law enforcement, public safety — that is a fairly wide marketplace — and even between military and law enforcement, those are different buyers and distinct professions, although there is a good deal of crossover with providers, brands, gear, and clothes, we promote those markets independently. We treat them as different verticals.

“We launched two flagship superstores this year with the purpose of segmenting those two markets, where formerly our first store, BDU.com, was designed to appeal to both. I guess we felt like we were alienating the other. While from a business standpoint we grouped them together from an end user standpoint — military law enforcement and public security are definitely different clients for us.”

PEC: Cat5 Commerce operates ten shops. How does it handle the back end concerning the platform, order fulfillment, accounting systems, that type of thing?

Weinman:“We’ve developed a proprietary ecommerce platform that enables us to handle all ten shops from one central point of management. So, by way of instance, if we load a pair of trousers in a special brand to the database, we just do this 1 time, then we could make that pair of trousers on some of the properties we operate.

“From an efficiency standpoint, certainly that is ideal, and it enables us to take the very same brands and the very same providers and market them in various ways depending on what shops we have the products end up on. Outside of the proprietary platform that is on front, on the back end we utilize conventional and common order management tools which are third party off-the-shelf tools. We utilize Stone Edge Order Manager to perform backend order fulfillment, order management, and warehouse management. We use QuickBooks for accounting and financial record keeping.”

PEC: How many employees do you have?

Weinman:“I believe we are just over 30 at last count. This has been a year of hiring for us. We were nowhere near that only 12 months ago, so the workplace is certainly a bit more crowded lately.”

PEC: Is the holiday season important for the public security and military-law-enforcement markets?

Weinman:“It surely is. The end of September is certainly a big time for us because it is the financial government’s year end, where plenty of agencies need to make purchases to keep those budgets for the next year. Outside of that, broadly , the holidays — November, December — are a huge growth period for us. It’s a significant influx of revenue. And certainly the shops such as Running Shoes and Hiking Boots do well in these periods. But the military law enforcement shops do also. I believe just generally fourth quarter is where most retailers see most their revenue.”

PEC: Let us discuss marketing difficulties. How can attract consumers to your websites?

Weinman:“There are a few main traffic drivers for us, which can be search engine optimization, and pay-per-click and display advertisements. So I guess you can kind of wrapping a good deal of those up under search engine advertising.

“Display ads — I’d include Facebook and retargeting campaigns in that class — can certainly reflect a percentage of our visitors, certainly return visitors, repeat traffic and loyal customers, that we have been serving since 2004. We do email advertising, which is a large part of our sales. It’s something which we have spent a lot into and that we believe is most likely one of the better return-on-investments in the enterprise.

“We also use social networking — Facebook and Twitter — to kind of engage with the communities which we participate in and become part of the conversation in attempting to capitalize on trends and current events.

“We do not do really all that much conventional print media advertisements or cataloging. We have done some of that before, but I believe we cling to electronic marketing initiatives, since they’re easier to monitor and are more aligned with who we are as a merchant.”

PEC: What about comparison shopping websites?

Weinman:“We do marketplaces — eBay, Amazon — but purchasing engines we have played with before and have had limited success with them. It seemed like the direction of it wasn’t worth the visitors that we were getting. But certainly Google’s shopping engine, which is free of charge, we engage in. That is a no-brainer for any online merchant to become involved with. And then affiliate marketing we have avoided since day one. It has never really been a part of our version.”

PEC: What is the easiest method of ecommerce merchants to use social media? Is it to really sell products on these platforms?

Weinman:“Honestly, we are trying to figure out that — a lot of other retailers are as well. I am not sure that there is a clear path or a precise value which you could put on social networking efforts as much as how they translate directly to earnings. We are experimenting with it. We try different combinations of content that is less sales oriented to content which is more sales oriented, to attempt to engage how our followers respond to it. If nothing else, it is an outlet for customers to communicate with us, perhaps they are more comfortable communicating with Facebook or Twitter, so we give them that choice.

“Certainly from an SEO standpoint, there is a great deal of schools of thought that indicate that Google, Yahoo! and Bing utilize social signals to determine positions. So how popular you’re on Facebook or how many times you’re mentioned or what sort of engagement you are getting on social platforms may influence where you are showing up in positions So from that standpoint, it is easy for us to justify investing in social. But I think that it allows us to participate in the business and just kind of make sure that we are keeping aware of trends and what clients are searching for.”

PEC: Another section of your company is RunningShoes.com. When we last spoke, you’d just acquired that domain name for $700,000. How has that acquisition worked out?

Weinman:“Generally speaking we are as optimistic about it as we’ve ever been. The purchase price for the domain name was fairly large. We’ve had a whole lot of discussions about that and we have talked with a great deal of third-parties which were interested in that transaction and whether or not we could justify the cost. When we purchased it, it ranked number one for the term’running shoes,’ which is a enormous key word for our industry. There’s a good deal of value there. Since Google’s Panda upgrade, the ranking has dropped. It is still in the top ten, but it is closer towards the center of the pack on this first page. It is to be expected that you are not going to lock top positions indefinitely without plenty of work and momentum.

“The transition period for us to get acclimated with this new sector — to find everything migrated over, to forge relationships with the partners and the providers which are in that sector — took time. We paid the price in terms of earnings and positions in making that transition. But things have settled down since then and we have a very firm business plan and a route. We have heard a lot about the business. It is going well. It is teaching us a lot about online retail in the sense that military law enforcement was less aggressive than running shoes and hiking boots are.

“We also operate HikingBoots.com. So, once you’re going up against rivals like Sports Authority and REI — well-financed companies and successful businesses — they raise the stakes. We have needed to elevate our game so to compete at that level. It has made us a stronger company and all of our websites have benefited from this challenge.”

 

RunningShoes.com

 

PEC: Knowing what you know today, would you do this $700,000 transaction again?

Weinman: “Yes, absolutely. I feel like the market type of presented us with an extremely distinctive chance to acquire that domain name. And without it we wouldn’t have been in a position to get into athletic footwear, which is a really aggressive and a very controlled industry. The significant keystone providers don’t like to start out pure play online retailers, unless they have a very compelling reason to do so. So, with no premium domain name and with no history of company that came together with that domain name, and without the standing that came together with that domain , I do not know that we’d have been able to enter this market. We got really lucky.

“To re-create exactly what we did and to say’I wish to get into hiking boots’ or’running beaches’ as an internet retailer would be incredibly hard, simply due to the people who you must convince to give you a opportunity. So that gave us that advantage, and I am not sure that we can re-create it without having made that transaction.”

PEC: Let us discuss 2012. What do you expect to do with Cat5 Commerce during the next year?

Weinman:“For 2012, we’re dedicated to building out the present ten properties that we’re operating, and focusing on creating those shops as powerful as they may be. Formerly we had been pursuing the model of launching a great deal of new stores and becoming involved in plenty of new markets. But that version was based on a search engine, Google which has been easier to rank for, to achieve outcomes in. Google has made it far more challenging to penetrate rankings with no kind of a proven history and a familiar brand.

“Trying to construct a recognizable brand and trying to have a proven history is a whole lot of work. It requires a while, in some cases there is just really nothing you can do but be patient. And so, as a consequence of that, we do not feel like always opening new stores is the direction we would like to keep going in. We instead are seeking to build the brands that we already have and merely to make them as powerful as we could. Luckily, we feel like all those ten brands which we operate has an enormous amount of potential — some more than others — and that there is enough work to be done there to take us to earnings levels that we would finally be comfortable with five years from now.”

PEC: Anything else on your mind about 2011 or moving into 2012?

Weinman:“Focusing on a single brand or a small number of brands and making them successful as possible as an entrepreneur is the perfect path forward to build customer loyalty, to build brand awareness and brand equity, to invest in your particular niche. Doing it better than anyone else is the best thing to do. Be certain you have a value proposition and some type of advantage that gives people a reason to gravitate toward your company — versus among your competition.

“Mark Zuckerberg, the Facebook founder, recently was interviewed on 60 Minutes. He said that no branch of any firm could compete with a competent entrepreneur. I subscribe to that wholeheartedly. Somebody who is enthusiastic and focused and motivated to accomplish something in a very specific area will be able to do that — and be nimble enough and adaptable enough to outmaneuver a much bigger company. That’s something which we take to heart. It is a motto that any small business can live by.”