Sramana: Are your distributors well equipped to handle the fulfillment directly to consumers?
Michael Dash: Yes, they have large warehouses that stock these auto part inventories. Those warehouses are set up as shipment and fulfillment warehouses. When somebody orders a part from me, I electronically transmit that to them. They pick that part and put it in my box. They put my tape around it and my information on the box and then ship the box to the customer. They charge me for that service.
Sramana: Can you talk about the economics of this business? Obviously, the wholesalers do not have the expertise to do the marketing and selling. Who takes what in this process?
Michael Dash: If we sell a part, then we obviously have a cost on the part and a cost to ship that part. We mark up the part a percentage based on what we think the market will allow. We set our pricing based on what our competitors charge, what our baseline margin is and what our customer acquisition cost is. We mark up our product based on all of those factors.
Sramana: What kind of business is it from a margin point of view?
Michael Dash: We live in the 20% to 30% margin range. The wholesalers live in a smaller margin than that.
Sramana: How many car part distributors are there and what kind of focus areas do they have? It sounds like there are a lot of specializations.
Michael Dash: There are a lot of players in this space. There are hundreds if not thousands of people who do drop ship fulfillment. The good thing about what we have built is that it is transferable. We started with car parts but we have now expanded our offering via some new websites that we have rebranded.
We now sell plumbing parts, electrical supply parts, and we are planning on expanding beyond that. As long as we find a good drop shipper who can sell to me at a good price, ship for me at a good price, and is a good fulfillment partner then I will sell anything. As long as I can make a decent margin, I will sell it.
Sramana: You said the car part industry is very diverse. What is your strategy? Do you plan to work with hundreds of distributors?
Michael Dash: It is very diverse. There are probably hundreds of them to choose from. I like to have a focus on one distributor. If you diversify, you may have more parts but you end up spreading yourself too thin and you don’t have as much pull with that distributor. If I spent a million dollars a month with one distributor, then I can go to them and complain about my cost being too high. They are sensitive to the fact that I am doing a million dollars of business a month with them.