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Deal Radar 2009:

Posted on Wednesday, Oct 28th 2009 is an online store from which consumers and businesses can purchase office products. Shoplet was founded in 1994, when online purchasing for B2B products was almost non-existent. Founder Tony Ellison was an investment banker at Goldman Sachs who realized that it was a market with potential.  With no prior experience in selling business products, he took on an industry previously occupied only by giants like Staples, Office Depot, and Office Max. By leveraging new distribution models, economies of scale, and the greater efficiency made possible by the Internet, Shoplet was able to compete fairly and effectively in the market.

Ellison saw an opportunity in the office supplies vertical that few were taking advantage of. Because they have found it difficult to adapt to the rapidly changing marketplace, and they rely on outdated business models based on unsustainable overhead costs, the big three in the industry have experienced store closings, falling stock prices, layoffs, and low pricing. Also contributing to this current environment is the fact that customers are looking for more convenient and cheaper ways to shop, and there is increased competition from Internet retailers.

Since its inception, Shoplet has been completely financed by its founder. Having been profitable for over a decade, the company has been able to build up its capital without outside financing, the kind of bootstrapping story I like. I also like the fact that Ellison is a former banker who made a successful transition onto an entrepreneur, an example many in Wall Street need to follow in today’s environment.

Shoplet was originally conceived as an online marketplace, but within its first year of operation Ellison saw a big opportunity in the business products industry. The market was severely underserved online, and because office products were non-personal by nature, the need to ‘try it on’ before purchasing was also absent. By the mid-to-late 1990s, an increasing share of this market moved online as demand increased from B2B and B2C customers.

Shoplet operates in a $250 billion slow-growth industry that is dominated by several large public companies such as the three mentioned above, Staples, Office Depot, and Office Max, with several thousand small privately held distributors representing the rest of the space. In this industry, Shoplet provides an easy-to-use and cost-efficient platform for customers to purchase office products and related business supplies. It caters to four distinct market segments: small and mid-size businesses (SMBs), small office/home office (SOHO), enterprise, and federal customers, each of which represents between 10% and 35% of the company’s revenue. believes that anyone using the Internet also needs office supplies, so its actual market includes anyone in this category within the United States. It aims to create the largest single source for B2B, B2G, and B2C customers to buy both business and industrial products online on one platform.

The site boasts the largest collection of office products online, with over 200,000 products available, including a range of 8,000 recycled office items for the ‘green’ consumer. Its brick-and-mortar counterparts usually have only 7,000 to 14,000 products available. Shoplet also offers free e-procurement tools that help a company to manage and control its office products purchasing.

To date, this industry has seen little innovation and has not used technology to improve its efficiency. This has set the stage for a new business model based on leveraging the efficiency of Internet purchasing for office products and business supplies. The online portion of the office supplies industry is growing fast: it was just 5% in 2005 and is projected to be 60% by 2011. Shoplet is constantly using technology to improve and also offers a Facebook application that allows customers to calculate the natural resources saved after the purchase of various green office products. Shoplet’s partnerships and streamlined distribution channels enable it to deliver over 95% of shipments the next day with no additional costs for the customer to bear.

Shoplet’s distribution partnerships enable it to offer products primarily in the office supply market, with a secondary focus on cleaning supply, restaurant supply, and tools verticals. The site also offers free shipping on items over $45 and provides U.S.-based customer service.

Overall, Shoplet’s efficient delivery, wide selection and prices that are 10%-20% lower than competitors have made it the category’s fourth-ranked leader online, close to Staples, Office Depot, and OfficeMax who have spent millions of dollars on their brands.

The company has been profitable since 1997 and is cash flow positive. In 2007-2008, in a recessionary economy, Shoplet still grew aggressively in the double digits. Year to date, the company has grown over 55%.  Shoplet did not give exact revenue details but expects over $100 million in sales over the next twelve months. Its large, public, retail-focused competitors have seen flat or declining growth since last fall since they need to focus on multiple business segments such as retail, B2B, delivery, and Internet.

To date, Shoplet has over 2.5 million customers and has developed relationships with over 100 advertisers and promoting vendors. It expects to process over 1 million orders this year. Services such as the e-procurement tools add value and contribute to the company’s repeat and retention success.  In the future, Shoplet expects to grow through its new vertical market segments such as cleaning and maintenance supplies and industrial tools and hardware.

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This segment is a part in the series : Deal Radar 2009

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Shoplet seems to be an excellent case specially considering that it has seen a couple of downs in market and doing well.

Saurabh Friday, October 30, 2009 at 8:48 AM PT