SM: How are you able to increase gross margins when prices and demand are going down?
JS: In a bad economy, if you are strong and well financed, you have an opportunity to talk to manufacturers who are hurting from decreased demand. We offer to pay them very quickly if they give us better prompt payment discounts. If we buy more from them, then we start getting better volume pricing.
Then we tell them that we want to have promotions and offer our customers special deals, but we do not want to absorb that. We show them analytically that if we promote a decreased price for a certain period of time that two things happen. One, there is an increase in purchases of their product. Two, the following month when there is no promotion, people return and buy more of the product because they did not buy enough the first time. We use Omniture to show them the analytics. We do a post-promo analysis every time and show that data to our manufacturers. We show them that they actually gain money by doing it.
SM: How big is the window blinds market?
JS: About $4 billion. We have plenty of room to grow. We believe that Home Depot and Lowes are our competition. That is where the price-sensitive market goes to shop. We believe that market is about $1 billion and that our market is at least $1 billion. It used to be that 75% of the market was Sears, Montgomery Wards, and JC Penney’s. Sears and Montgomery Wards got out of it, but mom-and-pops came into it. Home Depot and Lowes came in and started supplanting the mom-and-pop stores. Manufacturers still see mom-and-pop stores as their core constituency. But mom-and-pops just cannot compete in the ‘do-it-yourself’ market. The economy, however, is turning people into do-it-yourself consumers.
SM: How do you win a customer who would normally go to Home Depot or Lowes?
JS: Until about a year ago we were not finding them other than word of mouth. People started going online enough that we finally started national advertising and public relations. We have done a lot of host endorsed talk radio. That goes really strong. We made a lot of errors in that. We are going to start television in Q1 of next year.
SM: You have done a nice job creating your own brand. That aligns with my Web 3.0 formula which indicates the web is contextualizing and aligning. That formula is Web 3.0 = (4C + P + VS). The 4Cs are community, content, commerce, and context. P represents personalization and VS is vertical search. Your business covers all these elements do some degree.
JS: I read that article. We are doing vertical search. We do have the 4Cs. We are doing a lot of personalization in our email campaigns and behavioral targeting.
SM: Do you use anything like Baynote?
JS: No. We are doing it on a much cruder basis. We are looking to see if they have been on the website before and which products they have purchased. We have not done behavioral marketing as sophisticated as we could. That is on our to-do list for Q2/Q3 of 2010.
SM: Are you planning to hold on to this company as a private company?
JS: That is a difficult question to answer. I think that all companies are for sale. The way I am running this company is via a two-pronged approach. I run the company as if it were going to go public. We have this transparency, honesty and, internal controls that are required, with no intent of ever going public. We also run the company as if we will never sell it, as if we are just going to build it into a $500 million company.
We just created a partnership with some big public companies and it launched two weeks ago. We just got the go-ahead, so I really can’t talk about it in detail.
SM: What kind of partnership?
JS: It is a big-brother/little-brother relationship where major retailers outsource the entire department of custom blinds to us. We have done a cart-to-cart integration. When you go to their site it is seamless. You don’t even know it is us. We handle the phones, the customer service, and the fulfillment. We have no inventory because it is all drop shipped from our manufacturers. If you want to look at return on capital employed, it is like dividing by zero.
SM: Wow. That is awesome!
JS: Everything is custom made and drop shipped. We have no inventory and no receivables. The trailing 12-month return on capital employed is basically incalculable. We only have capitalized technology.
SM: If you are not taking inventory, how do you negotiate fast payment deals?
JS: When we buy from you, we will pay you in a week. Our pricing is set on volume. We will consolidate purchases from multiple manufacturers and give you a higher percentage of it if you give us a better price based on our hitting specific targets.
SM: I love your business and the way you run it. Congratulations!