Etsy files for handcrafted IPO

by
Erin Griffith

@FortuneMagazine

March 4, 2015, 7:58 PM EST

Etsy, the online marketplace for handcrafted and vintage goods, has filed for an initial public offering that is banking on the continued appetite for new Internet stocks.

Reports speculated that the company could be valued in the public markets $2 billion. It said in a regulatory filing Wednesday that it hopes to raise $100 million in the offering, although that amount is likely a placeholder.

Etsy, founded in 2005, has ridden the “maker movement” to success, becoming synonymous with handmade crafts online. It has cultivated a devoted community of 1.4 million sellers and 19.6 million buyers, for whom the site is a sort of eBay for everything from reclaimed wood furniture to hand-made terrariums.

Last year, Etsy took in $195 million in revenue, with just over half coming from transaction fees. The rest came from services the sites offers to sellers like promoted listings, payment processing and shipping labels.

The company posted a loss of $15 million in 2014, up from $800,000 in the prior year. In a potentially worrisome sign to potential investors, it said that operating expenses are expected to “increase substantially.”

Etsy retained Goldman, Sachs & Co. and Morgan Stanley as joint book-running managers with Allen & Company as co-manager. It plans to trade on Nasdaq under the symbol “ETSY.”

A few years ago, Etsy lifted some of its stricter sales requirements, including a ban on sellers using certain manufacturing techniques and hiring staff that had been put into place to maintain the site’s homespun image. This gave the sellers that had made their Etsy shops into a full-time job the ability to expand, but critics warned that it might cause the site to lose what makes it special.

Those concerns resurfaced around reports of the company’s public offering. In its filing Wednesday, Etsy noted the importance of “authenticity of our marketplace and connections within our community,” as one of the cornerstones of its business.

“If we are unable to maintain them, our ability to retain existing members and attract new members could suffer,” the company’s regulatory filing said.

CEO Chad Dickerson has long hinted that Etsy might try to avoid the traditional IPO route, followed by the likes of giants like Facebook, Twitter and videocamera maker GoPro. The company is a Certified B Corp, after all, so it technically has a “double bottom line,” which means it must make investors happy while also following more unconventional corporate guidelines that emphasize doing good.

In 2012, Dickerson pointed to SurveyMonkey, the online survey company, as an example of a viable alternative to going public. Rather than sell or IPO, SurveyMonkey underwent an $800 million recapitalization in which it took on debt financing. This allowed the company to pay back its outside investors while remaining private and independent. However, Etsy, which raised almost $100 million in venture backing over the years, has chosen to list itself on Nasdaq.

If successful, Etsy’s IPO will be a win for New York’s tech scene, which has seen its early leaders, blogging service Tumblr and location check-in app Foursquare, sell or struggle to find their way. It would also be a win for its venture investors, Glynn Capital Management, Index Ventures, Union Square Ventures and Accel Partners. Of course, that’s a big if. But how could anyone resist a cat in a handcrafted necktie?

Target to shift big chunk of spending to tech from stores

by
Erin Griffith

@FortuneMagazine

March 3, 2015, 4:36 PM EST

Target TGT is best known for its nearly 1,800 big-box stores. But it’s betting its future on grabbing its share of digital commerce.

This fiscal year, Target will spend about $2.1 billion on capital projects, about the same as it did in 2010. But back then, the bulk of the spending went to new stores and remodels. This year, company executives said at a meeting with Wall Street analysts to unveil its five-year plan, $1 billion of that budget, or just about half, on its digital capabilities, cognizant of how much shopping, from browsing to actually buying, actually goes through smart phones.

Target CFO John Mulligan told Wall Street he expects sales at stores to rise 1%, and for digital sales to rise 40% this year.

The discount retailer, which was slow to adapt to the rise of e-commerce—digital sales represent about 3% of total sales. In 2014, Target rewrote 75% of the code in its e-commerce platform, and now its website is considered by e-commerce experts to be up to par with its rivals and in some areas head, namely mobile shopping.

It is planning to enable 350 of its stores to ship online orders by October 2015 from 139 now to speed up delivery and better compete better against Amazon.com AMZN and Wal-Mart Stores WMT . Last week, Target announced lowered the minimum online order size needed to get free shipping by half to $25, undercutting Wal-Mart, Amazon.com and Best Buy BBY

All this will pressure its gross profit margins, lowering it by 0.6 percentage points over the next five years. But Mulligan said it was worth it: shopper who navigate between stores and Target’s digital channels shop nearly three times as much.

As detailed in a cover story in Fortune, Target is striving to stop being what its executives call a “fast follower” in e-commerce—a company that lets others set the agenda and quickly mimics their pricing—and take the lead. Target showed its newfound aggressive this past holiday season by being the first in its peer group to offer free shipping on all orders regardless of size, a sharp contrast with earlier holiday seasons when the retailer took its cues from the competition and was a laggard in e-commerce.

The company also detailed plans to save $2 billion in the next two years including the elimination of “several thousand” positions.

Barneys New York raises e-commerce ante with site relaunches

by
Erin Griffith

@FortuneMagazine

March 3, 2015, 11:38 AM EST

Barneys New York is ready to give its big luxury brethren a run for their money in the e-commerce wars.

The department store company knows luxury customers demand beautiful presentation and personalized service, and that that applies online as well as to its stores. With that in mind, Barneys re-launched its e-commerce sites last Friday, proclaiming them to be the first by a luxury retailer to use so-called “responsive design”—a state-of-the-art approach to web design that optimizes e-commerce sites across a panoply of devices—that it says greatly enhances product presentation online and allows better personalization of content to an individual’s tastes.

Barneys New York, which operates nine department stores and 21 other stores, is a relative latecomer to e-commerce among luxury department stores, only getting serious about e-commerce in the last four years. But it now gets somewhere between 15% and 20% of its sales via digital channels, compared to very little back in 2011, putting it roughly on a par with bigger rivals, Nordstrom JWN and Neiman Marcus, two e-commerce masters that get 18% and 21% of sales from e-commerce respectively.

Those two retailers, as well as Saks Fifth Avenue and Macy’s Inc’s M Bloomingdale’s stores are all engaged in an arms race to keep offering finicky luxury shoppers the next big thing in e-commerce, putting pressure on Barneys, with its more modest resources (annual revenue is estimated to be about $1 billion, versus more than $12 billion at Nordstrom), to keep pushing. Indeed, Nordstrom is set to spend billions in the next five years on e-commerce, while Neiman Marcus is also pushing the boundaries: for instance, in October introduced a Shazam-like visual search-and-purchase mobile app called “Snap. Find. Shop.”

Barneys executives say its new web sites — for its full-price Barneys.com business, its off-price Barneys Warehouse site, and its The Window editorial website featuring magazine-style articles and photo layouts — are game-changers that put Barneys in the lead in some key aspects of e-commerce for upscale chains. One key advantage of “responsive design” is that it reduces the need for re-sizing, and scrolling in search of the best view of a product, key to holding a shopper’s attention and to sending tailored messages to customers.

“We don’t want to waste people’s time. If we show them things (on the sites) they’re absolutely not interested in, they’re not staying and buying,” Daniella Vitale, Barneys Chief Operating Officer, told Fortune in a phone interview from Milan. “We want to make sure our experience is more customized and personal.”

Personalization has become a holy grail of sorts for retailers eager to be heard above the din. But stores know they need to go well beyond Amazon.com’s AMZN recommendations, which are largely based on what other people who’ve bought the same thing as you also purchased. Barneys new web sites incorporate what a shopper has bought in store, not just on its sites, since those buying patterns can differ from online behavior. For instance, few people may buy a $50,000 necklace on line, but they will certainly browse for jewelry Barneys web site.

Of course, Barneys will face tough competition on the personalization front: last fall, Neiman introduced the “MyNM” dashboard on its website in October, while Nordstrom bought menswear service Trunk Club in August to hone its personalization skills. Yet, e-commerce experts say personalization has been tough to crack for even the best retailers, which relatively few shoppers logged on at all times.

“It’s like clienteling,” says Sucharita Mulpuru-Kodali, principal analyst at Forrester Research. “If someone is a huge fan of a particular brand, personalization can be useful. But it’s a lot of work for not a lot of return.”

The goal for Barneys is not just to make recommendations based on past purchases, but to look forward and use the info to suggest up-and-coming brands that it thinks might be a good match. In an increasingly crowded luxury space, it is key for Barneys to differentiate itself by being the retailer that puts more of the spotlight on emerging designers.

“It’s why people come to us. It’s core to our brand DNA,” said Matthew Woolsey, the retailer’s executive vice president of digital. Barneys is after all the store where top luxury designer brands Proenza Schouler, Dries van Noten and Armani got their U.S. starts. To that end, Barneys new site has a “my designers” feature that lets users choose their favorite designers, filter any page to get emails that are based on their preferences.

But more important for a luxury retailer, Mulpuru-Kodali says, is the need to make sure the photographs and editorial content are top-notch. Which takes us back to the “responsive design” of the sites, which ultimately is about making sure the websites entice.

The sense of discovery and making customers feel like they’re in the know in fashion is part of why a big component of this digital reboot for Barneys was aimed at taking information from The Window, which is not advertorial content, but about 10 articles a week, and integrating it more with the e-commerce site. That allows people to buy what they’re reading about. But more important, it helps drive traffic to the e-commerce site. The company says that visitors to the The Window site are 15 times more likely to shop at barneys.com than other visitors to the site, and spend 40% more.

“We can’t be all things to all people,” Vitale said. “So we are focused on cultivating our influencers.”

Target raises ante in e-commerce fight with Amazon, Walmart

by
Erin Griffith

@FortuneMagazine

February 23, 2015, 3:37 PM EST

The e-commerce wars continue to intensify in 2015.

Target TGT is lowering the minimum online order size needed to get free shipping by half in a bid to squeeze archrivals Wal-Mart Stores WMT , Amazon.com AMZN and Best Buy BBY .

The discount retailer will now require a minimum order of $25 for free shipping, down from $50, and below the $35 thresholds at Best Buy and Amazon (excluding Prime), and half of what Walmart requires. (It also gets even cheaper compared to the $99 minimum at J.C. Penney JCP and Macy’s M , which are more indirect rivals.)

The move is the latest by Target to stop being what its executives call a “fast follower” in e-commerce—a company that lets others set the agenda and quickly mimics their pricing—and take the lead. As detailed in the cover story of this month’s issue of Fortune, Target was similarly aggressive this past holiday season by being the first in its peer group to offer free shipping on all orders regardless of size, a sharp contrast with earlier holiday seasons when the retailer took its cues from the competition and was a laggard in e-commerce.

In 2014, Target rewrote 75% of the code in its e-commerce platform, and now its website is considered by e-commerce experts to be up to par with its rivals and in some areas, namely mobile shopping, leading. The company’s e-commerce had been handled by Amazon until 2011, and target.com’s limitations became crystal clear soon after when the site crashed from high demand for products in the Missoni collection that autumn. Target’s bureaucracy and insularity prevented it from keep up on the e-commerce front in the two years that followed, and its integration with the stores was slow, putting it behind Walmart and others for some time. For example, Walmart customers were able to pick up online orders in store a year before their Target counterparts were.

“Playing catch up is never fun,” Target Chief Strategy and Innovation Officer Casey Carl told Fortune in a recent interview in Minneapolis. “I’ve lived that for the last five years, and we’ll not let that happen. We’ll be seeing around corners far more effectively.” Target has been reaping the rewards of its new assertiveness: digital sales on Thanksgiving/Black Friday and Cyber Monday rose 40% in 2014. Overall e-commerce sales are now about 3% of total revenue, and higher in categories like apparel which lend themselves better to e-commerce than grocery.

Cognizant of how quickly a lead can evaporate in e-commerce, Target is getting ready for its next test: this spring, it will pilot an online reservation system that lets a customer select items at a store for later pick up. And the company is looking into ways to become a premier retailer for connected home technology such as Nest, including being the exclusive retailer for some products in a growing, and increasingly busy area of retail. (Best Buy is also getting aggressive on the connected home front.) What’s more, the retailer is testing same-day delivery in a few markets, including its hometown of Minneapolis and in Boston.

While such a low online minimum threshold might appear to threaten profit margins, the fact is that consumers generally don’t bother with e-commerce orders that small anyway: some two-thirds of orders placed on target.com already qualify for free shipping. And in any case, that’s what shoppers now expect.

Nordstrom’s multi-billion dollar plan for e-commerce domination

by
Erin Griffith

@FortuneMagazine

February 20, 2015, 12:18 PM EST

Nordstrom JWN had some investors worried on Thursday night after it announced a big ramp-up in its already aggressive capital spending plans, stirring worries that its profit growth will stall. But once it sank in that the luxury department store’s strategy would help its pad it huge e-commerce lead over many rivals, shares recovered their losses and in fact rose.

The Seattle-based company, the top retailer in Fortune’s World’s Most Admired Companies list and No. 14 overall, is gunning for revenue of $20 billion in 2020 (up from $13 billion now). E-commerce, and specifically the integration of its stores and its digital business, both at its luxury department stores and its Rack outlets stores, are key to those efforts. The company now gets a much higher than average 18% of its sales digitally, helped by its flash site HauteLook and its recent Rack e-commerce site, and expects e-commerce sales to grow another $1 billion from their current $2.5 billion level. At the same time, competitors, particularly Neiman Marcus and Macy’s M are going all-out too, forcing Nordstrom to keep pushing ahead to keep its position as a leader among retailers.

The company plans to spend $1.2 billion this year on its e-commerce and new stores, compared to $750 million last year. Over the course of the next few years, the total capital spending plan comes to $4.3 billion.

Here is a breakdown of Nordstrom’s plans:

1. A new distribution center specifically for e-commerce orders to cut down delivery times:

The facility in Pennsylvania, Nordstrom’s third such center, is aimed at being able to offer two-day delivery, an increasingly standard expectation now, and one that is crucial to beating back Amazon.com AMZN and its plans for faster and faster delivery. Almost half of Nordstrom’s clientele is within two-day ground delivery from that facility. Erik Nordstrom, who heads the retailer’s direct-to-consumer business, told Wall Street analysts that “a big chunk of our orders for those customers will be one to three days faster” as a result.

2. More assortment on line, especially on nordstromrack.com

Since 2011, Nordstrom has tripled the selection on its main nordstrom.com, a savvy move as everyone from Amazon to indirect rivals like Wal-Mart to Target look to expand their online assortment. Ditto at the Rack, which launched its e-commerce site only last year. (It’s trickier for outlets to sell online because inventory is less predictable, given that much of the merchandise is close-out inventory, the Rack and stores like T.J. Maxx typically have a more limited offering online than other retailers do.)

3. Using the stores to handle online returns

Nordstrom has been a leader at so-called “omnichannel” retailing, industry jargon for complete integration of e-commerce and stores. When well done, such an integration makes a retailer more efficient and gives it a way to bring in more shopper traffic. Last year, Nordstrom Rack enabled shoppers to return purchases made at HauteLook (a flash site it bought a few years ago) and nordstromrack.com at its Rack stores. The result: 1 million more trips to a Rack store in 2014, where shoppers are more likely to make another purchase than at the post office. Given that Nordstrom Rack’s sales is growing much more quickly that those of the full line stores, this is key. (Nordstrom plans to have 300 Rack stores by 2020, up from 167 now.) At the regular Nordstrom stores, 60% of returns are made at a store, given the retailer another crack at selling to people.

4. Beefing up its awards program

A rewards program needs good technology to function properly and is key to giving a retailer key insights into shopper behavior and the ability to send personalized offers. Nordstrom’s rewards program members generated 40% of its sales last year, when it attracted 1 million new members, bringing the total to 4.3 million people. Nordstrom is spending money to improve the program so it can expand its offerings to its customers.

5. Technology inside the store

As Fortune wrote in November, Nordstrom is trying out smart fitting rooms in a couple of stores. But its in-store tech investments go well beyond that. The retailer has upgraded its point-of-sales systems, upgraded its mobile site, the online checkout process and given its sales staff texting tools. (Neiman gave its salespeople iPhones a few years ago so they could text customers photos of incoming product, check in post-purchase, something Neiman said is a high-touch customer service luxury shoppers expect.)

So even if building on all this eats into profits (2015 will be the most intense year, the company said) Nordstrom said these investments are necessary to stay on top of changing customer behavior.

“We always reinvest back in the business,” CFO Mike Koppel told Wall Street analysts. “That where we get the highest returns.”

Alibaba’s revenue disappoints during key holiday quarter

by
Erin Griffith

@FortuneMagazine

January 29, 2015, 7:34 AM EST

Alibaba Group Holding BABA reported quarterly revenue Thursday that missed analysts’ expectations, suggesting the Chinese e-commerce company’s growth slowed during the challenging holiday shopping season.

In its earnings report, Alibaba said revenue rose 40% to $4.22 billion in the December quarter, missing the average analyst estimate of $4.45 billion, according to data from Thomson Reuters I/B/E/S.

However, margins on earnings before interest, taxes, depreciation, and amortization rebounded after a decline in the previous quarter to 58% from 50.5% in the July-September period.

The disappointing earnings report follows news that a China regulator has accused Alibaba of failing to clean up what it called illegal business deals on the e-commerce titan’s platforms, in an unusually strong government criticism of one of the country’s biggest private companies.

The State Administration for Industry and Commerce (SAIC), in a report published on its website on Wednesday, said many products sold on Alibaba’s e-commerce websites and services infringed upon trademarks, were substandard or fake, were banned, or endangered public security.

Alibaba declined to comment on the report.

SAIC said its report summarized a July 16, 2014, meeting between government business regulators and Alibaba, and said it had delayed releasing the report until now to avoid affecting Alibaba’s September initial public offering.

SAIC did not elaborate on that decision. The report was later removed from the main page of SAIC’s website.

“Alibaba Group has long paid insufficient attention to the illegal business activities on Alibaba platforms,” the SAIC report said. The company “let that abscess fester until it became a danger,” it added.

The regulator’s scathing tone is unusual for a country that champions its largest home-grown corporations and actively encourages their global expansion ambitions. Alibaba, which raised a record-setting $25 billion from its New York IPO, and peers like Tencent and Huawei form the vanguard of a fast-growing Chinese technology sector.

The report said Alibaba officials, for their part, pledged during the July meeting to take the necessary steps to rectify the problems. The SAIC has a broad supervisory role over online trading platforms and business in China.

Alibaba, which until a few years ago was on a U.S. list of “notorious markets” for intellectual property infringement, has fought hard to tackle counterfeit products to keep its reputation from being tarnished in the run-up to, and after, the IPO, the world’s biggest ever listing.

Earlier this month, it reached an agreement with the U.S. Consumer Product Safety Commission to stop the sale of up to 15 illegal or dangerous toys in the United States.

Online fakes, however, remain a big problem in China.

Joe Simone, director of Hong-Kong based intellectual property consultancy SIPS, said the regulator’s comments about counterfeit goods were no surprise.

“The frankness of the report and its condemning tone are unprecedented and speak volumes about what the SAIC found in its inspection,” he added.

In the report, the regulator said Alibaba had misled consumers during sales events, including its popular Nov. 11 annual “Singles Day” shopping extravaganza.

At last year’s event, Alibaba reported a surge in sales transactions to a record high of $9 billion, but merchants told Reuters they felt pressure from Alibaba’s Tmall to boost their figures on the day with heavy discounts and delayed recognition of earlier sales.

On Wednesday, Alibaba’s consumer-to-consumer shopping website Taobao said it would lodge a complaint with the SAIC over a separate investigation by the regulator that allegedly uncovered a range of counterfeit products on the site.

Instacart, the grocery delivery startup, raises $220 million

by
Erin Griffith

@FortuneMagazine

January 13, 2015, 11:05 AM EST

Online-grocery delivery service Instacart said venture firm Kleiner Perkins Caufield & Byers led its latest funding round totaling $220 million.

The company will use the cash to grow into new markets, both internationally and in the United States, Chief Executive Officer Apoorva Mehta said in an interview.

Kleiner also backs transportation service Uber, which aspires to expand beyond offering rides and so could be viewed as an Instacart competitor. Last year, Uber launched Uber Essentials, a service that delivers nonperishable grocery and drugstore items in Washington, D.C.

But Mehta said he did not see Uber as a rival.

“There are potential ways we can work with them rather than compete with them,” he said, adding that he has talked to Uber executives about possible collaboration but has nothing to disclose currently.

Uber did not immediately respond to a request for comment.

Instacart also plans to start experimenting with other categories beyond groceries, Mehta said. While he declined to identify specifics, he said the service would likely stick to items consumers buy regularly rather than one-off items such as televisions and laptops.

Unlike grocery-delivery services from Amazon AMZN and Wal-Mart WMT , Instacart relies on individuals who visit stores to buy goods for customers, rather than storing the products in a warehouse. That cuts down on overhead, Mehta said.

He also dismissed concerns over competition from errand services such as TaskRabbit, because Instacart is specialized, allowing shoppers to check boxes rather than type out long lists on their smartphones.

The latest funding round, which values Instacart at $2 billion, comes months after a $44 million round in June. Then, the company was valued at around $400 million.

Watch more about Instacart from Fortune’s video team:

Instacart deserves a high valuation, said Kleiner partner Mood Rowghani, because its convenience factor will drive the popularity of on-demand retail far beyond today’s levels.

“We see far-reaching potential beyond merely grocery,” he said, comparing Instacart to Amazon in its early days, when the online retailer focused only on books. “This business offers mainstream appeal.”

Other new investors in the latest round include Comcast Ventures, Dragoneer Investment Group, Thrive Capital, Valiant Capital, along with existing investors Andreessen Horowitz, Khosla Ventures and Sequoia. Instacart has now raised $275 million, it said.

All the funding is primary, Mehta said, meaning it is going to the company rather than for use to buy out existing shareholders such as early employees.

Amazon gets needed boost in 2014 from outside sellers

by
Erin Griffith

@FortuneMagazine

January 5, 2015, 12:23 PM EST

Amazon.com AMZN got a much needed helping hand last year from outsiders: the third-party merchants that list their items on the e-commerce giant’s web site.

Those sellers sold 2 billion on Amazon.com last year, double the number in 2013, a bright spot for Amazon as it faces growing concerns about its slowing growth rates and its ability to generate profits.

In October, Amazon reported a widening and worse-than-expected quarterly loss, and gave a sales forecast for the holiday quarter that disappointed Wall Street. The good news for Amazon is that sales by third-party vendors typically offer higher profit margins and allow it to expand its online assortment. Amazon’s results have taken a hit as it developed a mobile phone that flopped, Hollywood-caliber productions and introduced grocery deliveries.

While Amazon no longer breaks out what percentage of revenue comes from outside sellers, the company did say that those vendors moved about 40% of the product volume sold on its website last year, suggesting Amazon sold 5 billion items on the site last year.

Amazon takes a percentage commission from outside sellers when their goods are sold, and collects other fees, such as for storing their items, leading to higher profits than those from products sold directly by Amazon.

And the company put a lot of emphasis on its growing global reach. Worldwide, units shipped by outside sellers rose more than 50% during the 2014 holiday season compared to a year earlier. And of course, Amazon was quick to tout 80% growth in international sales by China and Hong Kong-based sellers. Clearly Amazon has the threat from Alibaba BABA on its mind.

A 5-step guide to competing with Amazon

by
Erin Griffith

@FortuneMagazine

December 30, 2014, 11:58 AM EST

This post is in partnership with Entrepreneur. The article below was originally published at Entrepreneur.com.

By Neil Patel, ENTREPRENEUR

Competing with Amazon AMZN is possible. I’m not saying you can topple the ecommerce giant from her throne, but you can certainly rank for keywords, sell awesome stuff, and not get absolutely destroyed by them.

I want to tell you how to do that in five kinda-sorta-easy steps.

First, let’s talk about what you can’t do. Admitting your shortcomings is the first step to maximizing your strengths.

You can’t have the same size of inventory. Amazon pretty much owns every consumer product in the world, so yeah good luck with that. You’re going to need some bigger barns to store the stuff.
You can’t have Jeff Bezos. Not unless you have a really good offer for him.
You can’t have the domain amazon.com. It’s already been taken, and is not for sale. I checked for you.

That’s what you can’t do. And, hey, the list is only three items long. That leaves you with a ton of options for what you can do. I’m going to provide a five-step guide to doing battle with the giant.

1. Narrow your niche.

Amazon’s weakness is in its greatness. It has everything for sale. Amazon can’t be good at everything.

You? You don’t sell everything. You just sell a few things. (At least you should.)

You will have a much harder time trying to rank for a lot of different keywords, even if they are all sort of in the same niche. Whatever you sell, Amazon probably has a few more variations, sizes, colors, and features.

It’s extremely important to narrow your ecommerce niche and dominate it.

How do you dominate it? Through content marketing, of course.

Amazon.com doesn’t do content marketing. They buy PPC, they do conversion optimization, they do SEO, they release products, they claim more verticals, and they do a lot of other things.

But they don’t do content marketing very well at all. They don’t even do email marketing that great!

This leaves you with a huge opportunity to go into your niche, content market the heck out of it, and start to rank for all kinds of awesome keywords.

2. Do something radical with shipping.

One area that Amazon has completely dominated is the area of shipping. It is, in fact, one of the company’s greatest successes.

Members of Amazon’s Prime service can get two-day shipping for free, and next-day shipping for just a few dollars on each order. And same-day shipping? Yep, they offer that, too.

Can you compete with that?

Yes. A company doesn’t win merely by offering something. They win by giving it without being asked.

Take Zappos, for instance. They didn’t make a big deal about their killer shipping policy, but when it happened, customers were floored. And hooked. Zappos scored by delivering the customer’s packages before they anticipated them, successfully delivering, well, happiness, as CEO Tony Hsieh explained in his book.

You don’t have to offer free shipping or some other extraordinary same-day service, but you can create a shipping service that exceeds expectations and provides satisfaction.

3. Create a subscription service.

Another way that Amazon has ramped up revenue is by creating subscription services:

Subscribe and save (recurring shipments)
Amazon Prime (annual fees)
Amazon Simple Storage Service (AWS)

Because they’re so good at this recurring payment thing, Amazon actually launched a new service called Amazon Payments so they can help other companies keep charging customers on a recurring basis. You might start seeing more of that iconic yellow button on the web:

The subscription service is one of the smartest ways to sell a product. You don’t just get a one-and-done transactional experience with your customer. Instead, you get a relationship, and revenue every month or year.

You don’t have to be a software provider to make the subscription model work. Any form of recurring deliverables warrants recurring payments.

4. Boast the best customer service experience on the planet.

I mean no disrespect to Amazon, but they can’t do customer service the way you can. They’re too big.

This is a sandbox that Amazon can’t play in. But you can.

One of the best ways to compete with Amazon is to provide something that they can’t. They can’t provide personalized, one-on-one service to human beings like you can.

Your brand can achieve viral spreadability through passionate brand evangelists. Amazon doesn’t have that capability. You’ll never overhear this conversion:

“Hey, I found this great site to buy stuff.”

“Yeah? What’s it called?”

“It’s called Amazon.com.”

“Awesome. I’ll check it out. Were they nice?”

“Um. I guess… Actually, I don’t know.”

But what about your business.

“Hey, I found this great site to buy prejiggered widget caps.”

“Seriously? What’s the name of it?”

“PreJigJig.com. It’s awesome. I got on the phone with them with — no delay. They answered all my questions, and they even ordered me pizza!”

“Pizza, huh?”

“Yeah. They rock.”

Customer service is the idea that you have personal interaction with and relationships with your customers.

Don’t complicated customer service. All you need to do is provide personal care, and be nice about it.

You can solve their problems, as in this diagram from rdioutsourcing.com.

There is consensus around the fact that customer retention via customer service and relationships has a better ROI and cost-effectiveness than other methods of marketing. Check out the first bar in this survey graph from eConsultancy.

Superoffice.com dug into the reasons that customers leave a company, and settled on these reasons. If your customer knows you care, then you can hang on to 68% of your customers.

This is the single most important step in the entire process. Overdelivering to your customer can powerfully reshape your identity as a brand, and compel your customers to stay with you, rather than go to the Amazon dark side.

5. Build a fanatical fan base.

My final point is linked to the point above.

The warm-hug experience of great customer service leads to building a fanatical fan base.

Building a jumping, screaming, raving, fanatical fan base is not easy, but it is possible. The strategy is to stay small, at least as it pertains to customer interaction. Everything you do as a brand — from social media outreach to content marketing efforts — must have this personal and close-connected feel to it. It’s about cohesion, connection, and knock-out service.

Let me give you an example. You can buy a GoPro GPRO camera from Amazon, no problem.

But can you connect with GoPro as a brand? Do you have the same sense, feel, connectedness and emotion? Absolutely not.

That’s why true GoPro fans are going to stick to the GoPro site to buy their GoPro swag. They love this brand.

GoPro has defined their niche (that’s step one), and refined their customer service. Now, they have a peerless fan base. Why is it that GoPro has 3.5 million followers on Instagram, and Amazon.com has only 95,000?

Conclusion

Competing with Amazon is something that most ecommerce retailers joke about. “Compete with Amazon? Yeah, hahaha!”

I think it’s funny, too, but for different reasons. I think it’s funny because you can stick it to Amazon by outdoing them at their own game. You can succeed, not just based on your product, but on the way you market that product.

A lot of that is plain kickass service.

Trina Turk’s color commentary

by
Erin Griffith

@FortuneMagazine

December 17, 2014, 5:17 AM EST

For women’s contemporary clothing designer Trina Turk, slow and steady growth is always in style. Her eponymous brand turns 20 in 2015, and Turk’s flagship Palm Springs boutique is now one of 11 total namesake shops across the country. The two newest stores, in Houston and nearby suburb The Woodlands, opened in November. In the past few years, Turk partnered with brands including Banana Republic GPS and Chandon, designing limited edition lines and champagne bottles. She also designed swimwear for another quintessential California girl, Malibu Barbie MAT .

With an eye for fashion from an early age, her path to success has been relatively seamless. Turk’s mother taught her to sew when she was 11. In high school, Turk became obsessed with secondhand stores. “Vintage shopping is a great educator in construction, quality, how a garment can be made,” she says. A textile class in design school further informed her understanding of what fabric will and won’t do. “In the back of my mind, I thought, it’d be so great if I could buy whatever fabric I wanted and make something I’d actually want to wear.”

That would end up being one of her biggest challenges. Turk began her career at a series of juniors companies, working on jeans at Brittania and color-blocked board shorts at Ocean Pacific. “The juniors market was different back then,” Turk says, recalling two decades ago when department store juniors sections dominated and fewer retailers like H&M and Forever21 existed to cater to the fast fashion teen demographic. There was greater selection, but the quality was poor. “I was always interested in fabric, and I was so disappointed at the fabrics we could use. I wasn’t the customer. I wasn’t wearing what I was creating,” Turk says. “I learned a lot; I learned the business. But it wasn’t where my head was at.”

After hemming and hawing, her husband, the stylist and fashion photographer Jonathan Skow, encouraged her to start her own line. “It was very, very humble beginnings,” Turk explains. When she launched the company in 1995, “I worked out of our house. We didn’t have any financial backing. Today, I don’t even know if you could do it. I think the whole world and the whole fashion industry is way more corporate.”

She didn’t even imagine how big her empire would grow. “In addition to having humble beginnings financially, my initial vision was smaller than what was possible,” she says. Turk wanted to work for herself, escape the fashion industry grind, and use high-quality materials in fun, funky colors. She wanted to produce a small collection, “Something I would wear—that’s as far as I was thinking.”

She began with ready-to-wear. That soon spun out into other divisions. “Once we became associated with prints and bright color—once the association became recognizable—that’s what led us into other categories.” Swimwear, typically driven by rich, glossy hues and eye-catching patterns, was an obvious next step. Skow, who helps select prints and photographs all the Trina Turk collections, began designing a dapper men’s line, Mr Turk. Activewear and textiles followed suit.

This year, Turk unveiled more new categories: shoes, handbags, and jewelry. Her namesake stores traditionally carried accessories from other vendors, but Turk notes, “A customer shopping in a Trina Turk store wants something Trina Turk.” Even with an entire lifestyle brand propping up new product categories, she says the smaller surfaces on shoes and handbags present a different design challenge when showcasing color and pattern. “Now it’s about, ‘How do you express the DNA of a brand in a handbag?'”

Beyond the bricks and mortar, online shopping gives the brand an extra pop of color. “Our e-commerce business is healthier than our brick-and-mortar business,” she says, explaining that department stores don’t always stock a wide range of separates. Loyal Trina Turk customers—especially those in the brand’s biggest markets, in the South and Southwest—instead often rely on the web to view and purchase the widest array of new styles. Plus, bold colors and vivid prints look great online—and that’s a victory for a vibrant brand. “One thing we’ve learned from our e-commerce: black is not exciting online,” Turk says ruefully. “It might be the most gorgeous black garment on the face of the Earth, but it’s very hard to photograph and show detail on an amazing black dress.”

Turk notes the company’s growth trajectory has been slow and steady—“no huge spikes, no plunges,” she says. In 2014, across all categories and in both retail stores and online, Turk projects $100 million in revenue. She further projects single-digit growth for next year, noting, like many, that it’s a tough time for retail.

When she speaks about the past two decades, her surprise at her success doesn’t sound like false modesty. Rather, Turk’s own infectiously sunny style feels as tangible as her patterned dresses and sleek jumpsuits. She owes much of her success not just to her own optimism and drive, but to the brand’s narrative, one that makes customers feel like they have some affinity for the Trina Turk lifestyle brand.

Even with e-tail leading sales, in the coming years, she hopes to open more stores. “I don’t think people have an affinity for Forever21. It’s just cheap,” she says. By contrast, presenting a lifestyle brand in a fashion that resonates with a customer can sew up a loyal customer base. “Stores can help you tell that story.”

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