February 12, 1999
Floral Services Take to the Net,
But Cyberspace Isn't All Roses
An INTERACTIVE JOURNAL News Roundup
Can the Internet deliver a message of love -- and also satisfy customers?
This Valentine's Day will be a unique testing ground of flower power on the Internet as thousands of consumers order online rather than purchase flowers at a florist's or through an 800 number. Online floral services expect a strong increase in Web traffic this year -- even though the day of romance falls on a Sunday, the worst day of the week for workplace deliveries.
But in the delicate floral industry, where most blooms are shipped to Miami from Quito or Bogota, the common assumption is that the Internet will somehow cut costs and lower prices. In fact, the opposite may be true.
One of the best-known names in the industry, 1-800-FLOWERS, has spent between $25 million to $30 million in the past seven years building an Internet presence.
"I have no choice but to invest heavily to maintain our leadership position," said Chris McCann, senior vice president of the privately held Westbury, N.Y., company.
Mr. McCann expects Internet orders to jump at least 50% to between $45 and $50 million for the fiscal year ending in June, from $30 million last year, when online sales made up 10% of total revenue.
More important, 1-800-FLOWERS' Web site, launched in 1995, is seeing sales growth of 200% and its revenue is nearly on par with that derived from the company's agreements with big-name portals America Online Inc., the Microsoft Network and Excite Inc.
Still, the Internet brings in only a small fraction of sales in the $14 billion fresh-cut flower and plant industry, which derives half of its business from supermarkets. BancBoston Robertson Stephens Inc. estimates online sales will reach $463 million by 2001, up from $38 million in 1996.
But there is also a downside.
"It's actually more expensive doing online retail today than it was a few years ago," Mr. McCann said. "It puts more pressure on us to spend with the pace of technology."
In the next two years, 1-800-FLOWERS plans to spend more than $15 million to install additional Web servers, address bandwidth issues and move to a new hardware platform.
"I'm also spending an exorbitant amount of money on marketing," Mr. McCann said. "It's a very tight-margin business. It hasn't come lightly or inexpensively."
Abe J. Wynperle, president and chief executive of privately held Flower Farm Direct of Boca Raton, Fla., is one of the new entrants to virtual flower retailing.
The company launched its Web site, flowerfarm.com, in October and touts a price advantage by importing flowers directly from growers and shipping to customers via Federal Express. Supporting the site are a call center with as many as 100 agents and an e-mail response center with 15 representatives.
"We work with a different model that cuts out the middleman," Mr. Wynperle said, touting the company's $29.95 offer -- plus shipping charges -- of a dozen roses shipped in a box as the lowest price on the Web.
Because flowers are perishable and typically don't respond well to temperature changes, overnight shipping remains a small slice of the industry, with just $60 million in sales. Nearly all flower deliveries are prepared and delivered by 40,000 florists across the country.
The big online flower services include 1-800-FLOWERS; FTD, or Florists' Transworld Delivery Inc., the network of 25,000 florists nationwide; and PC Flowers, a unit of U.S.A. Floral Products Inc., a large supplier that formed a partnership with Value America Inc.
BancBoston Robertson Stevens analyst Lauren Cooks Levitan said consumers are likely to benefit from online competition because of the many costs associated with flower distribution.
"There generally isn't an understanding of how many steps there are in the process that could be bypassed," she said.
For example, if a consumer wants to send flowers to New York from San Francisco and calls a local florist, that florist gets 20% of the total cost of the order -- even though it is not physically preparing or delivering the flowers. The florist then calls a phone network, or wire service like FTD, which takes a 7% cut of the order and passes it on to a contracting florist in New York. The New York florist gets a hefty 73% gross margin, but has to take out the cost of flowers, preparation and delivery.
"Anybody can put up a Web page with a rose on it and ship from a farm directly, but somebody still has to deliver the flowers," said Adam Phillips, senior vice president of closely held Gerald Stevens, whose Flowerlink.com Web site links local florists to the Internet. "The Internet is not going to change the fundamentals of the business, which is local delivery."
Gerald Stevens expects strong customer interest over the Internet, but sees stronger growth at retail. The company, which is merging in March with floral-services company Florafax International Inc., was formed by a group of former Blockbuster Entertainment executives. So far it has 94 floral shops nationwide and plans to build 1,000 more in the next five years.
Ms. Levitan believes companies that build a brand and send a reputable product will make consumers more comfortable ordering online, which will increase sales.
"Flowers are a category ripe for sales online," she said, "because a purchase isn't typically made face-to-face anyway."
One of the costs Internet flower magnates face is acquiring the right domain names. It's a situation that has left Marc Ostrofsky is off the hook for life when it comes to Valentine's Day gifts for his wife.
The Houston entrepreneur agreed to sell the domain name eflowers.com to Flowers Direct, of Tampa, Fla., with one special condition: a bouquet of flowers to be delivered to his wife, every month, for life.
"She's 36, so we figure 50 to 60 years of flowers," Mr. Ostrofsky said.
Mr. Ostrofsky bought the eflowers.com name for $70 two years ago; ever since, he has been hounded by florists wanting to buy it.
On Thursday, Mr. Ostrofsky finally agreed to sell the name for $25,000, a 50-cent commission from each order placed through eflowers.com and the flowers for his wife.
Sara Ostrofsky received her first delivery Thursday -- a batch of long-stemmed red roses.
Meanwhile, Flowers Direct is trying to ensure that Ms. Ostrofsky isn't the only lucky lady: On Friday, the company began offering to deliver flowers to anyone's loved one, once a month, for life, for $2,500. |
