I recently analyzed Wal-Mart’s failed attempt at selling designer apparel for women and it appears that its problems extend beyond that highly desirable category. According to an analysis conducted by Michael Barbaro of the Times, consumers see the retailer as a great place to buy lower-priced products (which as many find out later often is also of somewhat lower quality) but are reluctant to spend their dollars on anything that they value, for instance, electronics or fashion. An analysis that I conducted also showed that Wal-Mart prices are not cheap if you are buying an iPod or a branded computer or a digital camera.
Wal-Mart is a massive company (with equally gigantic challenges) and it is learning the hard way that branding can work both ways. While the Wal-Mart brand is what brings more than half of all adult Americans into its stores each week, if it tries to extend its brand to luxury goods, it might even send a confusing message to its core base of price-conscious consumers.
So what can a company in a similar situation do?
Like Wal-Mart, if you have strengths like supply chain management, infrastructure, supplier relationships, etc., launch yet another brand. That way you can build a new business without jeopardizing your existing business. A very good example is the Limited Brands which owns brands like Victoria’s Secret, Bath & Body Works, Express, The Limited, and half a dozen other brands, but if you ask a typical shopper in the mall that might be shopping in many of these stores on the same day if they have ever heard of the Limited Brands, don’t be surprised that they not only haven’t, they don’t care either.
The New York Times recently highlighted a website NaturallyCurly.com to make a point that venture capitalists are now starting to invest in businesses that take advantage of the boom in online advertising.
Since the number of business that have blogging and online content publishing as their business models are small and/or privately owned (the same is true for my employer), it is hard to find publicly available financials. While this company too refused to disclose its finances, the Times estimated that it generated more than a million dollars in revenue, though it has never been profitable since it was founded in 1998.
These are some useful numbers for anyone who wants to assess if an online publishing business is profitable. Here is what I think about this company:
This company is not just in publishing but actually maintains an online shop (with margins that parallel those in the online retail business; they can be somewhat lower for smaller companies like this one that do not have the negotiation leverage of a large retailer). In that sense, a million plus dollars in sales is too low to build a solid business, considering that it has a meager 180,000 visitors a month (the conversion rate is often in single digits at best).
While the company appears to have an impressive list of advertisers, it appears that they are exploiting the company and not paying enough. Based on one of our websites with similar traffic, I can disclose that it is possible to be more profitable than this with just advertising.
Finally, the number of employees. A company that has just 180,000 monthly visitors (and I am assuming that many are repeat visitors which is both a good and bad thing for them), it is simply unbelievable that it has 7 employees. Here at eCreativa Media, we expect that a single employee will manage that kind of traffic all the way from content creation to publishing to marketing to web design.
In other words, if you want to run a profitable online business and your numbers look anything like Naturally Curly, then you need to go back and trim your costs by at least 75%. Otherwise, you will be unprofitable forever.