NYC Calling The best of New York's boutiques are no longer reserved for the city's denizens AlleyCat News, July/August 2000 By Matt Villano Longtime storeowner Nate Freedman never considered himself much of a technophile. Nine years ago, when he opened New York Firefighter's Friend, a boutique on Lafayette Street that peddles authentic FDNY merchandise, the most technologically sophisticated piece of equipment he owned was the electronic cash register. Freedman, then 55, kept track of inventory by hand, and, at the end of every night, tallied his books by desk lamp with the help of a trusty, battery-powered adding machine. The setup was about as old school as you could get. Years passed, and Freedman discovered the Internet, identifying it as a perfect opportunity to "increase sales without really trying." Almost overnight, he revolutionized his business. First, with the help of his son, Noam, Freedman purchased a URL, and hired designers and programmers to put the shop online. Next, he purchased a personal computer and began to use e-mail and Microsoft Access to balance inventory and manage an affiliate marketing program with more than 200 participants. Today, $100,000 later, Freedman estimates the site accounts for 50 percent of his overall sales, saying he believes the new visibility has increased in-store sales by 20 percent as well. "Talk about return on investment," he chuckles in what seems like proud disbelief. "If you had asked me five years ago whether I thought this whole e-commerce thing would work, I'm not so sure I would have told you use. Now I can't imagine my business without it." Freedman isn't alone. Over the last 18 months, in what one store manager describes as a "migration to the Promised Land," countless other traditionally bricks-and-mortar local retailers have set up shop online. Some of these business owners say they've flocked to the Web in search of extra revenue, invoking Gold Rush imagery as they report increases of 10, 20 and 30 percent. Others are less optimistic, admitting they launched their Web sites out of fear of being disenfranchised by Web-based companies such as BarnesandNoble.com, Kozmo.com and Buy.com. Whatever the inspiration to move online, the fact that hat shops and florists and specialty grocers are dabbling in e-commerce is transforming the fabric of a well-entrenched New York retail economy. Long established as the physical shopping capital of the country, the Big Apple is rapidly becoming a stronghold of Internet commerce as well. Experts say this trend can only continue. After months of watching their counterparts and competitors move online, those local establishments that don't have e-commerce capabilities soon will. Already, a number of fairly prominent retailers have indicated they plan to launch sites by the end of the year. And by the end of 2001, who knows? Bob Johnston, president of the nascent New York E-Commerce Assocaition, says that in the not-too-distant-future, out-of-towners who long to stroll the streets of SoHo or crave to buy the lox they grew up on may be able to do so without ever leaving the privacy of their own homes. "As far as this migration from bricks-and-mortar to the Web, this is only the tip of the iceberg," he says. "New York is a white-hot market right now, and some of our oldest businesses are the ones profiting the most. Everyone, it seems, from the hat shop to the clothier to the specialty grocer, is going high-tech." Just before 7 a.m., on a crisp morning in late May, a crowd of groggy shoppers gathers outside Balducci's on the corner of Sixth Avenue and Ninth Street. A woman reads The New York Times, and two men are discussing the necessary ingredients for dessert crepes. Behind the growing throng, taxicabs honk their horns as they zoom uptown. Bells in the steeple across the street chime, and an unshaven man in a green frock scurries over to the door, smiling all the while. He unlocks the door and the shoppers file in, fanning out like soldiers on a search-and-destroy mission. The woman with the paper buys some broccoli, and the men retrieve the cheese to make their crepes. It could be any morning of any month of any year since 1946, when this flagship store opened its doors for business. Farther downtown, deep in the heart of SoHo, a newer, more sophisticated Balducci's has been open all night. Ordinary shoppers might not recognize this store. Tucked away in a nondescript office building, it is open to the public only in cyberspace. This is Balducci.com, which sells food and merchandise found in the mail-order catalog of its bricks-and-mortar counterpart. The site went live in 1996, when Nina Balducci identified what she thought was a golden opportunity to make big bucks online. Then, last summer, after Sutton Place Gourmet bought the whole business, Balducci.com became a separate entity entirely. "We figured that because we're such a big store, it just made sense to split the two entities," says Ken Romanzi, CEO of the new, Web-only corporation. "Running a successful e-commerce business is a little different from the old line of running a food store. We wanted an arrangement that implied an understanding of that." Today, Romanzi oversees the day-to-day operations of this new entity, dealing only with mail orders and the Web site. He describes e-commerce business as "so-so," saying that average orders hover around $85 and that order volume skyrockets in November and December. Lastly, he says that although the site has not turned a profit yet, recent statistics from Forrester Research indicate the online specialty foods market could grow to $6 billion by 2003. The prospects seem good enough for investors - the company recently received $24 million in first-found funding from AEA Management Investments, Invesco, and Catterton Partners, among others. Balducci's isn't the only specialty foods store to have an e-commerce Web site. Dean and Deluca recently moved online, and though the offline store hasn't turned a profit in seven years, vice president Brian Bodell says the company plans to use the Web site to launch an initial public offering. Upper East Side legend Ottomanelli's has a site, as does Zabar's, perhaps the most famous specialty foods store in all of Manhattan. Both sites are based largely on the stores' respective mail-order catalogues, and while a spokesperson from Ottomanelli's says its site has helped increase sales by approximately $10,000, representatives from Zabar's across town declined to return calls about this story. No matter how these companies choose to cooperate with the media, experts say they're on the right track with their plans for expansion on the Internet. As grocery Web sites such as Priceline.com and YourGrocer.com continue to attract shoppers in big numbers, they say, smaller specialty stores must find innovative ways to differentiate themselves. Phil Lempert, editor of the "Lempert Report," an industry newsletter based in Santa Monica, Calif., says the future of specialty foods retailing online lies with companies creating strong, content-rich sites that keep audiences coming back for more, or with companies building superstores of more than 40,000 square feet to generate high-volume sales. "I don't care if you're in Timbuktu or New York, innovation and creativity are two of the keys to success on the Web," he says. "If you, as an entrepreneur, can tell me as an investor, that a multimillion-dollar investment in e-commerce technology could pay off, I'm not going to fund you unless you can show me what makes your online business special. So long as these specialty stores to that, they will thrive." While specialty foods purveyors seem to be among the most adventuresome retailers in e-commerce, trailblazing storeowners in other industries have turned to the Web recently as well. Though there's no way to determine just how many of these traditional storeowners have flocked to the Web, the Third Annual New York New Media Industry Survey released last month helps put things into context. The report, subtitled "Opportunities and Challenges of New York's Emerging Cyber Industry," noted that as of January 1, 2000, the city was home to more than 8,500 pure new-media companies. Experts such as Michael Carey, president of the New York City Economic Development Corp., estimate there are even more offline businesses, and that as many as half of them could have e-commerce Web sites by 2002. Some companies have resolved to get a head start before that date. At H&H Bagels, an Upper West Side tradition since 1972, customers can now place large orders online. H&H launched the new site in November, and site developer Seth Flaum says the goal was to supplement a mail-order business that has, from the beginning, been "sporadic" at best. After dozens of calls from customers asking for the company's Web address, Flaum knew it was time to build a site. How to build it was another question all together. From his office beneath the company's flagship store in the West 70s, Flaum called around to local Web development shops for price quotes on e-commerce sites. Without exception, all of the local firms returned bids that far exceeded his budget. Then Flaum had an idea: Why not build the site in-house? After weeks of self-tutoring, Flaum, the company's general counsel, was able to build the site at night, at almost no additional cost to H&H. To this day, he says, the largest expense is hosting the URL, which costs about $100 a month. Flaum is quick to note that his affordable Web site is profitable, too. Since last Christmas, he says, sales have shot up 15 percent, or roughly 1.2 million bagels a year. That, he adds, is a lot of bagels. "We perfected the art of succeeding online and making it affordable for everyone involved," he quips. "In this marketplace, I'm learning that that's quite an accomplishment." Farther uptown, in Morningside Heights, Sal LoMonaco, president of Academy Floral Co., is checking online orders via e-mail in what has become a morning ritual. Sal represents the third generation of LoMonacos to run the 90-year-old store, and says that he is indisputably the first member in the history of his family to conduct business over the Internet. When it comes to this Web site, LoMonaco doesn't mess around, opting for no less than the best in programming, copy, and art. Already this year, the firm has spent $150,000 in marketing fees alone. Like H&H and Freedman's Firefighter's Friend, however, these investments have paid off - LoMonaco says his business has experienced a 40-percent increase in revenue since the site launched in 1996. According to Carey, Academy has become one of the most successful e-commerce sites in the industry. Other businesses are learning from Academy's success. Paragon, the giant sporting goods store near Union Square, launched its site around this time last year, as what Web development coordinator Jay Nedell considers a "tactical measure" against national outfitters such as REI and EMS that were threatening to take over the online sporting goods marketplace. Nedell is currently renovating the site, but says that before he started these repairs, the Paragon Web site received approximately 50 orders each week. His ultimate goal? Why increased sales, of course. Nedell says he's building the site with the same attitude of the Paragon store near Union Square. He admits he's banking on the fact that the site's snarky-yet-fun approach draws more first-time customers. "This whole planning-an-Internet-strategy thing is tough," he says. "There are so many factors that go into a site that actually attracts visitors. In many cases, it's just trial and error." Stories like Nedell's are inspiring, but not every traditional bricks-and-mortar company that's recently gone online has had a totally positive experience. At Cavalier Office Products, operations manager Kier Edwards says his new e-commerce site has failed to increase sales, though it appears to have drummed up some additional traffic in the company's main showroom in midtown Manhattan. The same holds true for Straight from the Crate, where manager Marc Saban says he's frustrated that New Yorkers aren't always using the company's 18-month-old Web site the way he and his colleagues originally intended. At the Green, a teeny Flatiron District store that specializes in rare and wild orchids, owner Ron Lima gives the same message. In an interview last month, Lima went so far as to say that the money he's invested in paying an outside person to build and maintain his e-commerce site since 1997 was a total "waste," and that he'd rather focus on area customers instead of customers from outside the state. His reasoning? According to Lima, the site brings him only about $500 in revenue every month. "I just think my money could have been better spent," he says now, looking back. "The Internet is always good for advertising and marketing, there's no question about that. But in terms of sales for my business, at the risk of sounding like an oddball, I'm not so sure it's good for much of anything." Traipse around the streets of Silicon Alley, and you'll find that opinions similar to Lima's are few and far between. In fact, e-commerce has intrigued so many of the Big Apple's traditional bricks-and-mortar retailers that the E-Commerce Association's Johnston says he expects at least a hundred new sites by the end of the year. Take Kelly Christy, for example, the upscale hat shop on Elizabeth Street in SoHo. As of now, the store has no Web site whatsoever. By September, however, employees say the boutique will boast a full-service e-commerce destination where users can purchase all of the hats they'd see if they visited the store in person. Two doors down, at the art store Shi, owner Laurie McLendon says she's planning a total redesign of the Web site she has today. Currently, shoppers can only order catalogues on the store's site. Before the end of the summer, McLendon says, the site will offer every item in the store - and for the same price. Why the sudden change? According to McLendon, customers have been calling incessantly to ask if they can buy items online. Furthermore, she says, it should be cheaper to put her catalogues online this fall than it will be to print them. "Given the demand and the amount of money we've been spending on these silly little catalogues, it's amazing I didn't think of the Web as an alternative before," she says. "Hopefully, along the way with this new Web site, we'll pick up some new customers as well." It seems that many storeowners are following McLendon's lead, refurbishing sites they already have and turning them from informational rest-stops into interactive e-commerce adventures. Bliss, the fragrance and beauty care manufacturer, is a perfect example. After two years of offering customers nothing but hair products on its Web site, Bliss is in the midst of redesigning its entire Web operation, blowing out the back-end and broadening the number of available products. When asked to elaborate on these plans, a spokesman for the company declined, saying only that the company "hopes to rely on the Internet for a good bit of revenue in the future." No one is tight lipped about the future at New York Beverage Wholesalers, a beer liquidation store in East Harlem. Instead, storeowner Lou Gold volunteers his plan to redesign his Web site with a shopping cart system that enables customers to place, track, and recall orders online. NYBW launched its first Web site three years ago, mostly as a resource for people interested in the varieties of beer the company offered. As more and more customers asked for the capacity to order online, Gold responded by adding rudimentary, e-mail based ordering capabilities. And this strategy worked wonders - for a while. Over time, however, Gold discovered that his makeshift order system was not as great as he had originally thought. When he received the order information in an e-mail, the data were jumbled, and more often than not, certain fields were missing. What's more, the information this system sent back to customers was inevitably incomplete, and customers complained by the dozen. Finally, late last year, Gold resolved to fix the problem once and for all. He took down the ordering feature, threw up a static page, and hired a team of Web developers to write a new shopping-cart program for online ordering. This program, and the new Web site, should be available by August or September. From them, Gold says he expects at least a 20 percent increase in sales. "Stores like ours have existed for generations without the Web," he says. "Now that the Web exists, now that people shop there, it's our responsibility to set up shop there and give our customers the opportunity to interact with us in that way. The way I see it, these e-commerce sites will soon become a must for every small business. In the very near future, every independent business will go high-tech."