Home > Articles

e-Retail Case Study 2: RedEnvelope

  • Print
  • + Share This
In this excerpt from the book e-Merchant: Retail Strategies for e-Commerce, (Addison-Wesley, 2001, 0-2017-2169-4), authors Joanne Neidorf and Robin Neidorf examine how e-retailer RedEnvelope created its retail presence on the Web.

It began as an emergency service for those who were thoughtful and yet pressed for time—911gifts.com, where gifts ordered by midnight Eastern Standard Time would be delivered the following morning. Although RedEnvelope still has a 911gifts section in its Web-based retail store, the new incarnation of the company aims for total recognition as a unique gift source known for quality, style, and personality.

Figure 1 RedEnvelope storefront.

911gifts.com began in 1997 as the brainchild of Scott Galloway and R. Ian Chaplin. Galloway and Chaplin were co-founders of Prophet Brand Strategy, a consulting firm assisting companies with their electronic commerce and brand strategy efforts.

In the fall of 1999, the company evolved into RedEnvelope Gifts Online. The name refers to an Asian custom of presenting special gifts in a simple red envelope. The "urgency" feature of the assortment had been supplanted by an emphasis on meaningful gift-giving, simplified.

Since the re-launch, several successful rounds of venture capital financing have enabled the company's dramatic growth.

RedEnvelope's management team has years of experience working for traditional and catalog retailers like Williams-Sonoma and its brands (Pottery Barn, Hold Everything, and others). With RedEnvelope, they have adapted traditional retail concepts to the Web environment. At the same time, they have embraced advanced technologies that enhance the consumer's shopping experience and added electronic touches such as e-mail gift reminders, which function elegantly in the Web environment.

Strategy

As 911gifts.com, the company targeted upscale customers with more money than time to do careful shopping. Chief Executive Officer Martin McClanan notes that the company's understanding of its market has not shifted in the evolution to RedEnvelope. "We've found that the 'last-minute' aspects of our positioning were not necessarily the most important value proposition to the customer," he comments. "We found that our customers are more interested in a one-stop shopping experience where they can choose from a variety of high-quality gifts at approachable price-points."

What is an "approachable price-point"? Most gifts in RedEnvelope's assortment range in price from $30 to $300, indicating quality but not exorbitance.

McClanan describes the RedEnvelope brand as characterized by four key features:

  • Stylish products—Products that are often unique and exclusive, since RedEnvelope works with suppliers and artisans to create gift items; customers know they are getting something special.

  • Approachable price points—The range invites shoppers seeking gifts for all occasions, from "just because" or thank-you gifts to special occasion like weddings and anniversaries.

  • Limited assortment—Saves the customer time by making it easier and more convenient to shop because there are fewer items to sort through.

  • Superlative customer service—Live online customer service, personalized gift cards, on-time delivery, and the ability to send multiple items to multiple addresses with a single order form assure customers that they will be personally assisted throughout the transaction.

Assortment Planning

Merchant teams are responsible for developing and selecting the assortment for RedEnvelope. The assortment is organized around the primary shopping categories on the site: Home Decor; Office and Travel; Backyard; Flowers and Plants; Pet Gifts; Gift Baskets; Sweets; Personal Care; Jewelry and Accessories; Bar, Wine, and Cigars; Gadgets and Tools; Sports and Games; and Toys and Baby Gear.

Assortments are seasonal, and many items are exclusive to RedEnvelope. Assortment planning requires attention to gift-giving cycles (Christmas, Valentine's Day, June weddings, and so on), as well as changing fashion and customer tastes. Exclusives are designed specifically for RedEnvelope in most categories by artisans, working in concert with RedEnvelope's merchants.

Merchandising

On RedEnvelope's staff are store managers. Like their counterparts in the brick-and-mortar world, store managers are responsible for merchandising the assortment, developing cross-selling strategies, planning promotions, and other point-of-purchase tasks. In carrying out these responsibilities, they work closely with the merchant and buying staff.

In addition to the primary shopping categories, visitors to the site can sift through items using other criteria such as for him, for her, and by occasion, among others. The overall goal in merchandising, McClanan says, is to build the brand as an overall, upscale, lifestyle brand.

That is accomplished through the details as much as through the overall merchandising strategy. "Photography is what sells the product," McClanan notes. "Years of experience have taught us that." Considering that RedEnvelope's management team includes some of the creative merchandising minds that pushed print catalogs toward lifestyle magazines, this emphasis on the visual presentation of the products is hardly surprising.

The years of experience have also yielded some other lessons that McClanan and his team consider carefully in developing the online store displays. "The more challenging items to merchandise effectively are those that are more complicated," he explains. "For example, [look at] some of our items in the Tools and Gadgets category: the more complicated the functions, the more the consumer wants to interact with the product prior to purchase.

"Also challenging are the 'commodity' products, such as toys and books, which are available from many well-known sites," he continues. When RedEnvelope does not develop exclusives for these commodity items, it can be difficult to sell the benefits of purchasing these items from their site rather than from alternative sources.

Overall, RedEnvelope has found that it does best with the categories in which a customer is truly browsing for ideas and does not yet have a definite plan to purchase a specific type of gift. Think of it as the classy, eclectic neighborhood boutique that always has something new and different—the place you always go when you are looking for ideas.

To help you get those ideas, RedEnvelope deployed a live customer representative system in November 1999. By clicking on a button conveniently located on all shopping pages, customers can get connected to a customer representative through a live chat feature. Customers can then get instant answers to any questions they may have on a product and obtain advice for locating the perfect gift.

McClanan recognizes a huge advantage to merchandising online, one that he and his colleagues could not duplicate in other environments. "You can truly test new product ideas in this medium," he explains. "We can purchase 10items, do the photography, add the item to the assortment, and then judge its true popularity before investing in a huge number. This is a great advantage over traditional retailers."

Inventory Management

RedEnvelope owns its inventory, with the exception of a few items that are drop-shipped directly from the vendor. Its warehouse is located in Ohio, conveniently next door to the Airborne Express hub. Depending on the season, RedEnvelope may have anywhere from 600 to 1,500 SKUs in the assortment and available for sale.

To manage inventory effectively, RedEnvelope selected an off-the-shelf software product originally developed for catalog and direct mail retailers. "Although it's not as flexible as some of the other products recently created for online retailers," McClanan says, "it has the advantage of being a well-developed, well-tested, and robust system."

To address a common frustration with online shopping, RedEnvelope's inventory management system updates the site quickly so that items merchandised and offered for sale are actually available when the customer places an order. However, when an order is placed, the first thing the system does is check inventory to confirm that the stock is available. When the credit card information has been validated, the system sends the customer an e-mail indicating that the order has been received and is being processed. The pick-and-pack instructions are generated at the warehouse. This can sometimes be a complex step, as individual orders may involve shipping to several addresses. The goods are shipped and the credit card is billed usually within 18 hours of order placement. With shipping, the customer receives another e-mail to confirm that the gifts are on their way.

Pricing and Promotion

The pricing structure for RedEnvelope reinforces the brand as a quality source of unique gifts. Initial Mark Ups (IMUs) and Maintained Margins (MMs) are in line with what consumers find at other upscale lifestyle retailers, online and off.

Vendor Relations

In the beginning, 911gifts.com found vendors reluctant to work with the company. Over time, as RedEnvelope has proven the solidity of its planning and execution, the reluctance has disappeared. "Now we have far more suppliers who want to work with us than we have room for in our assortment plans," McClanan says. Suppliers initially showed concern with financial stability and staying power—not channel conflict.

Structure

The organizational structure for RedEnvelope is solidly based on traditional retail structures. In addition to McClanan, the management team includes Hilary Billings, Chief Marketing Officer; Tom Bazzone, President and Chief Operating Officer; and Christopher Cunningham, Chief Information Officer. Each key individual has more than a dozen years' experience in his or her field.

The merchant teams are comprised of creative merchants and control buyers. Creative merchants own the financial responsibility for their assortment's margin performance, and they do the strategic planning, hunting for new gift ideas and working with suppliers to develop unique products that establish RedEnvelope's brand. Control buyers handle the logistics of the supply chain, including everything from writing orders to working with suppliers to ensuring prompt delivery. Control buyers also have primary control over the inventory management aspects of managing the assortment.

Store managers take over at the level of site execution, planning how items will be merchandised and promoted to shoppers.

The Wisdom of Experience

"We've seen at least a dozen of our competitors go out of business in the last year, and it seems another five or six will be leaving the field shortly," McClanan observes. To weather the volatile e-retail environment for three years is its own accomplishment, one McClanan attributes to fundamental attention to the business of retail.

"We have always built our decision-making and plans around traditional retail metrics. We have refused to fall into the trap of sacrificing gross margins to achieve sales.

"Frankly, I've been surprised by the number of e-retailers who refute the sense of solid business decision-making," he continues. "The e-retail environment plays by the same rules as the so-called 'real world.' Yet quite a number of dot-coms seemed to think they played by different rules, creating unsustainable growth plans or not thinking through how they would be able to earn a profit."

In the first 10 months of its existence as RedEnvelope, the company achieved more than 400 percent sales growth and more than 40 percent increase in gross margins. "It's been a challenge to grow that quickly," McClanan admits. "Often we've wished we could slow down and test ideas more thoroughly before execution."

The only way such growth has been possible, let alone successful, is through balanced attention to each of the metrics at stake in a healthy business: sales, gross margin, maintained margin, turnover, marketing expenditures, and so on.

RedEnvelope is something of a test case in how much is possible in the e-retail environment in relatively little time. However, McClanan has cautionary words for would-be e-retailers: "Never grow beyond your business's ability to support the growth," he says. In other words, do not promise the universe if you can deliver only a galaxy or two!

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020