Cubic Zirconia, Going Fast

It's 7:30 on a Friday morning, and the smiling hosts of QVC, the leading television shopping channel, are busy showing off a portable blood-pressure monitor. They field three calls about the product in less than five minutes before moving to a demonstration of how to shop at QVC online. Then it's time to advertise a dollhouse for sale and alert viewers about jewelry that will be featured later in the day. "What keeps you coming back to QVC, Joyce?" the host asks a caller from Ohio who has phoned in to praise the blood-pressure device and report that she's bought many items, including computers, from QVC over the years. Her answer is straightforward:

"You," she says, "and knowing I'm going to get good stuff."

It's on that deceptively simple formula that QVC, which stands for "quality, value and convenience," has quietly built a blockbuster business on cable and on the Net. Total sales in 1999 were $US2.8 billion, of which Internet sales constituted $US97 million - a small percentage, but an impressive total for an online retailer. This year, Internet sales are expected to top $US170 million.

IQVC, the company's online arm, has been profitable since its third month of operation in late 1996.

That's an uncommonly rosy picture. QVC has managed it, in part, by treating its Web site simply as an extension of its cable operation, without resorting to snazzy extras or gimmicks to lure viewers. QVC's online success holds lessons for primarily offline companies seeking to beef up their Web businesses.

And QVC has done it all with so little fanfare that its public relations representative, hired just a few months ago, said he has rarely worked with a client like iQVC. "I'm used to companies that want press," says Michael Rogers (RCN) of FitzGerald Communications in Boston. "Sometimes you get a client that says, 'Just get me press, any press.'" Not iQVC, which has raked in its millions without calling in the reporters.

IQVC's revenues put it way ahead of many major online retailers. Webvan reported revenues of $US28 million last quarter, Pets.com had sales of about $9 million and eToys. (ETYS) reported revenues of $US25 million. All three fell below iQVC's $US34 million in the first quarter (the company hasn't released second-quarter figures). But iQVC still trails JC Penney, which reported Internet sales last quarter of $US47 million.

That's a lot of furnished dollhouses, electronic pest repellers and cubic zirconia. Who's buying all this stuff?

"A lot of people think of it as someone sitting in a trailer park eating bonbons," says a somewhat defensive Stephen Hamlin, VP of operations at iQVC and the man who oversees QVC's Web venture. "That's not our demographic at all."

Not surprisingly, iQVC's shoppers are younger, wealthier and less likely to be female than those who buy from the QVC channel on TV - but only slightly. (For example, 70 percent of iQVC's shoppers are female, compared with 85 percent on QVC). More than half heard about the site from aggressive advertising on the QVC channel, while many others discovered it via word of mouth. QVC's overarching strategy - to view its Web site as a digital version of its television station - has apparently had the effect of softening potential demographic differences between the two.

Though it's the most dramatic example, QVC is not the only home-shopping channel performing well online. Three other major players launched sites in the last year: the Home Shopping Network, Shop At Home (SATH) and Value Vision.

HSN, second behind QVC with revenues last year of $US1.5 billion, posted its Web site in October and was reaping profits by late November. Unlike QVC, HSN prides itself on a Web site with additional information and resources. Jack Kirby (KEX) , president of HSN Interactive, cites the by-now-familiar trio of "content, community and commerce" as a way to lure visitors to the site and persuade them to buy.

HSN Interactive also signed a deal in July with ExciteAtHome, whereby the two will develop a co-branded shopping show both online and on TV. Kirby hopes the agreement will drive additional traffic to the HSN site from Excite; the show, he said, will be heavily promoted on Excite's Web site.

Value Vision, another home-shopping channel, has also sought to integrate itself online by associating with Net companies like Wine.com and Petopia.com.

Value Vision produces shows for these sites that highlight relevant products that are broadcast on both the Web sites and the television station.

HSN, iQVC and Value Vision all claim to be profitable, but decline to reveal details.

Shop At Home has steered a slightly different path than its competitors. Known for its strength in collectibles - including the popular Knife Hour show that hawks everything from swords to throwing axes to survival knives - the company launched its site at Collectibles.com in November. Kent Lillie, president and CEO of Shop At Home, expects Collectibles.com to be profitable by the end of the year.

Though QVC is by far the most successful of the online shopping channels, all enjoy significant advantages that make moving to the Web relatively painless.

For one, shopping channels have already established the infrastructure that dot-coms need: customer service agents, fulfillment abilities and the means to handle inventory. "We're leveraging an existing asset, and we're leveraging a core competency that most existing brick-and-mortars don't have," says Kirby.

In addition, home-shopping channels have an enormous number of eyeballs trained on them for hours each day. QVC, for example, is broadcast to over 70 million American households. All the shopping channels advertise their Web sites during their programs and repeatedly show their viewers the basics of shopping online.

So the online retailers' advertising costs are negligible.

The advantages enjoyed by the shopping channels are somewhat analogous to cataloguers, which have also performed relatively well online. Among the leaders is Lands' End (LE) , which, like QVC, launched early, in the summer of 1995. In 1999, Lands' End sold $US138 million worth of apparel on the Web, and the company said its online operation has been profitable for several years.

Interestingly, the Lands' End philosophy mirrors QVC's in that it views its Web site as a seamless extension of the catalog, with few special frills. Company executives simply don't care whether individuals shop via catalog or Internet.

As Bill Bass, senior VP of e-commerce at Lands' End, puts it, "We're channel agnostic. We see ourselves as one company, and our set of customers as one set of customers."

Like Lands' End, QVC isn't concerned about losing its offline users to its Web site, a common fear among offline retailers. "Some retailers are still scared of the Net channel," says Robert Labatt, research director of Internet retailing at the Gartner Group (IT) . QVC's Hamlin agrees that the company's Net venture provides customers with more options, since, as he points out, "Consumers want to shop in different ways." IQVC also provides another place to encourage the kind of impulse buys its TV business was built on.

Hamlin and executives at other shopping channels realize their good fortune in being at a company that has much of what an online business needs already in place. Still, iQVC's success can't be attributed to luck alone. When Hamlin ponders why iQVC has expanded online the way it has, he cites reasons - trust, branding, a strong shopping experience - that seem obvious. They're essentially the same ones Joyce from Ohio mentioned when she called QVC. If anything, it's the company's recognition that the simple things are the most important that has allowed iQVC to prosper.

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