Not Just Another Web Retailer

With their new site, Alice, two entrepreneurs challenge Amazon, Wal-Mart, and assumptions about free shipping on low-margin consumer goods

By Matthew Boyle

Two serial entrepreneurs are poised to launch an online marketplace for brand-name household items that boldly aims to compete not only with the likes of Amazon (AMZN) and drugstore.com (DSCM), but mega-retailers such as Wal-Mart (WMT), Target (TGT), and CVS Caremark (CVS) as well. It's also up against something else that might be just as powerful: memories of past online consumer-goods debacles.

On June 23, after a beta test period that was prolonged by tortuous negotiations with big consumer-goods makers, many of whom are still not on board with the venture, Alice.com will make its debut. The site will offer 7,000 products made by 55 manufacturers, such as Procter & Gamble (PG), Colgate-Palmolive (CL), and Clorox (CLX). It is the brainchild of Mark McGuire and Brian Wiegand, who sold their last endeavor, online ad business Jellyfish, to Microsoft (MSFT) for a reported $50 million in 2007.

The pair readily admit to having absolutely no experience in retail. What prompted them to enter the stodgy, $350 billion consumer-products realm? "When we left Microsoft we wanted to swing for the fences," says Wiegand.

Platform to Bypass Retailers

No question, the odds seem to be running against success. Some previous attempts to deliver low-margin household goods online, most notably Webvan, blew up in spectacular fashion. Today there are plenty of well-capitalized competitors in related areas of online retailing: Amazon offers thousands of packaged goods like cereal, coffee, diapers, and detergent alongside its traditional books and electronics, but does not break out sales of those items.

Drugstore.com has been around since 1998 and now carries more than 45,000 over-the-counter (nonprescription) products, but has struggled to turn a profit, posting a net loss of $8.3 million last year. Nearly 100 grocery chains also offer some form of online ordering through an e-commerce outfit called MyWebGrocer, which was founded in 1999. "The competition is broader than they think," says Mike Spindler, a director at MyWebGrocer.

Alice's founders claim it is different. "We're not a retailer," says Wiegand. Rather, Alice provides a platform for consumer-product makers to bypass traditional retailers and go directly to shoppers.

Average Purchase Around $50

Instead of buying the goods from manufacturers, marking up the price to make a profit, and then selling them—the traditional retail model—Alice makes no money on the sale of the goods. The manufacturer sets the price, while Alice handles fulfillment and customer service, passing along those costs, which are about 35% of the selling price, to the manufacturer. Shipping is free, and the company pledges to offer low prices that are competitive with discount retailers like Wal-Mart. "On average we are at or slightly above [the prices at] big-box retailers," says McGuire.

To get around the issue that it's tough to make money by selling one tube of toothpaste at a time—a lesson e-commerce pioneers painfully learned—shoppers at Alice.com are required to purchase at least six items before checking out. In beta testing, the average purchase on Alice.com came to around $50 from 11 items. "It's a pretty interesting idea," says Neil Stern, senior partner at retail consultancy McMillan Doolittle, adding that Alice's model still could be challenged by shipping bulky items like paper towels for free.

Suzanne Clarridge is skeptical of Alice's claims. She runs My Brands, an online consumer packaged goods site featuring 11,000 products, many of which are made by small and midsize manufacturers that do not have full national distribution at retail. Clarridge has been in business for eight years, and requires that shoppers buy at least four items, often in bulk quantities, in order for her to turn a profit. "I don't understand how they are going to offer free shipping on low-margin items," she says. "Even Amazon can't make money doing that."

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