It isn't an easy task. Many established luxury brands such as France's LVMH Moet Hennessy Louis Vuitton and Switzerland-based Richemont are refusing to sell most of their products through Ashford, out of fear of upsetting their distribution partners and devaluing their brand. Kurtzman spoke with Business Week's William Echikson about dealing with these challenges and making e-tailing pay.

Q: Does Ashford's attempt to bring luxury online represent a fundamental change in the nature of e-tailing?
A: Yes. There is a shift going away from pure discounting and high volume being the only types of approaches to selling online. Because there are so many pressures on profitability, people are beginning to realize that a category like luxury goods is more attractive. Our average order sale price is $500 -- much higher. And because the products are so small, we can do the shipping out of one facility in Houston. We don't need any additional warehouse space. Our operating costs are fixed.

The only thing left is marketing spending, and that goes down as we build up customer loyalty. All this makes people realize that this is a far more viable business model than other Internet retail categories. I believe this will be the first category that e-tailers will make money.

Q: Is price a barrier?
A: No. Price is not a barrier. We have sold someone $60,000 of jewelry and 30,000 watches. Our customers already have shopped online and have had a good experience at sites such as Amazon. Now they are ready to test and try luxury goods.

Q: How was Ashford formed?
A: Our chairman of the board went looking for a luxury Cartier watch in Houston and came up with two problems. He couldn't find the style he was looking for because the selection in most jewelry stores was limited.

And secondly, even though he was a wealthy entrepreneur running a tech company building Web sites, he would go into these stores dressed in jeans and T-shirts. That's how he dressed normally. But he would not get good service in the luxury boutiques, and he felt uncomfortable going into these stores. So he said: "Hey, why don't I buy this online?"

Q: Why did you go to Ashford?
A: Having come from Compaq, where Dell had figured out the Internet first, I saw [Ashford] as an opportunity to be first. I had been trying to push Compaq online and ran their Compaq Prosignia program that was the first product they sold aggressively on the Net. I saw this as a better opportunity.

Q: Has the recent slump of e-tailing stocks hurt Ashford?
A: We don't need to raise more cash to get profitable. We will become profitable in [the] holiday season in 2001. That's a unique statement relevant to the Internet.

We saw off the decline last year, and even though our losses have increased, we are getting more efficient. Our margins are continuing to go up. We are getting away from discounting and consistently raising our prices each quarter. That's the other nice thing about luxury goods. Their gross margins are much higher than regular goods.

Q: What specifically are your margins?
A: Our margin last quarter was 19%. Our target is 24% and 25% and over the long term, 30%. Traditional luxury retail margins are 40% to 50%, and the luxury manufacturers enjoy margins of 60% to 70%.

Q: But many established luxury retailers refuse to sell to you. Do you plan to start your own brand to try and sidestep them?
A: Yes. We just announced the Ashford collection of jewelry. We have plans to have Ashford leather goods and scarves. Part of the reason we are doing [this] is to make higher margins. But I don't believe that it will dominate our business. In most categories, it will amount to between 15% and 20% of our business. It will be mostly in jewelry where brands are weaker than watches. Our task ahead is to optimize the mix between branded and unbranded.

Q: What luxury goods sell well on the Net?
A: Watches. We have done particularly well with watches. We have sold watches up to $20,000 to $30,000. The sweet spot is between $500 to $2,000 dollars. We also do really well in writing instruments, pens that run from $80 to $200.

Admittedly, our price points are a bit low for luxury brands. We really are reaching a luxury shopper. He or she typically has made a lot of money in tech companies and is Internet savvy but doesn't have a lot of time to shop. He or she is open to a broader definition of luxury. They may know Rolex or Cartier, but are just as likely to buy a Zemex. This is a more stylish, lower price point, definition of luxury.

Q: That's because you are meeting resistance from the prime manufacturers such as Cartier and Rolex?
A: The big luxury-brand houses have made it clear that they do not want people to sell their product online. But they can't ignore this channel forever. Each of them is developing their own strategy on their own, or with people like us, or with traditional retailers. That's because a growing number of luxury shoppers are this new kind of customer who wants to buy online. Any company that ignores or delays ultimately will lose these customers, so the brands realize the importance of participating.

Q: Long term, do you think you can get such brands online?
A: Yes. Long term, the brands will have to work with us. We have the ability to help them reach so many more customers. We have a million visitors every month. But the luxury brands must be aware that the Internet will redefine luxury because we have a relatively low cost of doing business. We will also create new brands, so other brands will suffer if they don't participate.

Q: What is your relationship now with the Rolexes of the world? You offer some of their products online yet they are not officially coming from the manufacturer. Isn't this illegal?
A: We buy these products from authorized dealers or retailers. This practice has gone on in the industry for decades. It's nothing new. Plenty of traditional retailers sell customers Rolexes that are not authorized by Rolex. Our intent is to get 90% of our supplies directly from the manufacturer. That's our goal.

All the other hype and noise about what we are doing is untrue. But we understand that the manufacturer has to say something to its traditional channel and is concerned about losing sales.

Q: But luxury manufacturers have kept such high margins principally by controlling their distribution. So you are a mortal threat to their business?
A: No. The real threat I think is from manufacturers selling directly by themselves over the Internet and not through traditional retailers.

Q: Luxury goods traditionally are more expensive in Europe and Japan than in the U.S. LVMH's eLuxury site will not sell to Japanese customers in Japan. Will you?
A: No. We will work with manufacturers to present the product as they like. We know where the order is coming from. If it is coming from Japan, we don't want to make that product available.