By Margaret Young With the demise of its dot-com competitors, a growing audience, and profitability predicted by the end of its fiscal year, maternity and baby-goods site eStyle looked like it was home free. But the game changed on May 22, when Amazon.com and Toys 'R' Us (TOY), last seen jointly clobbering eToys, co-launched a new site called Babies 'R' Us.
Still, don't ring the death knell for eStyle.com just yet. Since its founding three years ago, the Los Angeles-based e-tailer has thrived in situations where its competitors collapsed. How? Chalk it up to deep pockets, savvy marketing, a series of shrewd partnerships, and a sharp eye for merchandise. "We are a retailer, and retailing is all about merchandise," says eStyle CEO and Founder Laura McCartney. "There were a lot of Internet companies that defined themselves by the technology."
The brainchild of former Disney executive McCartney, eStyle was one of several dot-com startups that attempted to tap into the lucrative maternity market. The average expecting mother is estimated to spend $5,000 to $7,000 on clothes, cribs, car seats, and more. To serve this niche, eStyle launched two Web sites. BabyStyle.com, targeting new and expectant moms, opened in October, 1999. In April, 2000, it opened KidStyle, aimed at the mothers of two- to five-year-olds, just as competitors started dropping like flies along with the Nasdaq.
VC HIT. In July, 2000, iBaby merged with Babygear.com before filing for bankruptcy in December. In March, Johnson & Johnson (JNJ) bought most of the assets of BabyCenter.com, which also had a bricks-and-mortar presence, but not its retail operations. Etoys, BabyCenter's parent, filed for bankruptcy in March and closed BabyCenter's stores.
Meanwhile, eStyle was a hit with venture capitalists. It completed a $25 million round of funding in November, adding Primedia (PRM) to a roster of investors that includes, among others, Goldman Sachs, Vulcan Ventures, and Maveron. To date, eStyle has raised $85 million. And the company says it will not need to raise more money to reach profitability -- which it expects to do at the end of its fiscal year in January, according to Marketing Vice-President Andrea Borda.
While eStyle has avoided the heavy layoffs of other dot-coms, it has felt the pinch. Its audience dropped to 216,000 visitors in April, from 229,000 in January, according to Nielsen/NetRatings. To trim costs, eStyle has cut back its customer service from 24/7 to ordinary business hours. And by deploying a computerized product-tracking system in its warehouses, it has eliminated a few jobs.
CINDY SAYS. EStyle spends its cash frugally. While other dot-coms blew millions on high-profile TV ad campaigns, eStyle garnered free publicity through on-air mentions by supermodel-mom and company board member Cindy Crawford. When it does advertise, eStyle's campaigns are carefully targeted. Its recent sole sponsorship of the Fall, 2000, issue of Martha Stewart Baby, for example, linked the company's name to one of the strongest brands in the lifestyle business. "They've taken advantage of all the opportunities that have come up," says Jeff Klinefelter, senior retail analyst at US Bancorp Piper Jaffray in Minneapolis.
In addition, eStyle has avoided the e-tail trap of selling dollars for 99 cents. The company averages 55% to 75% profit margins on its merchandise -- with the highest margins being on its private-label items. Instead of offering rock-bottom prices on everything, eStyle is able to charge a premium for a carefully selected range of merchandise.
Customers don't mind the relatively thin selection. Cameron Adkison, a first-time mother in Palo Alto, Calif., has bought two strollers, a beach tent, a sling, bottles, and baby toys from eStyle. "Although their selection is somewhat limited, I've found the Web site easy to navigate, the products high quality, the delivery very quick -- and the customer service is great," she says.
NEAR-LEATHER. In addition, eStyle uses its private-label merchandise to fill in perceived gaps in the market. One example: its imitation leather maternity pants, for trendy pregnant women who don't want to spend a fortune on the real thing. So distinctive have been eStyle's private-label offerings that the company has begun selling them through 25 stores in the Los Angeles area and is in negotiations with larger retailers.
Some analysts believe that eStyle's style filter will help it avoid eToys' fate. Analyst Klinefelter notes that despite Babies 'R' Us's broad product line, "eStyle offers a unique assortment of products that wasn't out there."
Other analysts beg to differ. After all, a baby needs only one crib, and there are plenty of sellers out there. "You're all competing for a similar customer base," says Jill Frankle, a retail analyst formerly with Waltham (Mass.)-based research firm Gomez. Frankle suggests that the close partnerships eStyle has formed may become even closer and more tightly entwined. "They might be attractive to someone down the line," she says.
That assumes eStyle will survive its confrontation with the combined clout of Amazon and Toys 'R' Us. But this dot-com has already come a long way, baby. Young is a freelance writer based in Silicon Valley