Why FTD Is Flowering on the Web


For floral retailers, summer is the toughest time of year to bloom. No Mother's Day, no Valentine's Day, no Christmas. Just July 4th and Father's Day -- two holidays that, frankly, don't inspire a lot of bouquet purchases.

That's why Michael J. Soenen, 30-year-old CEO of online flower-seller FTD.com, is so happy with the quarter ended Sept. 30. FTD.com reported $4.3 million net income on $21.9 million in sales, marking the company's fifth consecutive quarter of profitability. So nobody will be sending this dot-com retailer a wreath anytime soon. "If we can get 20% revenue growth in our weakest quarter, then things should be exciting from now on," says Soenen.

FTD.com's successful business model is based on a number of factors. For one thing, Soenen has not copied the rapid expansion plans that doomed so many dot-coms -- and that has kept the Downers Grove (Ill.)-based company in the black. For fiscal 2001, which ended on June 30, FTD.com earned $8.5 million on $130.3 million in sales. By contrast, 1-800-Flowers.com, its chief rival, posted a $41.3 million loss on $442 million in revenue for its fiscal year ended July 1.

STAYING THE COURSE. Another key: FTD's offline network for flower delivery keeps costs in line and customer awareness high. Plus, flowers, which are already sold over the phone, have turned out be a natural product to sell online. Indeed, 88% of FTD.com's sales come through its Web site, compared to 41% for 1-800-Flowers.com.

Still, not everything is coming up roses for FTD.com. The company is the No.2 player in the market, and it's not picking up ground. Westbury (N.Y.)-based 1-800-Flowers controls 39% of the online flower market, while FTD has 25%, according to Forrester Research. But the biggest challenge to FTD is 1-800-Flowers' aggressive move into the higher-margin online-gifts market.

Bill Shea, chief financial officer for 1-800-Flowers, says this year the company expects to raise its sales of nonfloral gifts to 50% of revenues, up from 38% in the quarter ended Sept. 30. By contrast, only 10% of FTD.com's sales came from nonfloral gifts. "That's a big spread over FTD," says Shea.

LOST LUSTER. Soenen's decision to rein in expansion costs has kept FTD.com from keeping pace with its rival's gift sales. But analysts applaud the approach. "I like that kind of strategy much more than the grow-at-all-costs strategy, which frankly has lost a lot of luster in this downturn and the dot-com fallout," says Morningstar analyst David Kathman.

Still, Soenen knows he must invest in the future. So he's slowly expanding the site's gift-catalog offerings. Soenen hopes to boost gifts to more than 25% of revenues in the near future. But he's not risking profitability to go chase 1-800-Flowers. "They're larger than us, they started 10 years ahead of us, but we're profitable, and that's the path we're staying on," Soenen says.

A big part of that path is leveraging the strength of the offline FTD company. Founded in 1910, FTD connects around 14,000 floral retailers across the country. Originally called Florists' Telegraph Delivery, FTD was the country's first wire-service delivery company for flowers. Most Americans who frequent flower shops are familiar with the golden "Mercury Man" logo that denotes an FTD-affiliated florist.

BOTTOM-LINE FOCUS. In 1994, FTD.com was founded to augment the company's phone sales. The dot-com has no inventory, no delivery trucks, and minimal overhead. Using the FTD network of florists, FTD.com can now offer same-day delivery to most of the U.S. The florists handle a lot of the customer service. And the 91-year-old FTD company name offers a lot of brand awareness. "This is the worst retail environment I've seen, and we're still growing," says Soenen. "That's just not possible for a pure-play online company."

Those results stem directly from a decision Soenen made 18 months ago to focus purely on FTD's bottom line. By dumping an expensive television and billboard ad campaign designed to update FTD's image, he cut the marketing budget from 43.7% of revenue in fiscal 2000 to 8% in the most recent quarter. Instead, Soenen switched to paper catalogs, e-mail campaigns, and partnerships with Web portals. He also slowed down technology spending from 12.1% of revenues to 5% for the same period.

"He cut out the flashy technology and got down to basics, and that has helped the company get through this economy with positive numbers," says Morningstar's Kathman. The bottom-line results: FTD climbed from a negative net margin of 35% in fiscal 2000 to a positive net margin of 7.7% in the last quarter, ended Sept. 30.

SUNDAY DELIVERY. Soenen isn't stopping the changes there. He's toying with FTD.com e-mail alerts to cell phones and personal digital assistants. But more important, he's thinking of introducing Sunday deliveries, if he can get enough of FTD's florists to go along with the plan. Not all of 1-800-Flowers florists guarantee Sunday deliveries, and if FTD.COM can, that could give Soenen an edge.

The floral industry is proving to be one of the few viable online-retail categories. And thanks to Soenen's wise stewardship, FTD.com is turning out to be one of the industry's rare orchids indeed. By Darnell Little in Chicago


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