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JULY 17, 2002 CLOSEUP By Susan J. Marks eBags Carries It Off The dot-com boom's big spenders couldn't buy success, but this online luggage vendor survived by making frugality its watchword
Like other Internet companies that made it through the tough times, eBags is moving toward profitability. Based in Greenwood Village, Colo., eBags posted its first EBITDA (earnings before interest, taxes, depreciation, and amortization) quarterly profit in the second quarter. It expects to record an operating profit in the third quarter. A big plus: no debt and few depreciation costs. TRADITIONAL VALUES. Much of eBags' success is rooted in its adherence to the mind-over-money philosophy leftover from its scrappy, cash-starved origins. Nordmark founded and bootstrapped eBags with four other people. Even after landing venture funding, Nordmark didn't become a spendthrift. He earns $72,000 in salary, and like everyone else, he took a 10% salary cut this year. He and his fellow executives still don't have golden parachutes or big bonuses. This kind of frugal -- read "conservative" -- approach is why eBags.com is still around while so many other dot-coms aren't, says Ken Cassar, an analyst at researcher Jupiter Research. For Nordmark, eBags is all about building a brand that stands for value and customer service, and motivating others to share his vision. The eBags story started in 1998. Nordmark, then 35, quit his job at Denver-based travel goods giant Samsonite, where, as a senior marketing director, he managed about 20 distribution channels in North and South America. Back then, Nordmark saw the long-term potential of the dot-com as a sales channel and decided to use it to tap into something he knew well -- selling travel goods. That market, which includes luggage, casual bags, backpacks, business and computer cases, and personal leather goods, is worth $10 billion in the U.S. alone, according to the Travel Goods Assn. trade group. LEAN TIMES. Nordmark convinced four other people (three ex-Samsoniters, including his former boss) to ante up $50,000 apiece and work free until the new company could come up with $4 million in funding. That took an arduous eight months. Meanwhile, Nordmark took cash advances on his charge cards, borrowed money from his family, and took out a second mortgage on his home to keep himself and the fledgling company afloat. At one point in late 1998, both he and eBags were flat broke. "I remember laying in bed at about 3 a.m. that December and coming to grips with the fact that no matter what, I had my health and my dog, Tasha. And that my parents or sister would let Tasha and me move in if necessary." In January, 1999, financial relief came from Benchmark Capital. More venture capital followed, bringing the total amount raised to $6.8 million. Robert Kagle, a partner at Benchmark, praises Nordmark as both a visionary and a pragmatic businessman. "It's a rare combination," says Kagle. "He's the first to accept the blame and the last to take the credit, which is always the mark of a true leader." PURE PLAY. The numbers are good enough to keep eBags humming. It has a customer base of 2 million, up from 292,000 at the start of 2001, and attracted 831,000 different visitors in May, according to Nielsen/Net Ratings. That's well below the 1.8 million of its apparel/beauty category leader Victoriassecret.com, but enough to rank it among the top online retailers. It also stacks up favorably against the likes of Jcrew.com and LLBean.com. Plus, unlike these other companies that are in a broader range of products and sales channels, eBags is a pure-play, all-bags e-tailer. "The fact that eBags markets only online and is doing fairly well really speaks to their savvy," says Dawn Brozek, an analyst at online traffic researcher NetRatings. At a recent conference Guy Kawasaki, CEO of Garage Technology Ventures, asked Nordmark if the "e" or the ".com" in his company's name embarrassed him. "Absolutely not," was Nordmark's unwavering response. "In five years, that will be the mark of a survivor."  Marks covers technology from Denver Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | JULY |
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