The Starting Line: Surviving the dot-com deluge

The Internet was the best thing that ever happened to 1-800-Flowers, and CEO Jim McCann figured that out early on--that's one reason why his company flourished before, during and after the cybermeltdown of 2001.

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
5 min read
Jim McCann has a long history in flowers. He opened a florist shop in New York City in 1976, built it into a chain, and 10 years later, launched an 800-number service.

Early on, his company moved online, becoming America Online's first merchant partner in 1992. Cashing in on the dot-com buzz, the company renamed itself 1-800-Flowers.com in April 1999 and went public in August of the same year at $21 per share. Of course, that IPO coincided with the bursting of the dot-com bubble, which sent the company's stock tumbling.

But while the company's stock hasn't regained the highs it reached shortly after going public, 1-800-Flowers.com has been on a slow-and-steady rise since bottoming out at the beginning of the year. The stock closed at $4.44 on January 2, and has risen nearly 200 percent since then.

1-800-Flowers.com has been able to survive the dot-com deluge and appears to be on target to return to profitability sometime next year. As the holiday season kicked into full swing, CNET News.com sat down with CEO McCann to talk about his company's future, and the future of online shopping.

Q: You're still around after the dot-com bubble burst. What have you done differently then other e-retailers?
A: I don't think it's so much what we did different but what was different about us. We've been around for 25 years. We're not a technology company, just a specialty retailer that embraced technology early.

How has technology changed your company?
It has completely transformed our business, on the front end and the back end. And it's all been for the good. It's allowed us to grow, expand relationships and do it in a cost-effective environment that would not have been possible without the Internet. In the (telephone sales) environment there are no economies of scale. In the Internet there are. We have not had to raise retail prices in 12 years. It's allowing us to maintain the costs of doing business so we could retain retail price points.

You have a multipronged approach: Internet, phone, catalogs and stores. Lots of times the other channels support the Internet sales, but it sounds like the reverse is true with you.
What we've tried to be for a dozen years is a 360 degree retailer. You can come to us through the catalog, the phone, a store, your PDA or through smoke signals. If it's tactical for us to do it, we'll do it. The bare truth is, it's our job to deploy technologies to help customers act on their thoughtfulness. If you go through the day, you could be thinking, "My sister's got a birthday," "My parents have an anniversary," "I just had a wonderful Thanksgiving," but you only act on a small percentage of those thoughts. In times like these, people have more of those thoughts. If we have the technology deployed, you don't have to wait until you get to the office to your computer; you can act on it on your cell phone. We try to be as convenient as possible.

What are your targets for profitability?
We're expecting to be profitable this quarter and EBITDA positive all this year (earnings before interest, taxes depreciation and amortization). We'll be profitable for all of next year--and the balance of this year as well.

People are up in the air about spending this holiday season. On the one hand, layoffs and fears of a recession may prompt some to tighten their belts. But others argue that worries about the war and terrorism may encourage people to "live for the moment" and spend now. And early reports from e-retailers are promising. What have you seen?
It's been all of the above. Obviously 9-11 had a dramatically negative impact on us, like it did on any business. A good percentage of our business is in the New York metro area. It had a big emotional impact and a financial one. We're back to normal now, but you don't ever make up that business. We're able to still do what we thought (for the quarter). It's tumultuous right now; business isn't bad, but it's really coming down to a critical few weeks. We're planning for good business. I think we'll grow 25 percent this quarter.

In the past, online stores have tried to spur sales with promotions, especially free shipping. But that approach has fallen out of favor as retailers have had to tighten their belts. What do you think of that type of promotion?
I think you're seeing some (e-retailers) get really aggressive with discounting, which tells me some people are really nervous. Frankly, we think it hurts our brand to be an aggressive discounter. People are trying to express themselves by sending gifts from us. The fact is that we don't have artificially raised prices, and we don't engage in a lot of discounting.

Have concerns about mail safety had any impact on your customers' buying habits?
We're a home delivery company. We make deliveries every day. Some of our packages are delivered by FedEx or UPS, but a good number are hand delivered. I think people are welcoming that service. It's clearly a service that people are trying to take advantage of because they're not out shopping or traveling.

Your product line is very home oriented; besides flowers, there's gourmet foods through Greatfood.com and home goods at Plow & Hearth. How do those types of products do in a recession? They may be cheaper than a big gift, but they have a "luxury" tinge to them.
I think they should do pretty well. As a company, we tend to not have big swings. We don't have 100 percent sales increases, but we've never had a year with less than double-digit growth.

Our products are very warm and nurturing types of things. You lose some customers at the lower end of the scale; if you're laid off, you're not buying anything. But some people trade down: They're not buying $200 cashmere sweaters, but they'll send a wonderful wreath to their parents for the holidays.