Moving to technology and the nut and bolts of operating a site. Yahoo! Stores is well known as an excellent place to get started in online retailing and you’ve been on it for years now. Now that you’ve become a successful retailer, what are the pros and cons for remaining with Yahoo!?
Yahoo! offers retailers a very affordable platform that saves you lots of headaches. I think it would be difficult to find a PCI compliant, fully hosted ecommerce platform for the same budget. Particularly if you went the do-it-yourself route, say, by getting a server from Rackspace. While I think the price provides excellent value, your flexibility is limited. The back-end prevents you from doing some things simply. You’re forced to customize and create workarounds. There are extreme differences between an established platform like Yahoo! and Magento, which was designed from scratch for web 2.0/3.0 (or whatever they’re calling it these days).

As a company, we’re pretty loyal to Yahoo! and the Yahoo! platform. Still, if a company knows that it will grow beyond $5-15M in annual sales, I think they are going to ultimately regret choosing Yahoo! When we launched our newest store, I wanted to see what I was missing, which is why I researched alternatives and ultimately chose Magento. Revamping that site has been a good learning experience and an opportunity to really see the pros and cons of Yahoo!

Is Yahoo! a flexible platform for integrating the latest operational, web design, merchandizing and payment technologies and services?
Yahoo! isn’t a platform that offers the latest and greatest. It is always a couple of steps behind and there are number of integration and technology challenges that are really frustrating. One of the most obvious examples is integrating an alternative payment option like Google Checkout. While the Google Checkout icon can help your PPC clickthrough rates, if you actually want to integrate it, you’ll violate the terms of your Yahoo! agreement.

Talk about the Yahoo! Stores retailer and developer communities…what are their value?
These communities are really important. When we started out, we didn’t outsource anything because we couldn’t afford it. We learned Yahoo’s proprietary programming language, RTML, and grew the site to a level where we could afford to outsource. Once we had a development budget, we tapped the developer community. The sites wouldn’t be where they are today without the contributions of the professional store developer community.

Talking specifically about the Yahoo! platform, what are three things that you did that you would have done differently had you known better?
A. I’d like our site to be faster. We need to make some optimization changes but I’m going to have to do some research because I’m not sure right now if it is the underlying code or a graphics issue.

B. We need a lot more sophistication in our supplier chain. I would have really loved to have spent a lot more time developing real-time integration of our inventory data. We’ve since created workarounds but they are not as ideal as doing the most effective way right from the beginning.

C. The third change would have been to spend a lot more time and care building our product database. It is really valuable to have complete product information or attributes (notably dimensions and weights). This is especially true for retailers who drop ship. Complete product data helps minimize shipping costs. It helps you provide real-time shipping calculation to customers when they are in your shopping cart. It helps you calculate by dimensional weight. I can’t overemphasize the importance of having an accurate and up-to-date database.

How does Nextopia’s site search technology and modules that you use fit into the Yahoo! Stores world?
Nextopia integrates very easily into the Yahoo! Stores platform and we’ve been a happy customer for over three years. In a perfect world, your product database includes all of the relevant product attributes, which enables you to filter search results. In general, site search benefits a retailer in proportion to the completeness of the underlying product database. By working with Nextopia, we’ve been able to implement some solutions but as I said just now, I really wish we had built our database with complete product attributes from the beginning.

Enough about Yahoo!, let’s talk about Magento and your newly revamped site, IslandBeachGear.com.
Even though Magento’s basic version is open source and the vendor doesn’t charge for it, it isn’t your least cost option by any means. Magento is neither simple, nor is it free. It took many, many hours to develop our IslandBeachGear.com site to the point where it is now. It required a lot of tweaking to get it right and you’ll probably require some knowledgeable developers. We used a combination of in-house resources and some third-party development. Additionally, the hosting level you need to have a fast website is expensive.

Nextopia Site Search integrated on a Magento site-IslandBeachGear.com

In contrast, you can get a Yahoo! Store up and running in no time. In about twenty minutes, I could create a functioning one or two SKU Yahoo! Store that could actually take orders and process payments. It wouldn’t look pretty but it would work. In contrast, Magento isn’t nearly as easy to use. The tradeoff is much greater flexibility. I’ve been very impressed by the design and usability and the out-of-box functionality. I love the flexibility. There is no limit to what I can do. I haven’t run into one adjustment or request that we couldn’t implement. With Yahoo, I run into roadblocks all the time. Magento is designed using the latest software technologies and online retailing, marketing and merchandising processes. The SEO capabilities, integrated reviews and real-time inventory access are great. That said, I would love it if Magento provided an on-demand platform like Yahoo!

Thanks very much to Patrick. Great information and guidance from someone who’s been in the ecommerce trenches for a decade. As you can see, the road to success requires a lot of hard work and iterative trial. If you fish or know someone who fishes and might appreciate an angling-themed Christmas gift, you know where to start your shopping.

Can you give us a quick summary of your company, operations and markets.
We’re an ecommerce retailing company, currently operating four sites in the fishing and outdoor leisure markets. Our corporate headquarters are in Somers Point, NJ and we run our Island Beach Gear retail store in Ocean City, NJ. In total, we have 25 full-time employees. We’ll add seasonal staff during the peak fishing and beach-related retailing months (spring and summer). Our fishing sales are split 80% in the United States, with the balance from overseas markets. The big overseas markets are South America and the United Kingdom with some sales in parts of Asia. Our beach gear sales are almost exclusively North American sales.

Who are your competitors?
We’re a specialty fishing retailer. We don’t generally–or even try to–compete against mass merchandizers like Wal-mart or the national chains like Cabela’s or Bass Pro Shops. We win customers on service and know-how, not private branding or discounting. There are probably 6,000 independent fishing retailing stores in the United States, the vast majority of which are small Mom and Pop stores. To give you an idea of the market fragmentation, a really successful independent fishing retailer will do one million dollars annually in sales. But while they’re small, these local stores are really important because they know their regions. They know specifically what works in the local rivers and lakes and costal waterways. In contrast, our specialized knowledge is product-centric. Our company and our sales reps have lots of product knowledge, but the local fishing market knowledge is found in local stores. A final word on this retailing category is the fact that people who like to fish have been much slower to adopt to Internet product sourcing than in other categories.

Let’s talk about mixing fishing and business, or in your case, making fishing your business. How often do you actually get out and test the products you sell?
While I do get out on the water, I’m the head guy so I’m not out as much as our customer service and sales staff. Our product buyers and customer service team all fish a lot because they have to test lots of gear to figure out what we should buy. I tend to test the beach gear products more often than the fishing catalog.

Let’s start by talking big picture. Your retailing properties target outdoor pursuits that are restricted by climate seasonality across much of the North American continent? How does the seasonality of your customer base affect your operations?
We sell a good amount of gear twelve months per year. We sell all types of fishing gear, primarily saltwater, although we also sell freshwater and fly fishing. But saltwater is definitely our focus. While fishing sales increase considerably in the summer, the winter months are not exactly dead. The seasonality issue is certainly real but we balance that against a very wide product selection.
How has your customer base been affected by the economic downturn since 2007?
Although our number of orders for the 2009 fiscal year were up over 2008, average order value was down. We’ve done much better than the industry average, I think, in 2010.

Has their behavioral change affected your growth plans?
When economic times are tight, focus on the things that are working. At times, your focus could be to gain market share, not lose it. We’re trying to do a better job at everything we do. We’ve reduced our PPC spend as well as adjusted some of our other marketing activities. Inventory projection is always a gamble but we have reduced large inventory purchases to extend our cash resources.

Has it changed your plans for upgrades in technology, marketing activities or third party services that you use?
I’m constantly evaluating third party add-ons like Nextopia site search, and I probably get several phone calls per week from vendors pitching me on some third party tool or conversion booster. I like to listen to learn if we’re not doing something that we should. You really have to distinguish between what can help you and what will waste your time. If something comes out that is better than what we’re using, we’ll make the change.

Nextopia site search helps fishing enthusiasts find exactly what they need among the thousands of product SKUs on TackleDirect.com

Two things I noticed that you are not using are reviews or videos on TackleDirect. Why not? Reviews are available on some of your sites but not all of them. Are you planning on integrating them any time? What are you thoughts about user generated content (UGC) and online retailing?
It is time to get serious about both reviews and video across all of our sites. Incorporating reviews into Yahoo! Stores isn’t easy. We evaluated review technology for our Yahoo! sites a while back and it was premature. We’ve also found limitations with PowerReviews on the Yahoo! platform. To really do the job well, we’ll probably have to redesign our product layout because our current site design doesn’t work easily. It will take some effort. In contrast, the Magento site (IslandBeachGear.com) included review software from the beginning. Integrating reviews into that site was far easier.

Any comments on UGC?
One thing I’d really like to create is some kind of customer showcase. We receive hundreds of pictures every year. We’ve received everything from pictures of landing a 1,000 lb. blue marlin, to a variety of world record catches to little kids who caught something really special. My favorite, though, has to be a picture several years ago from three guys who went to Thailand. One of them landed a huge tuna using a very special and very expensive fishing reel that cost over $1,300. What I loved about the picture was that the boat they were sitting in, a very beaten up 14′ aluminum, was probably worth $50.

Come back in a couple of days for the second part of our interview with Patrick.

With the most recent Christmas rush receding well into history, we caught up with retailer Stefan von Imhof of VP Games to learn about the really important stuff you need to become successful.

(Be sure to read the in-depth interview “Niche Retailing Online in a World of Wal-Marts: VPGames.com Case Study” we did with Stefan earlier this year. Part 1 and Part 2)  

What are the three most important metrics that you track?

1. Sales are the most important metric we monitor.

2. Non-paid or organic search traffic is next and something I check daily. There is no acquisition cost and I’ve found that organic traffic has a 1% higher conversion rate than standard paid search. You can’t ask for a better combination.

3.The other metric I closely track is conversion rate. Big box retailers talk of 5-7% conversion. I would guess that our conversion is .5-1% point higher than the average ecommerce site our size thanks to our merchandising efforts. (I think the best way for a site like ours to raise the conversion rate is to increase our product selection and organize it better. That’s where Nextopia’s site search helps us).

For a new retailer just starting out, what are three things you would recommend they do?

a. Avoid inventory risk

Watch your inventory because you can really get burned. It is really easy to stock up on goods and not realize the increasing risk you’re running. In future, you may not be able to sell them to cover your cost. Worse, you may not be able to sell them at all.

b. Watch your variable costs

You should know your fixed costs, those are simple. It is your variable costs that can kill you. For example, you might be spending $15,000 per month on advertising and be able to make money with a 1.8% conversion rate. But what happens if your conversion drops to 1.2%? You might start losing money. So you have to decide whether you can afford the same advertising budget. (This actually happened to us several years ago. We used to spend lots on eBay because the conversion was great. But the recession arrived and our conversion plunged. Because we were rigorously tracking our advertising spending, we knew very quickly we couldn’t sustain it due to the decrease in sales).

c. Partner with a good web guy

You want to have control over how your website looks, feels and operates. Assuming that you don’t know HTML yourself (and don’t plan to learn it), I think it is really critical to get someone on your team who can handle in-house development. In my experience, the last thing you want to do is rely on a third party. Instead, find someone who knows everything about the web or just learn it yourself. Even a basic understanding of Photoshop, HTML, Javascript, XML, or Python will go a long way in doing what you want to accomplish.

Benefitting from hindsight, what are some things that you did that you wished you hadn’t?

The number one thing I would have done is avoid eBay. And by avoid I mean use it sparingly. eBay used to be a big part of our operations, but we realized that we really didn’t have any control over the eBay selling environment. We started out very reliant on eBay. It was very easy to do and addictive. A friend of mine once said that selling on eBay is like a crack addiction – it’s easy to get hooked, to spend all your time addicted to the simplicity and easy cash flow that the platform can provide. But all of the things eBay can do (and does all too frequently like raise fees, and impose strict selling rules, etc.) are completely outside of your control. If you don’t have control, you can’t fix things when they go wrong. You don’t want your company’s futures dependent on the success of other companies. Use eBay and Amazon, but diversify. Instead of putting money into other companies’ pockets, focus on growing your own garden and control your own destiny.

What single thing that you’ve done has had the greatest impact on your business?

The greatest impact was investing in technology. Doing this represents a bigger up-front cost but it is well worth it. It has paid off big time as we’ve grown. By investing in internal web design and Python programming resources, we’re retained control and flexibility to do what we want. For example, we produce pretty complex shopping comparison shopping feeds. Without the internal resources to create them, I’m not sure we would have been able to afford to outsource its development.

The proverbial magic wand…If you could wave one and invent some technology that would make your days easier, what would it do?

There are so many things to be done. What I’d like is have is a robot that could analyze our site, aggregate terabytes of customer behavior data and figure out the best ways to increase conversion and turn as many shoppers into customers as possible. Also, if the robot could make a killer breakfast each morning, that would be pretty cool, as well.

My Favorite Thing: what I most enjoy about working in my business

Having your own business, owning full control of your working life is the truest sense of freedom in the world. There aren’t many things that you can do where you have a more acute sense of freedom than you do as an entrepreneur…starting something from nothing. I love being able to travel on my own accord and I love the feeling of being in control of my present and future. Even on the bad days, when things aren’t going well, I enjoy working for myself because in the end, I love solving problems and finding solutions.

Here is the first of a two-part interview with Stefan Von Imhof, a business graduate of the University of Massachusetts (and proud Minuteman) who turned his love of video gaming into a thriving online retailing operation. He found some time from the craziness of holiday retailing to talk to us about why physically stocking video games is financial suicide, how independent retailers can compete against chain stores, and why your grandma may actually love to receive The Beatles Rock Band on Christmas morning.

Give us an overview of VP Games, your operations, and markets.
We started Vista Gaming Products, Inc. in 2005. I was selling a lot on eBay at the time and was looking for a solid market to get into. The Xbox 360 had just been introduced and there was huge demand for consoles. We bought two premium bundled units for about $500, and sold them on eBay for around $2,000 each. The economy and eBay were both, well, in a bubble at the time, so it was a good time to come up. We saw an opportunity and jumped in headfirst. I knew the retro gaming world pretty well so we started our product line around those products.

Santa Barbara is about 100 miles from Los Angeles, which just happens to be the mecca of the entire video game industry. I got some contacts there and told them I wanted to start selling their products. We sell products for all major gaming platforms, including Nintendo Wii, DS, Xbox 360, Playstation 3, PSP, Retro gaming platforms, and plenty more. After several years of continual growth, we’ve ended up with the 7-8 suppliers that we currently use. We have seven full-time employees and hire additional seasonal staff each October. Next year we plan on expanding our selection of toys, cell phone accessories, and BlackBerry/iPhone accessories.

Are you a video gamer?
I was big into electronic gaming as a teenager. I call it retro gaming but really, the definition of retro depends on your age. For some people, retro means Intellivision from the early 1980s. For others it is good old Nintendo. My definition of retro gaming is about the era of Sega Genesis to Super Nintendo. I include first generation Gameboys in this group, too. I was in college when Playstation came out, towards the end of my time at UMass the PS2 was pretty big, but I didn’t play very much because I was too busy. The industry has always been one of growth, but the first big explosion in electronic gaming came with the introduction of the Xbox 360. It was a huge event and though it seems like ages ago, it really isn’t. The Xbox 360 graphics were so much better than anything else that had come before, it was just groundbreaking. PlayStation 3 continued the growth of electronic gaming. But what really blew gaming into the stratosphere, though, was the Nintendo Wii. It introduced gaming to millions of people who had never played, and it brought people back into gaming who had given it up. Since 2005-2006, the industry has been booming.

What is the gaming industry like?
The gaming industry is very, very competitive. You can divide it into a number of product categories: consoles and systems, games and software, accessories and parts. Many of our competitors focus on games where the demand is highest but the margins are very small. A $60 game at retail will cost about $50 at wholesale. There is so little markup in new video game software and so much competition that it is insane to even try to compete on price for us. Everyone in the industry buys the games for the same price so there is little difference between what Gamestop, the leader in brick and mortar retailing, can buy a game for and what smaller retailers like we can. Furthermore, consumers know what they are getting with a new video game, so there is very little opportunity for differentiating yourself.

While we offer games as upsell items, the two primary areas we focus on are video game accessories and repair parts. Accessories provides a less competitive market, much higher margins, and a good opportunity to compete against large retailers like Wal-mart. Modding or customizing your gaming console is really popular so that’s one area where we concentrate our efforts.

Repair parts are another great area. Gaming consoles are expensive computers and can break in lots of ways. At one point, the Xbox 360 had nearly a forty percent defect rate! Although they are essentially computers, you can’t really take those things to a regular PC repair shop. You either find a video game repair shop or do it yourself. There is a huge market for repair parts and margins are very good. Parts and repair kits are a specialty item, and not widely available in brick and mortar or big box stores. They’re also generally very small and cheap to ship so they are an ideal category to sell online.

What makes the video gaming industry unique?
I can’t think of any other industry where inventory risk is as high. Video games are probably the fastest depreciating asset in the world. Most games lose their value immediately after sale. Three months after a game has been released, it can already have lost as much 30% of its value. Within a year, the value can drop by half. Can you think of anything else that loses half of its value in 12 months? As the last thing you want to do in this industry is risk money in inventory, you want to drop ship almost all gaming titles. Although we sell about 5,500 games, we actually only keep about 30 in stock at any given time. Accessories are a completely different animal in that they don’t have such a short lifespan, don’t depreciate as quickly (or in some cases at all), and have a much higher resale value when used.

How do you stand out in the marketplace as a small retailer in a very competitive category?
Firstly, if people think small retailers can’t compete against the big guys – that’s baloney. Today there are many ways to carve out a competitive advantage. Focusing on accessories and repair parts rather than gaming software is one way. We’ve definitely developed both product categories over the years. We didn’t plan on it but both have really contributed to our bottom line revenue. The accessories market is driven by online activity. Big box stores really only carry a small variety of parts and accessories. They typically carry basic bundles that are really expensive. In contrast, we have a really large selection of controllers, cables, adapters, cases, skins, memory units, cradles, docks, and other cool stuff. A lot of “long-tail” inventory that big box stores don’t carry because they take up so much room, don’t move quickly, and are expensive to house.

In general, we’re much cheaper. It might be tough to believe if you don’t shop online, but yeah, most online retailers are just plain cheaper than brick and mortar stores – much cheaper than Gamestop, for example. Not everyone lives near a shop that sells video games, and not everyone can afford to pay brick and mortar prices. So if you look online, you’ll find us. We use Adwords, Yahoo Search Marketing, Bing Cashback, eBay, and Amazon. We do a lot of comparison shopping engine feeds, coupon websites, affiliate marketing and loyalty marketing.

How has your customer base been affected by the economic downturn?
There is no question it has affected spending. Some people think that gaming is recession proof but a more accurate description would be that it is recession resistant. People are not buying games like they used to and new games are selling slower. The used game market is, unsurprisingly, doing phenomenally well.

Has consumers’ reduction in purchasing affected your growth plans?
We’ve cut back on a lot on expenses. We reduced labor and sent a lot of human interface tasks and database work to India and Chile, taking advantage of the global economic workforce. Next year we are looking to outsource more of our customer service overseas.

What did you do to prepare for this holiday season?
Video games are a huge part of Christmas gifting and the annual craziness gets going with Black Friday. From then on, it is absolutely crazy until the end of the year. 18 hour days and coffee bean breakfasts are the norm. It’s so important to us that we literally start preparing for the next shopping season the day after Christmas. We truly prepare all year long because holiday revenue is so incredibly important to our business.

One of the biggest things we’ve done this year is really refine the search functionality at vpgames.com. We have about 9,000 SKUs and we need to ensure that customers are finding what they are looking for quickly and easily. An intelligent site search solution (like the one we have from Nextopia) is absolutely critical.

Let’s talk product. The Beatles Rock Band. What do you think of it? Is it a popular item?
It is awesome. The reason I think it is selling so well is that it transcends age groups. It brings people together and is something that families can play. Everyone in the family can have a role and everyone knows Beatles songs. Games like Guitar Hero and Rock Band have been huge in bringing even more people into the gaming industry.

What else do you think will be hot this year?
The big games this season are Super Mario Brothers for Wii, Call of Duty Modern Warfare 2,  and DJ Hero. All completely different games, all extremely popular. Video games are like movies or music: there is something for everyone. I love electronic music so I really like DJ hero. I just wish I had more time to play it!

Thanks Stefan. Come back for the second half of our interview in which he discusses the real value of Twitter for a retailer and why Black Hat SEO just isn’t worth it.