April 10, 2005
The Rebirth of a Dead E-Commerce Site
By Evan Schuman, Ziff Davis Internet
Opinion: Here's the tale of how an outsourcing trend is bringing back a defunct Web site to seek revenge on Target, Sears, Kmart and Marshalls.
Back in May 1999, near the height of the dot-com insanity, one of a host of media darlings was an underwear sales dot-com called Underneath.com. Sending boxer shorts to various reporters, this dot-com was written up in BusinessWeek and the New York Daily News, and it made Time Magazine's picks for the best e-commerce sites.
All this for a company that—at its height—had six employees and barely broke out of six figures of annual corporate revenue, according to then-CEO Jeff Johnson. But none of that mattered.
The Web was then seen as the great equalizer, allowing tiny garage players to compete on an equal footing with multibillion-dollar commerce giants. The owner of Calvin Klein's underwear unit offered to buy Underneath.com for $3 million, Johnson said.
Well, the dot-com bubble burst in mid-2000, and by May 2002, Underneath.com closed its doors. A brief run for a briefs company. Those times are gone, many concluded, and it's back to big business—the pre-Web ways.
One of those apparel mavens who knew the good old ways was Jack Stone, whose parents started his company—Stone International—back in 1933. After Underneath.com's demise, Stone's private-label underwear business, based in Columbia, S.C., picked up and he found himself selling $60 million worth of underwear to other old-fashioned, nonvirtual outfits including Target, Sears, Kmart and Marshalls. (No Wal-Mart, and Stone said that was quite deliberate.)
Fast-forward to 2005. Brick-and-mortar retailers have fallen in love with another Internet technology and have found themselves being able to communicate and share data with global partners—even tiny ones—with never-before-experienced ease.
In rapid succession, Stone saw those prized retail accounts decide they could outsource their underwear business to Asian companies for a tiny fraction of what his American workforce demanded.
What did Stone do? He made some calls, found Underneath.com's Johnson—doing entirely unrelated work—and made him an offer: Come back to the underwear biz and relaunch Underneath.com, this time bankrolled with Stone's non-Web-earned dollars.
If retailers such as Target and Sears could use direct deals with cheap overseas labor to cut their costs, Stone figured that he could use the Web to cut his. Can an older and wiser Web site beat the big boys this time?
When Stone saw the direction the retailers were moving in in 2004, he started planning his next moves. The first thing he did was invest in fellow South Carolina company Byte Software, which specializes in apparel software, particularly EDI and other supply-chain magic. Johnson dubbed the combo "the South Carolina cluster."
That software allowed Stone to "manage at an SKU level apparel all through the supply chain," but it didn't give him the connection to the consumer, which was his end-run plan against the retailers. If they bypassed him and went straight to his stitchers in Asia, he'd bypass them and sell his popular underwear lines straight to the retailers' consumers.
Stone saw a resurrected Underneath.com as his ticket to those consumers.
The funny thing is that all of the players in this saga saw their rise and fall influenced by how well they used technology. And Stone contends that the large retail chains are "in for a pretty rude awakening" as they increase how often they are dealing directly with overseas stitchers.
Why a rude awakening? The chains will be absorbing more of the risk, which is standard as corporate go-betweens are eliminated. That risk can be mitigated and managed by wise use of supply-chain technology and accurate predictions of demand.
Accurate predictions? Wise use of technology? Stone says you can't use those phrases and most retailers—Wal-Mart not included—in the same sentence.
Target, Sears, Kmart and Marshalls—which Stone painted as "all equally bad"—"would give us 11-week forecasts and you would not believe how poor they are in predicting their own businesses."
Underneath.com's Johnson said market realities gave Stone little choice but to fight back. The retailers "had pushed them out of the way to go overseas directly," Johnson said. "We're now going to carry all of the brands that the department stores were, plus we will trickle in our own brands."
Underneath.com's brands (such as Ntense, positioned as underwear for athletic people) were the ones that they had been private labeling for the retailers. So, the customized underwear that consumers had been purchasing under the retail names will now be available to them directly—at presumably lower prices—via Underneath.com's site. Stone and Underneath.com "will be using all of our infrastructure to sell directly to consumers and undercut the retailers."
Johnson makes an interesting—although dubious—projection that a lot of the more interesting, now-defunct Web sites will be brought back to life, now that the Web environment is more stable and consumers are more willing to embrace e-commerce.
"I suspect you will see many more of the Internet pioneers, like Underneath.com, coming back online now that Google and Amazon.com are demonstrating real success and consumers are using the Internet with more ease and comfort," Johnson said. "Shopping from your home in your underwear for underwear is a wonderful convenience."
The greatest irony: A 72-year-old apparel corporation is turning to a defunct Web startup because of its depth of experience. That's like looking at Marc Andreessen as a village elder. Even more frightening is the fact that, in effect, he now is.