Branching out from techie heaven
Newegg Inc., a City of Industry company that sells computers and electronic gear, has quietly become a major online retailer by developing a fervent following among techies. Its motto pokes fun at the paradox of its profitable obscurity: “Once you know, you Newegg.”
The company is privately held, which means it doesn’t have to submit certified financial statements to federal regulators. But its executives said Newegg reaped about $1.5 billion in sales last year, putting it in the top echelon of e-commerce sites.
After six years of catering to its core -- young men who spend as much as $3,000 a year on PCs, data storage equipment and other technology -- Newegg is trying to attract the mainstream customer.
The company says the approach appears to be working. Boding well for a strong holiday quarter, the online store reported 1 million visitors the day after Thanksgiving. The following Monday, a big Internet shopping day, the firm said it shipped more than 60,000 orders and saw revenue jump 89% compared with the same day last year.
“We’re never going to forget the original guy who built our business,” said Bernard Luthi, Newegg’s vice president of Internet and product marketing. “But we are looking at ways to make the site different, to make the soccer mom feel comfortable.”
Doing both might be hard. Newegg.com still feels like a young man’s hangout, where geeks can satisfy their need for technical specificity.
Computer aficionados, such as serious video-game players, go to Newegg to buy one-off computer parts including motherboards, modems, hard drives and fans so they can build their own souped-up machines. Through Newegg’s online forums, guys addicted to gaming can debate the merits of the latest consoles or ask one another whether it’s possible to pay enough attention to both their children and their Nintendo Wiis. (The consensus: Gaming suffers at first, but the kids eventually become gamers too).
Newegg was founded in 2001 by Fred Chang, a Taiwanese immigrant. Its predecessor was a mail-order company called ABS Computers, based in Whittier, that made high-end PCs and gaming systems. Customers indicated that they’d rather buy components and make their own computers. So even though the Internet bubble was deflating, Chang launched a new company and called it Newegg, to signify a fresh start.
“We saw ourselves as the new birth of e-commerce done the right way,” said Lee Cheng, the firm’s general counsel.
In an unusual step for a young company, CEO Chang makes it a policy to never grant media interviews. The company said he wanted to stay out of the spotlight and focus on running the business.
Chang’s strategy was to sell items at cut-rate prices and provide exceptional service so customers keep coming back. Analysts say Newegg was able to get a jump on traditional retail stores because it didn’t have to worry about whether Internet sales would cannibalize its bricks-and-mortar operations.
Newegg was one of the first online stores to post customers’ reviews next to the products it sold, said Sucharita Mulpuru, senior retail analyst at Forrester Research.
“It’s certainly easier to start with a niche of consumers and really focus,” Mulpuru said. “You can always expand.”
At Newegg, most functions happen in-house. Most merchandise is kept in its warehouses in several Southern California locations, as well as in Memphis, Tenn., and Edison, N.J. Owning the warehouses helps Newegg fulfill its promise that everything listed on its website is in stock and can be delivered within three business days.
Newegg doesn’t outsource customer service either. Its call center is in a warehouse in Whittier, and Newegg’s online chat and e-mail customer service centers are based in two Chinese cities, Chengdu and Shanghai.
“The thought of putting our fate in someone else’s hands, that’s not what we wanted to do,” said Howard Tong, Newegg’s former vice president of marketing, who left the company a year ago.
Chang sees Asia as a big market for customers and employees. He hired engineers in China and Taiwan to build and maintain the e-commerce site. Today 800 of Newegg’s 1,800 employees work in China, and the company plans to expand the Chinese version of its store in 2008.
Without shelf-space limitations, Newegg offers a wide variety of products, including 458 types of motherboards and 493 video cards.
Newegg said it made its first billion dollars in annual sales within four years, with more than 70% of its revenue coming from repeat customers. Newegg said it had been profitable after taxes since it was founded, although it declines to release detailed figures.
“It took Wal-Mart many years to hit the first billion in sales,” said Kurt Peters, editor in chief of Internet Retailer. “Newegg has created a site that knows what its customers want.”
In 2005, Newegg raised $30 million in a financing round led by Insight Venture Partners. In the last two years, there has been talk on financial blogs of Newegg going public, but the company said it had no imminent plans to do so.
Some competitors privately bristle at Newegg’s rise, complaining that its prices are so low that the company must be selling some products at a loss. But Newegg says it can often offer lower prices than its competitors because it negotiates better deals with manufacturers by virtue of its sales volume and it runs a lean operation. Executives fly coach and stay in hotels that cost no more than $130 a night.
To be more consumer-friendly, Newegg redesigned its website this year to make it easier to navigate. And rather than simply post technical specifications as it once did, it displays photos of the products it sells. It’s also buying newspaper, radio and TV ads.
Its products reflect the strategy shift, with bread machines and coffee makers now mixed in with the microprocessors and hard drives. In this mostly male bastion, there are now pictures of women using cameras, microwaves, music players and teakettles.
Newegg is unlikely to soon become like Wal-Mart Stores Inc. or Amazon.com, a place for everything, including electronics, cosmetics and bedding. It has recently retreated on selling a few products, such as DVDs.
It’s still growing fast. Although the company outgrew its corporate headquarters and is looking for new space, its executives say one thing is certain: Newegg won’t open a bricks-and-mortar store.
--
(BEGIN TEXT OF INFOBOX)
Online leaders
Top 10 Internet retailers selling computers and consumer electronics, by 2006 sales
1. Dell Inc., $3.97 billion
2. Hewlett-Packard Co. Home & Home Office store, $3.05 billion
3. CDW Corp., $2 billion
4. Sony Style, $1.69 billion
5. Newegg Inc., $1.5 billion
6. Best Buy Co., $1.42 billion
7. Apple Inc., $1.14 billion
8. Circuit City Stores Inc.,
$1 billion
9. Systemax Inc. (Tiger Direct), $819 million
10. PC Connection Inc.,
$514 million
Source: Internet Retailer magazine
