David Yeom and Brian Lee were chowing down at a Carl's Jr. last spring, discussing Asian-specialty dollar stores — those strip-mall shops stacked with kitchen goods and other household items sold for cheap.
They figured a lot of people, like themselves, had pawed through the bargain bins, looking for gems among the junk — but, for whatever reason, didn't really mention that fact to anyone.
"We can't help ourselves. … Everyone loves getting a deal," Yeom said. "We just don't like that feeling of being cheap or the experience of poor merchandise." It's the thought "I don't want to run into anyone" at such an establishment, he said.
To save like-minded individuals from the embarrassment of being caught live in a dollar store, and maybe make a buck in the process, the two came up with an idea: Bring the dollar store to the Internet.
Well, more like a two-dollar store. On Thursday, Santa Monica-based Hollar Inc. started putting online thousands of toys, clothes, household goods, party supplies and other stuff at $2 apiece, with a few special items costing about $5.
Yeom calls it "the price sensibility of 99 Cents meets the fashion world … where it's all about design and aesthetics."
Industry experts are dubious about the moneymaking potential, given the merchandising challenges and shipping costs that exceed the price of any individual item.
Success in this case demands innovation, but not the kind in which one big idea appears in a flash of inspiration. This endeavor will require choosing among the most innovative ideas based on Hollar executives' experience in the retail industry and piecing them together to make what seems like a crazy idea work.
"We are this melting pot of the best, incredible companies we've helped build or that we really admire or have close friends in," said Yeom, Hollar's chief executive. "We're not 21-year-old, fresh-out-of-college kids. ... We're all old dinosaurs."
Dinosaurs in the tech-start-up world anyway — the founders range in age from 37 to 44.
Yeom previously ran marketing and business development at Honest Co., a high-end brand of diapers, cleaning products and other household items that was valued at $1.7 billion in a recent private financing.
Lee is Hollar's executive chairman. He co-founded LegalZoom, ShoeDazzle and Honest, where he will remain as CEO. Eddie Rhyu, a ShoeDazzle veteran, is chief creative officer. Thanh Khuu, formerly of ShoeDazzle, is chief technology officer. And John Um is chief operating officer, the former strategist at physical dollar-store chain 99 Cents Only Stores.
FOR THE RECORD
An earlier version of this article referred to Eddie Rhyu as a former employee of Honest. He formerly worked at ShoeDazzle.
The founders agreed that exceptional visual presentation is key to drawing online shoppers to dollar-store merchandise.
"We brought in a team that has a lot of experience in production, photography, design and copy writing … making sure that even though it's a $2 product, it feels like a $20 product," Rhyu said.
Visitors to Hollar.com and a forthcoming app scroll endlessly through a personalized feed of products. They'll see $2 plaid scarves, rustic photo frames, Hot Wheels sets and more — on small, individual rectangles laid out as a grid, similar to Pinterest's design. The number of users of Pinterest, a social networking site based on posted images, has doubled over the last two years to more than 100 million, mostly women.
Hollar expects most of its customers to be women as well. To make sure the company name carried female appeal, it surveyed women ages 20 to 50, and Hollar stood out. "Every time you say that, it makes me smile," one tester said.
Smiles are nice, but what about profits?
Sucharita Mulpuru, an online shopping analyst at consulting agency Forrester Research, has her doubts. Sourcing and shipping low-cost products at a profit is a tough business. She notes that at Groupon Goods, the company's discount-products store, profits are scant though sales are soaring.
"If it were that easy to just sell all the little tchotchkes at a grocery store checkout online and ship them, someone would have done it by now," Mulpuru said. She predicts prices on Hollar will have to rise.
The potential for revenue is certainly there: The nation's leading dollar stores had sales of about $40 billion last year, nearly all from physical locations.
Yeom said Hollar's success depends on "creative sourcing" with "very favorable" costs. Co-founder Um's experience at 99 Cents Only Stores and knowledge of the discount-goods supply chain could prove crucial. Goods will include brand-name merchandise out of season or out of favor, supplemented by purchases from contractors in China.
To keep shipping costs reasonable, Hollar imposes a checkout minimum of $10 — or $25 for free shipping. Yeom borrowed the idea from Boxed.com — an online retailer similar to Costco run by a friend — as a way to avoid unprofitable orders. He figures his customer base can afford the minimums, and the free shipping choice will push the average order significantly over $25.
Bundles and kits provide another way to fill virtual shopping baskets past the minimum. A bundle might offer all the $2 supplies you need to throw a "Frozen"-themed kid's birthday party, for example. Hollar also expects to sell services, like assembling gift bags for a birthday party.
Yeom said "a lot of moms will gravitate to our website" for those features.
Products will resemble what's in a Dollar Tree or 99 Cents Only Store. Many are already sold online, but might go for $20 at Amazon.com, Yeom said. But neither Amazon nor the offline stores will have all of what Hollar does. Products, he asserts, will include the cool, the weird and the essential — though no perishables.
Spokespeople for Dollar General, Family Dollar and 99 Cents Only Stores declined to comment for this story. Kirsten Green, a Hollar investor who followed dollar stores as a stock analyst, said old-line businesses just haven't had the impetus to go online in a big way as their physical businesses have hummed along.
Hollar raised $5.5 million in funding this summer, including from Lee's BAM Ventures, Lightspeed Venture Partners (which also invested in Honest and ShoeDazzle), Pritzker Group Venture Capital and Green's Forerunner Ventures.
Jeremy Liew, a partner at Lightspeed Ventures known for being entertainment app Snapchat Inc.'s first investor, said he's betting that the Hollar team's experience will enable it to adapt if its initial strategies don't pan out. But he's also guessing consumers will come running if the products stand out as much as he hopes.
"It's a big market. It's a big idea," he said. "The biggest unknown is what the average basket size will be, and there's only one way to find out."