Seeing Green

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While other e-commerce strategies wilt, Garden.com is cultivating a whole new business model.

In a virtual warehouse somewhere between Austin, Texas, and the rest of the world, Garden.com has dusted off the old mail-order business model and retrofitted it for the new economy. But instead of merely replacing a paper catalogue with an electronic www.garden.com one, the startup has ditched the concept of a centralised warehouse as well. "The Internet allowed us to tie our supply chain to small businesses throughout the country and get them to march as one," says Jamie O'Neill, Garden.com's COO. "That let us minimise inventory costs and maximise performance."

Growth Potential

Headquarters: Austin, Texas

Warehouse space: 9,000 square feet

Employees: 270

1999 Sales: US$ 8.8 million

1999 Net income: ( US$ 26.4 million)

IPO: Sept. 16, 1999

Products: 23,000

Suppliers: 80

Members: (customers who have registered e-mail addresses) 1 million Packages shipped per day, average: 2,000 Packages shipped per day, holiday peak season: 5,000 to 8,000 Hours from order to shipment (for hard goods): 16 O'Neill and two B-school friends, Cliff and Lisa Sharples, took aim at the highly fragmented gardening industry because it was large - at US$ 46.8 billion, it was more than twice the size of the book industry that Amazon.com took online - and it was ripe with opportunity. The difficulties of warehousing live plants had prevented any single player from capturing more than 1 percent of the market. "We knew we had the chance to build the biggest gardening brand in the country," says O'Neill.

Rather than attempt to consolidate live plants in a central warehouse, Garden.com decided to use IT to instantly move order information out to its suppliers - and to have them ship directly to customers. "We located the best gardening suppliers and signed them to two-way, mutually exclusive online agreements," says O'Neill.

To offset the expense of multiple shipments for orders filled by different growers, Garden.com saves money by having its suppliers carry nearly all of its inventory. Only gift items - 15 percent of the product line - are warehoused and shipped from Austin. The company also ships exclusively through FedEx.

Garden.com serves as the front end of the supply chain (planning, merchandising and marketing to link customers and suppliers online) as well as the back end (billing customers and paying suppliers). The company also picks up shipping costs and handles returns and complaints. And specialists in its call centre field questions from gardeners.

Although Garden.com has yet to be profitable, its business model holds promise. Says O'Neill, "By creating a virtual warehouse, we not only turned the L.L. Bean model on its head, we turned the Amazon.com model on its head."