PRINT THIS STORY:

CHANGE TEXT SIZE:

Net profit

999Central-Finds-discount-model-pays-offs

By Dave Bodamer

After the ball dropped in New York City’s Times Square on Jan. 1, 2000, the bubble burst for many e-tailers.

They learned that they could no longer continue to promise profits three years down the road and pile up massive losses in the short term while expecting capital to keep coming in.

E-commerce companies have been forced to adapt and some, like upstart 999Central, are showing that it is still possible to turn a profit today instead of tomorrow.

The basic concept behind 999Central, an “internet discount superstore,’’ is to sell products all priced at $9.99. These items include software, movies, DVDs, and, in the not-too-distant future, toys and books.

The company, which is a three-and-a-half person operation in Elmsford, N.Y., uses a no-frills, easy to navigate Web site to sell its wares. To cut costs, much of the design and technology aspects of the operation have been outsourced.

Headed up by CEO Arthur Frischman, the small firm has two full-time employees and one part-timer, who take care of taking orders, packaging goods and mailing them out.

“We are unique in the industry. While we fight for the dollars of software, DVD and other retailers, along with ‘virtual malls,’ there are no other discount companies on the Internet as wide-based as we are. This is basically because for most Internet companies, sales volume is the main focus, not profitability. In our case, profitability and growth are our only focus,’’ explained Frischman.

Frischman, who spent six years in the software industry with a number of start-ups, said he first came up with the idea for 999Central while he was working for one of these firms.

He noticed that whenever the company made a product, small dealers would buy their excess software at bulk prices, and then sell it at software shows for a tidy profit.

Frischman said he thought that selling closeout items through the Net would make a lot more sense.

“The way we make money is easy. We buy items at bulk, put them online, put them in the warehouse and when it’s sold, it’s shipped,” he said. “We’re not worried about competitors. We’re not worried about product pricing points. We’re not worried about adjusting prices, so we don’t have to hire anyone to manage these things.’’

By keeping the operating costs so low, it’s been easier for 999Central to turn a profit. Frischman says that’s the difference between his venture and other online retailers.

In most cases, he explained, e-tailers try to recreate brick-and-mortar stores online, or they add bells and whistles to draw attention.

“Companies feel like they have to show that they are high-tech,” he said. “I’d bet 99% of people who come into a site don’t care about high-tech graphics and functions. Most people are not used to that. They don’t need it, and I don’t believe they want it.”

His company is different, he said, because it is aimed at building something that could only function as an Internet site and it’s built to function very simply. It does not make sense to go into a mall and open a $9.99 store, but it is the perfect operation for the Net, he added.

The company has an e-mail database of 10,000 and has been approved as a customer-certified merchant on BizRate.com, a leading consumer resource that provides merchant ratings and information, and was awarded a “Top Service’’ label by Yahoo.

“The closeout business is one of the few things conducive to selling over the Internet,” Frischman explained. “The cost is low for these types of products and a store wouldn’t want to use up retail display space for $9.99 titles. But shipping them from a storeroom takes up a lot less space.’’

The company has also found a way to save money in its packaging. The products it sells are all shapes that are easy to ship and can be sent in boxes provided for free by the U.S. Postal Service. The time saved on packing and the money saved on boxes both contribute to the operation’s profitability.

The company’s goals are also realistic. It is not attempting to be an Internet behemoth and so there is not a lot of capital invested in building massive warehouses or technological infrastructure. The company’s goal is to make profits now by selling as many products as cheaply as possible.

The pricing structure is also a cost-saver. The company spends no time or resources trying to figure out what the optimal price is for each item. The goal is to move merchandise and not become enamored with one product or another. It also does not use back orders.

“We’re not competing with Amazon or Barnes & Noble and we don’t sell music because $9.99 is not that special compared to what other sites can offer, unlike our other categories,” Frischman said.

To test his theory, Frischman started 999Software in May 1999 to sell closeout software. He also registered a handful of other domain names for other products. Two other sites selling books and movies were started soon after and Frischman merged the three into 999Central in July.

In its first full year of operation, the company did about $1 million in sales and made an undisclosed profit. The modest operation can handle between 150 and 200 orders a day, he said. On top of that, the company guarantees that any order filled by 2 p.m. will be sent out that day.

To create incentive for larger orders, the company charges a flat $5.00 shipping rate. And since customers know that a product they see at the site today might not be there tomorrow, they make a lot of impulse buys.

Going into Christmas with industry pundits expecting an 85% increase in online sales, 999Central expected to do 20 to 30 times as much volume as it did in 1999.

Frischman said he sees the venture expanding as well. The company can move into other product categories. When Sony releases its Playstation 2 console in the United States this fall, he expects original Playstation games will be available for closeout sales. The video game segment should be a ripe market for several years with other major players including Nintendo and Sega as well as new entrant Microsoft releasing new systems.

with other major players including Nintendo and Sega as well as new entrant Microsoft releasing new systems.

“We’re not competing with Amazon or Barnes & Noble and we don’t sell music because $9.99 is not that special compared to what other sites can offer, unlike our other categories."