FOOL PLATE SPECIAL
An Investment Opinion
Coldwater Creek Hardly a Chilling Prospect Dave Marino-Nachison (TMF Braden)
December 17, 1999
Don't be fooled by the hype surrounding out-of-nowhere, mega-funded e-commerce start-ups that go from zero to $60 million in advertising costs in a matter of moments and wave away mounting losses as a matter of course on the road to eventual world dominance. It is possible to point-and-click your way to profits, and apparel and accessories catalog retailer Coldwater Creek (Nasdaq: CWTR) is just one example of how it's done.
A July Daily Double on Coldwater Creek tells much of the story, and it's recommended re-reading. The stock, for the record, has risen another 30% since we last trailed our fingers through the company's stream.
To recap and update, Coldwater Creek did something very smart: It used the Internet not as a desperate play to create a shaky new business but as a carefully applied tool to make its own business work better. While trimming back expensive catalog mailings and bidding good-bye to its worst-performing division, it slowly moved its clearance operations online before getting all its goods into cyberspace in late July (about three weeks after the aforementioned Double).
Since then Coldwater Creek has seen Internet sales take off as both new customers and old visited the site with credit cards at the ready. Improved consumer profiling has meant the remaining catalogs have been more profitable. And a $1 million -- that's all? -- advertising campaign has kicked in just in time for the holiday season.
Preliminary signs are encouraging. Today, the company announced fiscal third-quarter results (ended Nov. 29). Online sales, which jumped to nearly $10 million from $81,000 a year ago, made up for most of the company's sales growth, while gross margins improved and operating margins held fast despite increased Web-related promotional expense.
"Internet sales represented nearly 10% of our overall third quarter sales and momentum on the Web built significantly during the course of the quarter," said CEO Dennis Pence in a statement. "We received approximately $1 million in Internet sales orders over the three-day Thanksgiving weekend, representing approximately 13.5% of total sales that weekend. We remain very excited about our additional opportunities during Christmas and beyond in this channel."
What Coldwater Creek has done is reposition itself not as an Internet business but as a "multi-channel business." It's got some retail stores, though it's closed some clearance outlets as the online business has grown. The catalog operation is still going strong. And the Internet division -- well, it's the reason for this article. The opportunities for crossover marketing on top of traditional advertising are fantastic, and it costs a heck of a lot less to mention coldwatercreek.com in your own catalog than it does to pay an advertising agency millions to write a bad television commercial.
In much the same way investors have recently focused on the pure-play business-to-business e-commerce-enabling companies rather than the companies actually using the technology to improve their ability to create value, a similar phenomenon often overtakes e-commerce speculators. Coldwater Creek should illustrate why that might be a mistake.
Coldwater Creek Message Board
Daily Double, 7/1/99, Coldwater Creek