2007 Virginia Small Business Success Story of the Year, Northern Virginia FinalistFebruary 01, 2008 12:01 AM
by Phaedra Hise
For Virginia Business
David Craig was watching his profits disappear over something he couldn’t control — carpet installers. As the owner of Winchester Carpet and Rug, Craig relied on subcontractors to install wall-to-wall carpet. If they damaged walls or bungled the installation, Craig had to pay for repairs or re-do the job. “If you do everything right, but an installer makes a mistake, all your profit is gone,” he says.
Casting about for an alternative, Craig teamed up with Randy Kremer in 1997 to start Rugs Direct. Bulky area rugs may seem like an odd item to sell online since customers often want to see and touch textile products. But Kremer says the idea’s potential was clear to him from the start. “Think about it,” he says. “Rugs are easy to ship, breakage isn’t high and they won’t get damaged.”
Not only did the company get e-tailing right, but the success of its Web site led to a nationally distributed glossy print catalog and three brick-and-mortar stores in Winchester, Richmond and Fredericksburg.
Selling over multi-channels has boosted sales growth. When it started with just a Web presence, sales brought in a couple thousand dollars a month. By 2007, the company’s annual revenue hit a range of $25 million to $35 million, says Kremer.
From the beginning, CEO Craig and company President Kremer realized that selling rugs online had one big advantage over retail locations — offering a wider selection. But the approach was a tough sell. “The Internet at the time was kind of the Wild West, featuring rock-bottom prices,” explains Kremer. “Suppliers were worried that if we put their rugs online, they couldn’t sell them elsewhere at good margins.”
Consequently, not many suppliers signed on in the beginning. Determined to make their new business model work, the team attended an industry trade show and secured meetings with 20 carpet suppliers. They promised that Rugs Direct would sell everything online at full retail price. “We explained that a higher margin was better for us,” says Kremer. “We run an expensive operation; the Internet is an expensive place to market.”
Twelve vendors responded in 2001, and the increased inventory immediately boosted sales. By 2003, the company saw an astounding 600 percent revenue growth, partly from opening the first Rugs Direct branded retail stores. Smelling success, other suppliers signed on. Rugs Direct now employs 48 people and lists more than 60,000 different products online, including rugs from such major lines as Karastan and Mohawk.
The company’s Web site gets 170 million hits and sells 12,000 to 15,000 items a month, says Kremer, with the average order about $350. Rugs Direct has added interactive features, including an industry blog and unedited customer review section.
At a time when other retailers are scaling back on print mailings, the company also runs a profitable catalog division. Although the catalog lists only about 200 rugs, Kremer says it more than pays for itself in direct orders and increased traffic to the Web site.
About 60 percent of the company’s annual revenue last year came from Web sales, 23 percent from the catalog and 17 percent from stores.
Although no new store openings are planned this year, customer feedback shows they are an important part of the marketing mix. Theresa Cornwell of Winchester has furnished her house with rugs from Rugs Direct. “I can browse their Web site online, then go into the shop and take a rug home to try it out. The selection and pricing are incredible for such a small store,” she says.
Soon customers will have more to shop for online since Rugs Direct is expanding its home décor line to include bedding and household accessories. Yet rugs will remain its bread and butter. “We feel like we own this niche,” says Kremer.
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