Before the Internet was a mandatory second storefront for retailers and was the first stop for shoppers, and before broadband was mainstream, GSI Commerce was already building online showrooms for retailers.
“When we started in e-commerce, the total industry revenues were 5 (percent) to 10 percent of what they are today,” says Michael Rubin, president and CEO of the King of Prussia-based company. “The big challenge was establishing (a business) in a new industry.”
Six years ago, when Rubin launched GSI from the e-commerce division of his company, Global Sports Inc., the industry was young and its inherent challenges steep: Start-up capital for technology was costly, many retailers weren’t hip to online sales and competition was stiff. But this didn’t prevent Rubin from acting on his intuition.
“We saw a gigantic business opportunity, and we wanted to build a significant infrastructure that could handle that,” Rubin says.
To fund the venture, GSI raised nearly $200 million in capital from three primary investors, and Rubin allocated funds toward infrastructure, fulfillment and cost centers, and intellectual capital — people. In fact, he hired a few hundred employees before GSI earned its first dollar. The company lost money for the first four years, but Rubin was confident that GSI’s sales pitch would win over big-time retailers and that he would recoup this loss.
The key to winning over high-profile retailers was to sell GSI’s e-commerce solution, and Rubin knew his vision was different.
“It wasn’t that (retailers) lacked the capital (to start their own e-commerce divisions), it’s that they lacked the experience,” Rubin says. “We timed the market perfectly with a great offering — e-commerce was needed, and we solved the problems that CEOs were having in 1999.”
GSI’s offering consisted of a neatly wrapped e-commerce package. As GSI’s partners, big-name retailers no longer had to worry about staffing an e-commerce division or building internal systems to support online sales. Large retailers’ assets are branding and products; GSI’s strengths as a soup-to-nuts e-commerce provider are its technology platform, fulfillment and customer service capabilities.
“Our sales pitch today is the same as it was when we started the company,” Rubin says. “E-commerce is really big, but it will never be more than 10 percent of our partners’ businesses, and for that reason, by building a superior platform and leveraging (our technology) across all of our partners, we can give them each better e-commerce capabilities.”
