1-800-Flowers.com Locks Competition Out of AOL

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The contract extension between 1-800-Flowers.com and America Online was almost as much about locking competitors out of prime online real estate as it was about increasing sales, said Chris McCann, senior vice president of 1-800-Flowers.com, Westbury, NY.


"It's hard to quantify, but it's certainly a component of it," he said. "I didn't want to allow my competitors to grab property that I have confidence in, and start to slowly build their business." 1-800-Flowers.com estimates it has more than 60 percent of the online flower market. AOL claims more than 18 million members.


The two companies announced yesterday they had signed a four-year deal worth $37 million under which 1-800-Flowers.com will continue as the exclusive fresh-cut flower merchant on AOL's proprietary service and its Web site AOL.com until 2004. Also, 1-800-Flowers.com will become the exclusive fresh-cut flower merchant on Netscape's Netcenter, CompuServe, Digital City and ICQ, and for one year will become the exclusive third party marketer of gardening products across all six of the AOL properties.


"As I invest heavily in off-line advertising over the next two years, I'm going to be driving people onto the Web," said McCann. "And I don't want to drive people onto the Web and have them intercepted by a competitor."


Case in point: Chicago-based florist FTD.com's contract with Netcenter runs until the week before Valentine's day, at which point it will be 1-800-Flowers.com's turn to hang its shingle there under terms of the new agreement, said McCann. FTD could not immediately be reached for comment.


"AOL by far has been the best performing relationship we've had online, especially in the portal arena," said McCann declining to offer details on the company's return from the deal which began in 1994.


Much of the benefit, though, has come in the form of branding. "If you just look at the brand positioning we've gained, we're clearly seen as one of the leading e-tailers on the Net," said McCann. "AOL is the portal for new users. And when they come online, they see 100-Flowers.com, and we clearly burn into the consumer's mind."


But the deal is not all about branding. "AOL from a customer acquisition standpoint is one of the more economically advantageous of all our acquisition vehicles," he said. Also, McCann said, AOL separates itself from other portal companies because "they clearly recognize the value of building brand; not just theirs, but their partners'. Some of the portals diminish brand and just try to sell product."


Among those who don't build partners' brands is Lycos, according to McCann.


Separately, 1-800-Flowers.com on Sept. 9 issued its first financial results as a public company, reporting $92.2 million in net revenue for the fourth quarter ended June 27, a 24-percent increase over $74.4 million during the same quarter last year.


The company reported that revenue distribution by channel was $57.7 million in telephone orders, accounting for 62.5 percent of total net revenues; $22.6 million in online orders, accounting for 24.6 percent of total net revenue; and $11.9 retail/fulfillment orders, accounting for 12.9 percent.


During the quarter-- generally 1-800-Flowers.com's most significant because it includes Mother's Day, Secretaries' Week and Easter-- the company says it increased its total customer base by 625,000 to 7.8 million unique customers from 7.2 million as of the end of the third quarter. The company reported that its telephone customer count grew by 419,000, while online customers increased by 206,000.


Total net revenue for the year ended June 27, 1999 was $295.9 million, a 34.1 percent increase compared with revenues of $220.6 million a year ago.


The company reported a fiscal 1999 net loss of $6.8 million compared with net income of $5.1 million in fiscal 1998.
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