Acquisitions Help U.S. Home and Garden Reach Consumers, Avoid Channel Conflict

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Business-to-business merchant U.S. Home and Garden purchased E*Garden, an e-commerce Web site offering lawn and garden merchandise, for an undisclosed sum on June 14 and announced an agreement expected to be completed next month to acquire patio and garden furniture cataloger Gardenside Ltd. for $4.5 million.


The purchases represent U.S. Home and Garden's first foray into Internet selling and selling direct to consumers. The company's online arm will operate under the E*Garden name at www.egarden.com.


To avoid conflict with its other sales channels, U.S. Home and Garden, San Francisco, is avoiding a superstore Internet strategy.


"Most of U.S. Home and Garden products are sold through mass merchants and home centers so we're going for a 'boutique' model rather than a supermarket approach, because we didn't want to hurt our current markets," said president/CEO Robert Kassel.


U.S. Home and Garden estimates online lawn and garden market to be about $300 million, and it hopes to acquire similar retailers to maximize inventory and profit margins, while minimizing the cost of customer acquisition.


Thinking that lowering customer acquisition costs are critical to Internet marketing, U.S. Home and Garden acquired Gardenside with the belief that catalog marketers understand customer demographics and the need to lower customer acquisition costs better than other marketers. Gardenside projects its 1999 catalog sales will be $5 million.


"Coupling this with high margins, you wind up with a scaleable business model. Superstores require a huge black hole of advertising costs, but we're more modest in terms of our goals," said Kassel.


While the company has not decided on an advertising agency or budget for the ad campaign that will begin in the fourth quarter, Kassel said the majority of the budget will be spent offline.


"What's the bang for the buck?" he asked. "A number of offline opportunities are better suited to generating traffic because online. Web sites are getting very crowded and it's just not that cost effective to advertise online."


U.S. Home and Garden will retain the company presidents of its new acquisitions - Linda Watson of E*Garden and Pamela Hawken of Gardenside.
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