*RedEnvelope to Use $33M Investment to Upgrade Web Site Operations

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On the heels of securing an investment of $33 million, RedEnvelope Inc., a multichannel direct marketer of upscale lifestyle gifts, is set to upgrade its Web site to make it easier for customers to complete their orders.

Direct Equity Partners, a private equity fund that invests in multichannel direct marketing companies, led a group that made the investment last week.

RedEnvelope, San Francisco, plans to revamp the online checkout process to cut down on the number of steps -- or clicks -- required when purchasing a gift. RedEnvelope intends to remove four Web pages from the checkout process and integrate an existing gift-reminder service to speed up the process.

RedEnvelope -- www.redenvelope.com -- also aims to revise a multiple "ship to" function, a service that enables a customer to send multiple orders by filling out a single form on the Web site.

In addition, the company plans to improve its back-end operations by adding more representatives to its call centers and expanding its fulfillment facilities. The operations are expected to expand twelvefold, for example, at the company's Ohio site.

Despite the slew of Web site upgrades the company is planning, however, RedEnvelope still stresses that it is a multichannel direct marketer, relying on catalogs as much as the Internet. Since its inception in 1997, RedEnvelope, using a blend of online and offline marketing, has seen its average order values increase by more than 40 percent and overall sales by more than 400 percent.

The focus on multichannel marketing was, in part, what led Direct Equity Partners to invest $15 million in RedEnvelope.

"The concept for this business was really based on multiple channels as opposed to first Internet and then catalog as an afterthought," said Claire Gruppo, managing director at Direct Equity Partners. "RedEnvelope understands how to make the channels work together."

Direct Equity Partners has stayed away from one-channel retailers, Gruppo said. Rather, it has invested a total of about $16 million this year in two companies that use a combination of offline and online marketing.

"We've shied away from mostly Internet companies," Gruppo said. "As people have begun to realize, the Internet as a stand-alone direct marketing channel is not the best [way to market] and ... [the Internet] works extremely well in conjunction with catalog marketing."

RedEnvelope claims it has been effective at using a balance of offline and online direct marketing. For Mother's Day, the company claims to have received approximately 50,000 orders via catalog and Internet marketing. More than 25 percent of the orders came from catalogs. Sales revenues from those orders were not disclosed.

"The catalog is a great way to introduce people to the brand," said Martin McClanan, CEO at RedEnvelope. "We find [that] a lot of people buy for the first time with a catalog in front of them, and then once they're comfortable they'll come shop online because of the convenience of it."

McClanan said RedEnvelope plans to market via multiple channels during the holiday season as well. The company is set to introduce 200 to 300 new items via catalog and the Internet.

The marketing dollars from the investment, Gruppo said, will be distributed evenly to both channels over the next six months. A "healthy mix" will be used for outbound e-mail marketing campaigns and offline marketing, such as print marketing, magazines and brand building, she said.

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