Business

Shopatron, based in SLO, connects online shoppers to merchandise

Ed Stevens is CEO of Shopatron. He founded the San Luis Obispo-based company in 2001.
Ed Stevens is CEO of Shopatron. He founded the San Luis Obispo-based company in 2001. dmiddlecamp@thetribunenews.com

Ed Stevens envisions a time when shoppers can go online and instantly locate any product they desire in every store and warehouse in the world.

This scenario may be years away, but Stevens, chief executive officer of Shopatron, has devoted his career to making it a reality. The San Luis Obispo-based company he founded 13 years ago offers online order management software used by more than 900 brands globally. Shopatron’s cloud-based software allows multiple ways to fulfill an online order. Manufacturers and retailers can ship from a warehouse, as well as from a store near the buyer, or allow in-store pickup. This allows small and mid-sized companies to compete with such e-commerce giants as Amazon, which has built its reputation on fast order fulfillment.

Shopatron has 765 clients in 13 countries, ranging from large retailers such as Cost Plus World Market to smaller businesses such as Hot Chillys, a San Luis Obispo-based apparel manufacturer.

Live Eyewear, a San Luis Obispo sunglasses manufacturer, has used Shopatron’s services since 2008. Shopatron solved the dilemma of how to sell products on the company’s website, www.liveeyewear.com, without competing with its own retailers.

“We tell our retailers, if they fulfill orders for us (through ship-from-store), they get additional foot traffic to their brick-and-mortar location,” said Dave Dean, Live Eyewear’s vice president of marketing. “It’s a good way to support them, and help get our customers what they want.”

Doug Fleener, president and managing partner of Massachusetts-based retail consulting firm Dynamic Experiences Group, said the greatest strength of Shopatron is this “ability of manufacturers to engage and include independent retailers in their online sales strategy (through ship-from-store and in-store pickup). There’s no doubt that manufacturers can usually deliver a much better online shopping experience, but it is often at the expense of their retail distribution. With Shopatron, they integrate and work together to create a seamless shopping experience.”

Shopatron has come a long way since it was a two-person operation located in a drafty corner of Aspect Studios’ San Luis Obispo warehouse. It now employs 160 people at its SLO headquarters. Its revenue last year was approximately $18 million, and it had an aggregate growth rate of 30 percent over the past five years. Still, Stevens has grown his company at an unhurried pace, pioneering a concept that was once ahead of its time.

Calculated risk

Stevens grew up working at his parents’ furniture store in Cuyahoga Falls, Ohio. His background in retail and affinity for small business were the foundation for his e-commerce vision.

“All the Internet companies were building warehouses with the idea that they were going to put the brick-and-mortar guys out of business,” he said. “It always seemed obvious to me that with all the inventory sitting in stores, that is ultimately what the Internet will connect to. Why wouldn’t people want to find this?”

However, when Shopatron (called FirePoppy until it was rebranded in 2006) accepted its first order on Aug. 18, 2001, top-tier retailers such as Wal-Mart and Home Depot were years away from offering ship-from-store or in-store pickup options. “Only now, in 2014, is it a totally accepted reality that that’s the way the world is going,” Stevens said.

Because investors were scarce after the dot-com bust, and because “the market was not ready for us,” Stevens said, he chose to bootstrap the business, meaning he did not seek investment capital in the beginning.

“A ton of companies get started and fold, then 10 years later, there’s another one like it that’s hugely successful, because the timing was off,” Stevens said. “Bootstrapping gives you a little more flexibility, whereas with venture capital, you have to commit to a certain velocity. I thought we were better off letting the company evolve with the market.”

When his family relocated from Ohio to San Luis Obispo in 2000, they moved into a modest rental and used the proceeds from the sale of their Ohio home to finance the first version of FirePoppy software. He and partner Sean Collier, who is now chief customer advocate (overseeing customer service), operated their business on a shoestring budget, buying used office equipment and running many of their computers on free Linux operating systems.

Family and friends invested $40,000 in 2002 to cover startup expenses. For the first three years, Stevens did not earn a salary. Instead, he and his wife, Robin, accumulated $180,000 in credit-card debt to support their family. Still, his faith in his vision did not waver.

“I never doubted the idea or had a big ‘What am I doing, is this crazy’ moment,” he said.

Steady growth

The first month, their order exchange handled the fulfillment of around 70 orders, and the company made $866 in revenue.

Growth depended on finding clients who would take a chance on the company’s novel concept. Stevens summoned the sales prowess he had learned as a youth selling sofas and dinettes. He estimates that he attended more than 60 trade shows in a two-year span, pitching his services to thousands of companies.

His first big break came in 2004 when he signed on specialty toy manufacturer Alex Toys, which Stevens said accounted for 5 percent to 10 percent of the company’s revenue at the time. It was finally time for Stevens to earn a salary and to move the company into a proper office. Shopatron took on its first real financial partner, Rivenrock Capital, which invested $500,000 in December 2004.

By 2007, the company was “growing and profitable from quarter to quarter,” Stevens said. He decided it was time to raise a significant amount of capital because Shopatron “was no longer a stealth start-up” and needed to stand up to potential competitors.

That year, San Francisco private equity firm Kern Whelan Capital invested $5.9 million, which allowed Stevens to add an additional 25 employees to his staff of 30.

“We loved that Shopatron occupied a very unique niche in the world of e-commerce,” said J.P. Whelan, general partner of Kern Whelan.

“Nobody else was looking at it in the same way, allowing manufacturers to sell over the Internet without conflicting with their retail network,” he added. “It was one of those ideas that made total intuitive sense, and has really been borne out by how well the company has grown and done over the years. We also like the strong engineering culture with Cal Poly close by, which has been a benefit to the company in the ability to hire engineers.”

Shopatron was able to move from a 5,500-square-foot space to a 17,000-square-foot space on Buckley Road (since then, it has expanded its offices there to 35,546 square feet). It also opened an office in Swindon, England, and further developed its technologies for in-store pickup.

Even with the onset of the recession, Shopatron’s expansion plans stayed on track. In Stevens’ book, “Allied to Win”, the primary consequence was “letting go of half the sales and marketing team” which he called a “blunt trauma to Shopatron.” Still, the company grew at a rate of around 45 percent annually during the recession, and 2010 was Shopatron’s first year with more than $10 million in revenue.

“As other companies were retracting, we had just raised capital and were able to invest into the recession,” Stevens said. “We maintained our R&D investment through recession, which turned out to be a very good decision as we are now ahead of other e-commerce solutions.”

Facing challenges

Shopatron’s journey was not all smooth. Stevens acknowledges that gaining a foothold in the European market was significantly more difficult than he anticipated.

“We tried to do a mini-Shopatron over there, and it didn’t work,” he said. “The customer needs were different, the way to acquire customers was different. We underestimated how much money it would take, but five years later, we have a really nice, viable business over there.”

As e-commerce evolved, Stevens’ concept of using local inventory caught on with clients — and with competitors. Around 2007, a handful of companies launched systems for large “tier one” retailers like Wal-Mart and Best Buy, which, according to Stevens, are effective, yet too expensive for midmarket retailers. “Nobody else was developing something similar for the midmarket, which is what Shopatron focuses on,” he said.

Stevens said Shopatron’s closest competitors in the midmarket are Columbia, Md.-based MICROS Systems, and Austin, Texas-based Epicor. He noted that Shopatron differentiates itself by being SaaS and cloud-based, as opposed to software that is purchased, installed and maintained by the client. According to Stevens, this offers advantages in pricing, flexibility, ease of maintenance and speed of implementation.

Stevens also believes Shopatron’s order management technology is unique. To prove his point, the company obtained a patent last year for its order exchange, defined by the patent as “the system and method for processing product orders.” According to Stevens, this was “to protect our innovations and intellectual property, and to let everyone know that we are a true innovator in cloud-based distributed order management.”

Going global

In its early years, Shopatron serviced mostly small businesses before gradually shifting its focus to the midmarket. Although Stevens said it will continue to serve small and mid-sized businesses, he sees the future growth of the company in courting larger retailers.

A major step in that direction took place earlier this year when Shopatron launched an in-store pickup program for Home Hardware, a $5 billion Canadian retailer, which Stevens called the “Canadian Home Depot.”

“They are five times bigger than our previous biggest client,” he said. “We’ve really matured a lot as a business, and bigger and bigger companies are finding our solutions more attractive.”

Part of that maturation has involved refining its software, which has been a continuous process. The most recent upgrade came in April with the implementation of a new router engine, which manages the entire order fulfillment process, including merchandise returns. The new system is more flexible, able to implement multiple rules set by the retailer, such as the number and type of orders that each store can fulfill per day.

Alex Lorton, Shopatron’s corporate marketing manager, said this makes Shopatron “especially attractive to franchises and merchants who sell products that require installation, assembly or white-glove delivery.”

The company also is expanding into Asia. Although Stevens said the company is “always actively looking for good partners,” it has not taken on any additional investors since 2007. He noted that going global would not require the capital investment required by its European expansion.

“We’ve built an alliance network of implementation partners, so that for us to go global, we don’t need to have every frontline service in our own office. We can partner up with other companies who sell our software for us,” he said.

Although Stevens predicts that Shopatron’s rate of growth will pick up in the near future, he said the company plans to stay in San Luis Obispo forever.

The company has not faced any significant challenges in operating within San Luis Obispo County, he noted. In fact, the smaller-town atmosphere helps to foster Shopatron’s company culture, which emphasizes health, fitness, community service and family values — all reasons why Stevens moved his own family to the area 14 years ago.

The key to operating away from a major metropolitan area, he said, is to maintain a larger focus. “Go outside of the area for perspective, and if you’re hiring consultants, there can be a lot of value in bringing people in from bigger cities,” he advised.

Stevens’ own focus is to create value for Shopatron’s clients and the retail customers the company serves. That value comes primarily in one form: time.

“We’ve helped a lot of customers to find products easily, which saves them time,” he said. “Convenience isn’t necessarily cool, but if I’m saving your time, it’s like giving you more of your life back.”

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