Mixing Up The Bouquet At 1-800-flowers.com

CEO Jim McCann discusses strategies for diversifying product mix

(Tuesday, April 07, 2009) - For years, consumers have associated 1-800-Flowers.com (FLWS) (1-800-Flowers in pre-Internet days) with roses, tulips, carnations, and chrysanthemums. So how did popcorn, cupcakes, monogrammed bath towels, and virgin olive oil end up in the mix?

Truth be told, founder and CEO Jim McCann has always sold non-floral goods, since he began his business 30 years ago as a flower and gift shop on Long Island. In the last few years, however, McCann has stepped up diversification to the extent that 50% of sales now come from items other than flowers.

He's added these products via partnerships with such enterprises as the Popcorn Factory and Plow & Hearth, as well as acquisitions of candymaker Fannie May Confections and baked-goods purveyor Cheryl & Co. In 2008, 1-800-Flowers.com's revenue added up to $919 million.

McCann, whose business is based in Carle Place, N.Y., recently talked with BusinessWeek's Rebecca Reisner about how and when a retailer should vary its offerings.

How do you know it's time to diversify your product mix?

When you can see opportunities your business could take advantage of—if you had a different product. In our case, we could see there were a lot of occasions inappropriate for flowers but appropriate for other gifts. Now we have popcorn tins and balloons that customers can order for events like children's soccer victories.

Is ease of implementation a factor to look at before diversifying?

Yes. If you're a dry cleaner and you can see there are other things you can deliver on your home route, that's something to consider. Now if you want to deliver baked goods along with dry cleaning, that could be a bit of a stretch. But if there's a bakery next door to your dry cleaning store, you might be able to form a partnership and deliver its products.

You also need to make sure you can give the new products enough visibility. Before we went online, we didn't have as much luck selling non-floral products, because it was a little hard to describe them to customers over the phone.

How do you choose the new brands you add over the years?

We look for brands that are consistent. Fannie May is an iconic brand that's been making chocolates for years. Also, we look for brands capable of adapting and developing new products. With Fannie May, in addition to chocolates, we've introduced cheesecakes and premium ice cream, leveraging the brand recognition and trust.

Any tricks to attaining just the right diversity of product mix?

Where it's appropriate, you want to adjust your merchandise to make it seasonable. At 1-800-Flowers.com, that's my job.

What are the dangers to diversifying?

You have to look at the expense of trials for new products and the risks of distracting from your central business focus. Look at how clever Jeff Bezos was to make Amazon.com (AMZN) a business that sold more than books, but could Borders (BGP) do that, too? I don't know.

See the video:http://www.businessweek.com/managing/content/apr2009/ca2009047_439174.htm

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