Newegg, a City of Industry, Calif., company that sells computers and electronic gear, quietly has become a major online retailer by developing...
Newegg, a City of Industry, Calif., company that sells computers and electronic gear, quietly has become a major online retailer by developing a fervent following among techies. Its motto pokes fun at the paradox of its profitable obscurity: “Once you know, you Newegg.”
The privately held company said it reaped about $1.5 billion in sales in 2006, putting it in the top echelon of e-commerce sites.
After six years of catering to its core — young men who spend as much as $3,000 a year on PCs, data-storage equipment and other technology — Newegg is aiming for the mainstream customer.
The company says the approach appears to be working. Boding well for a strong holiday quarter, the online store had 1 million visitors the day after Thanksgiving. The next Monday, a big Internet shopping day, the company said it shipped more than 60,000 orders and saw revenue jump 89 percent compared with the same day in 2006.
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“We’re never going to forget the original guy who built our business,” said Bernard Luthi, Newegg’s vice president of Internet and product marketing. “But we are looking at ways to make the site different, to make the soccer mom feel comfortable.”
Doing both might be hard. Newegg.com still feels like a hangout, where geeks can satisfy the need for technical specificity.
Computer aficionados, such as serious video-game players, go to Newegg to buy one-off computer parts such as motherboards, modems, hard drives and fans, so they can build their own souped-up machines.
Through Newegg’s online forums, guys addicted to gaming can debate the merits of the latest consoles or ask one another whether it’s possible to pay enough attention to both their children and their Nintendo Wiis. (The consensus: Gaming suffers at first, but the kids eventually become gamers, too).
Newegg was founded in 2001 by Fred Chang, a Taiwanese immigrant. Its predecessor was a mail-order company that made high-end PCs and gaming systems.
Customers indicated that they would rather buy components and make their own computers. So even though the Internet bubble was deflating, Chang launched a new company and called it Newegg, to signify a fresh start.
“We saw ourselves as the new birth of e-commerce done the right way,” said general counsel Lee Cheng.
Chang’s strategy was to sell items at cut-rate prices and provide exceptional service so customers keep coming back. Analysts say it was able to get a jump on traditional retail stores because it didn’t have to worry about whether Internet sales would cannibalize its brick-and-mortar operations.
Newegg was one of the first online stores to post customers’ reviews next to the products it sold, said Sucharita Mulpuru, senior retail analyst with Forrester Research.
“It’s certainly easier to start with a niche of consumers and really focus,” Mulpuru said. “You can always expand.”
At Newegg, functions happen in-house. Merchandise is kept in its warehouses in several Southern California locations, as well as in Memphis, Tenn., and Edison, N.J.
Owning the warehouses helps Newegg fulfill its promise that everything listed on its Web site is in stock and can be delivered within three business days.
Newegg doesn’t outsource customer service, either. Its call center is in a warehouse in Whittier, and Newegg’s online chat and e-mail customer-service centers are in two Chinese cities, Chengdu and Shanghai.
Chang sees Asia as a big market for customers and workers. He hired engineers in China and Taiwan to build and maintain the e-commerce site. Today 800 of Newegg’s 1,800 employees are in China, and the company plans to expand the Chinese version of its store.
Without shelf-space limitations, Newegg offers a variety of products, including 458 types of motherboards and 493 video cards.
Newegg said it made its first $1 billion in annual sales within four years, with more than 70 percent of its revenue coming from repeat customers. It said it has been profitable after taxes since it was founded, although it declines to release detailed figures.
In 2005, Newegg raised $30 million in a financing round led by Insight Venture Partners. The company said it had no imminent plans to go public.
Some rivals privately bristle at Newegg’s rise, complaining that its prices are so low that the company must be selling some products at a loss.
But Newegg says it can often offer lower prices than its competitors because it negotiates better deals with manufacturers by virtue of its sales volume, and it runs a lean operation.
To be more consumer-friendly, Newegg redesigned its Web site to make it easier to navigate. And rather than simply post technical specifications as it once did, it displays photos of the products it sells. It’s also buying ads.
Its products reflect the strategy shift, with bread machines and coffeemakers now mixed in with the microprocessors and hard drives.
In this mostly male bastion, there are now pictures of women using cameras, microwaves, music players and teakettles.