Thinking Outside The Big Box.

When Michael Golden arrived at Home Décor Products in 2003, the company was circling the drain. It was selling plumbing supplies over the Web and, behind on $1.7 million in bills and desperate for cash, quoted rock-bottom prices. "I thought it was the dumbest idea I had ever heard," says Golden, 36. He called it Toilet.com.

Today Golden is still selling privies over the Internet. But Homeclick.com and its sister sites tend to offer upper-end brands, like Toto's Neorest 600 elongated toilet-and-bidet combo, with a remote-control-activated lid, heated seat, warm-air dryer and self-cleaning device (price: $3,432 and up). They also sell a nickel-lined copper bathtub from Herbeau ($46,000), a 12-arm chandelier from Waterford ($9,600) and a six-piece sterling silver serving set of flatware from Vera Wang ($1,200), as well as 1.7 million other items for kitchen, bath and hallway. His idea: to cater less to the do-it-yourself crowd than to the bigger-ticket, do-it-for-me set. "We can be the biggest seller of home-improvement products after the Home Depot and Lowe's," Golden says. A rather epic boast for a guy whose Edison, N.J. company broke even on revenue of $78 million last year.

Golden, who has a law degree from Villanova, did a short stint as an online accounts manager at Bates Worldwide, then landed at Organic Online. There, among other things, he oversaw the building of a retail Web site for Barnes & Noble. In early 1998 Organic planned to go public to raise money to invest in its clients, most of whom had not a prayer of survival--"terrible business models, with no hope of profitability," says Golden, who left in 1999, cashing out $5 million in stock because "I was nervous."

And just as quickly got in over his head at a new company he cofounded. Global Sports Interactive (now GSI Commerce) developed sites for sporting goods chains like Modell's and Sports Authority. The company raised a total of $146 million privately and grew quickly, but stumbled when it expanded outside of sporting goods into sites for the likes of Estée Lauder and Kate Spade, losing $31 million in 2001. Golden, then the chief operating officer, quit. He got married, had kids and made some ill-fated investments in restaurants in Philadelphia.

Home Décor's near-demise proved Golden's salvation. Despite its problems, he believed, the company could be righted, especially after he learned that ritzy home furnishings were a weak spot of giants Home Depot and Lowe's. (Home Depot reportedly once planned to open 200 Expo Design stores; after closing or converting 20 of them in 2005, it has only 34 left. Last fall it launched a high-end catalog of home furnishings.) After persuading Jewelcor Chief Seymour Holtzman to invest $5 million, Golden multiplied Home Décor's offerings to include all home furnishings and cut the advertising budget from 13% of sales to 6%.

That ad spending was narrowly targeted, mostly invested in pay-per-click ads on sites like Google and Yahoo. He shunned general search words like "bathroom" and "kitchen," which are expensive (up to $2 a word), buying more specific phrases like "stainless steel sink" and individual appliance numbers, which cost 50 cents to 75 cents a word. "I want to market to people who already know what they want in their bathrooms," he says. He also put his Web sites on comparison-shopping spots like BizRate and Froogle, and created an "affiliate" program, joined by 6,000 blogs and other home design sites that get a 5% referral fee for Home Décor purchases that result. "Affiliates like us because our average ticket price is $485," says Golden. By comparison, Amazon.com, which also runs an affiliate program, has an estimated $50 average ticket.

Golden boosted the gross margin, which was 19% when he took over, to 30% last year. In its earlier state Home Décor was trapped in a Pets.com-like system of "virtual" inventory--the company was feeding drop-ship orders to warehouses owned by other firms. Golden scrapped the middlemen for frequently sold items and went straight to the manufacturers, like toileteer Toto (which also makes sinks and showers), becoming an authorized dealer.

Despite the breadth of its offerings, Home Décor finds that just 3,600 items make up 50% of sales. Golden keeps those products, which include Blanco stainless steel sinks, Progress chandeliers and DCS barbecue grills, in a 278,000-square-foot warehouse in Edison. Golden is also investing $250,000 to build and stock a 40,000-square-foot warehouse in Henderson, Nev., which will reduce shipping costs to California, the company's number one market.

Home Décor's sites (among them, Barbecues.com, Knobsandthings.com and Poolclick.com) are drawing a million visitors a month, but only 2% buy something. In other words there are a lot of window- shoppers, many of them presumably consummating their purchases at other online stores or in person. But if Home Décor's sites are creating incremental revenue for other people's brands, says Golden, Home Décor should be paid.

Some companies are buying into his thinking. In December Waste King (a unit of Western Industries), which makes kitchen-sink disposals, began paying an undisclosed amount for ads on Home Décor's sites. In return Waste King gets better placement on some of Golden's sites (for example, on searches for words like "waste disposal"), receives a mention in Home Décor's marketing e-mails and, critically, is paired up with searches for related products. "Home Décor does a great job of selling associated items that go along with our garbage disposals," says Craig Friedman, a vice president at Eastern Marketing who buys advertising for Waste King. Golden ambitiously expects $800,000--25% of pretax income--from such advertising this year, up from $400,000 in 2005.

To make his sites more enticing to potential advertisers, Golden is creating virtual showrooms, where a customer can see all angles of, say, a refrigerator, and open the doors and rearrange the shelves, something rivals like Sears are not yet doing. A visitor to one of his sites will eventually be able to create a virtual kitchen, placing a fridge and stovetop amid cabinets and an island. Deliver a good enough shopping experience to the customers and they may forget that they are paying an awful lot of money for that flatware set.

PHOTO (COLOR)

~~~~~~~~

By Monte Burke