1800flowers.com Company Analysis

MBA 703 Management Information Systems Dr. Joseph O’Donnell

1-800-FLOWERS.COM

COMPANY ANALYSIS

Prepared by: Rima Akel Rami Aridah Sameer Tadros Maher Abu Arja

6/21/2012

Table of Contents

About 1-800-FLOWERS.com, Inc. ............................................................... 2 Business Environment ............................................................................... 2 Competitors Overview .............................................................................. 3 SWOT Analysis .......................................................................................... 4 Business Strategy ...................................................................................... 5 Financial Analysis ...................................................................................... 6 Operations and Customer Service .............................................................9 1-800-FLOWERS.com Website Evaluation................................................ 11 Conclusions ............................................................................................. 14 Appendix: Financial Statements .............................................................. 16

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 About 1-800-FLOWERS.com, Inc. 1-800-FLOWERS.com, founded in 1976, is a gift retailer located throughout the United States and is headquartered in Carle Place, New York. It is a family-run business that offers a variety of products such as fresh flowers, gifts, popcorn, gourmet foods, cookies, wines, and chocolates. Products can be bought from several channels such as the internet, franchise stores, and retail floral stores. 1-800FLOWERS.com operates 1 fulfillment center, 2 floral retail stores, and 104 franchise stores. It is one of the first retailers that used the internet to sell directly to their customers. In the year 1999, the company went public on the NASDAQ stock exchange (ticker symbol FLWS).

Business Environment 1-800-FLOWERS.com is the world’s #1 florist   with over 2.5 times higher market share than their next biggest competitor in the US. It is one of the top 50 on-line retailers and one of the first companies who took their business model on-line back in the 90’s. In addition, 1-800-FLOWERS.com was the first company to sell products through Facebook. 1-800-FLOWERS.com has over 32 million customers; their website attracts more than 57 million visitors each year. Consumer floral, gourmet foods and gift baskets, and BloomNet Wire Service business are the three business segments of 1-800-FLOWERS.com.

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The consumer floral segment is part of the namesake 1-800-FLOWERS.com, and accounts for more than half of company’s total revenues. They offer all types of flowers and floral arrangements to provide to customers for any type of occasion. Gourmet foods and gift baskets are operated by 1-800-BASKETS.com, Fannie May Confections, The Popcorn Factory, and The Winetasting Network. It accounts for more than a third of company's total revenues. They offer wines, gourmet gift baskets, chocolate, candy, and popcorn that are packaged in all sorts of customizable tins and baskets. BloomNet Wire Service is the company’s electric communication system that allows over 3,000 of the florists in its network to contact each other to send and receive orders. It accounts for nearly 10% of the company's total revenues and has the highest gross margin among the three business divisions.

Competitors Overview 1-800-FLOWERS.com’s main competitors are FTD, Inc., Harry & David Holdings, Inc., and Teleflora LLC. FTD, Inc. is owned by United Online (UNTD), which also partners with Interflora. FTD, Inc. offers floral arrangements, gourmet foods, greeting cards, balloons, candles, and etc. Harry & David Holdings, Inc., a private company, offers gift baskets, chocolate, fruit, wine, and etc. Lastly, Teleflora LLC focuses on just floral arrangements and is a privately held company.

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1-800-FLOWERS.com is not only competing with them but is also competing with local floral stores in people’s neighborhoods and grocery stores. Many people buy their flowers from local flower shops in their city because of the convenience and price. The customer is able to pick out exactly it is what they want and they know the condition of the flowers that they are sending. In addition, people pick up floral arrangements at grocery stores either for the cheap price or they are shopping last minute and it is on their way. However, they are not getting the best quality and freshness that 1-800-FLOWERS.com is able to offer.

SWOT Analysis Strengths 

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Unique fulfillment system includes its BloomNet network of approximately 3,000 florists around the country & own distribution facilities Wide range of products Strong marketing and promotion Gift services division - company partners with many Fortune 1000 companies Database of more than 32 million unique customers

Opportunities  

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Online growth Increase in home improvement expenditures Growing specialty stores Promotional opportunities

Weaknesses 

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Geographic concentration in the US only Late payment for the florist chain Absence of contingency plans for uncertain conditions that may occur that would affect the business.

Threats  

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Increasing competition Slowdown in US economy & discretionary spending Transportation expenses

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Business Strategy The business strategy for 1-800-FLOWERS.com describes how they run their business, how they intend to succeed in the market and how they are able to stand up against their competitors; it represents the management attempt in securing the current and future goals. To explain the business strategy used at 1-800-FLOWERS.com we will start with the competitive advantage that they have; they are providing the right and original products and services with excellent quality and value which gives them power in the market (specific product features aimed at satisfying specific market needs). What differentiate 1-800-FLOWERS.com from their competitors are the marketing strategies they adapt and the investment in technology to improve their brand and in expanding their market share. One of their strategies is to leverage the significant web traffic, multi-million customer base and having a dual-branded website for baskets and other brands. Also, they have a social responsibility in investing and developing a training center that is educational for community building programs in the floral industry which affects their reputation and perception among customers. Their sales strategy plays a very important role in maximizing their profits; their position in the market is reflected by the strong returns on their investments on the brands they have acquired and those they have launched internally. They focus on multi-channel retailing with an emphasis on ecommerce as well as their decision to be vertically integrated where appropriate which enabled them to become leaders

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in the market. 1-800-FLOWERS.com will continue to focus on the specific areas of their business where they believe they can exert control and achieve enhanced results, bearing in mind some improvements and opportunities they need to develop.

Recommendations Few of the improvements needed to refresh their business strategy are: 

To invest more in the promotional and marketing strategies to expand their market and respond to customer demands with no restrictions.

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To stay up-to-date with what is new in the market and adapt to the economy circumstances in their pricing and cost structure.

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To create and design line extensions by engaging directly with their customers to deepen their relationship with them.

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To invest more in the Social and Mobile marketing and commerce initiatives, 1-800-Baskets.com business, Celebrations.com content and media business.

Financial Analysis Trend Analysis Increase/ Decrease

Percent Change

2011

2010

Net Revenues

689,787

667,710

22077

3.31%

Cost of Goods Sold

409,703

401,908

7795

1.93%

Expenses

684,065

671,931

12134

1.81%

5,722

(4,221)

9943

Not meaningful

Net Income (Loss)

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Increase/ Decrease

Percent Change

2011

2010

 Assets

256,951

256,086

865

0.34%

Liabilities

115,290

123,460

(8170)

(6.62%)

Stockholders’ Equity

141,661

132,626

9035

6.81%

30,725

40,028

(9303)

(23.24%)

(21,495)

(6,518)

(14977)

Not meaningful

(15,631)

(35,229)

19598

Not meaningful

Cash from Operating  Activities Cash from Investing  Activities Cash from Financing  Activities

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Net revenues have increased by 3.31% from 2010 to 2011; while cost of goods sold has only increased by 1.93% and expenses increased by 1.81%, the company is increasing revenues at a higher rate than expenses which resulted in an increase of their net income.

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Total assets did not change much from 2010 to 2011, but they have managed to reduce their liabilities by 6.62% by paying long-term debts. Stockholder’s equity has increased by 6.81% from 2010 to 2011 due to not paying any dividends in 2011 and the additional paid-in capital by the investors.

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Cash from operating activities has decreased by 23.24% from 2010 to 2011; the main reason of the decrease is the rise of inventory which predicts a slump in in profits and the need for external financing. Management should manage assets and liabilities more efficiently. Cash used in investing activities was higher in 2011 due to the acquisitions and capital expenditures of the companies for the year 2011. Cash used in financing activities was lower in 2011 mainly due to the repayment of bank borrowings. 7

Key Ratios

Profit Margin Return on Assets Debt to Equity

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July 3, 2011

June 27, 2010

0.8% 2.2% 0.81

(0.6%) (1.6%) 0.93

Profit Margin: the company’s profit margin was negative in 2010 which indicates a decline in sales and increase in expenses. In 2011, the company was able to increase its profit margin to 0.8% (each dollar of their sales generated 0.8 cents of profit). They were able to increase their revenue in 2011 at a higher rate than expenses, which resulted in a positive net income. It seems that the company has looked into its pricing strategy and made the necessary amendments.

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Return on Assets: this ratio shows how effective the company is in utilizing its assets to generate profit. 2010 shows a negative ratio because of its net loss, but 2011’s ratio of 2.2% indicates that the company is not utilizing its assets effectively to generate profit, for every 1 dollar of assets the company is only generating 2.2 cents.

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Debt to Equity: this ratio measures the financial flexibility and the long-term capital structure of the company. Debt to equity ratio decreased from 0.93 in 2010 to 0.81 in 2011. The decrease of this ratio is due to the disposal of unproductive assets and using proceeds to liquidate debts.

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Operations and Customer Service The 1-800-Flowers.com Consumer Floral category includes the operations of the 1800-Flowers brand which derives revenue from the sale of consumer floral products through its E-Commerce sales channels (telephonic and online sales) and companyowned and operated retail floral stores, royalties from its franchise operations, as well as the operations of Fine Stationery, an e-commerce retailer of personalized stationery, invitations and announcements. The Gourmet Food & Gift Baskets category includes the operations of 1-800-Baskets, Cheryl's (which includes Mrs. Beasley's), Fannie May Confections, The Popcorn Factory, Winetasting.com, Stockyards.com and DesignPac businesses. Revenue is derived from the sale of gift baskets, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, wine gifts and prime steaks and chops through its Ecommerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Cheryl's and Fannie May brand names, as well as wholesale operations As the company’s primary objective has always been to provide the best possible customer experience in every channel, they decided to implement LivePerson’s live chat program to better serve their customers’ immediate needs in real time. Their main goal in implementing the program was to engage and connect with customers at the most helpful moment in their shopping experience—when they would benefit the most from an interaction.

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One of the reasons they chose this program is because they need to connect with customers at the right time, and LP Chat has the intelligence to proactively deliver chat invitations at the best possible moment, based on a visitor’s onsite behavior. Some of the company’s most successful use cases include leveraging LP Chat’s geo-location intelligence to help customers pick the best delivery options based on their area and to successfully complete their orders. The 1-800-Flowers.com has different delivery options; same day delivery and a florist guarantee on same day delivery, they also deliver to countries outside the US. Their delivery method could be Direct (from growers), or Network (local florists). 1800-FLOWERS.COM can deliver floral items almost anywhere in the world through a number of international affiliations. Their accepted methods of payments: American express, Visa, Master Card, Bill Me Later and PayPal. There also sell their products through their Facebook page.

Recommendations To improve operations and customer service, the company should build its business on the philosophy that success is defined as helping customers express themselves perfectly by leveraging a wide variety of original arrangements with the ultimate goal of delivering smiles to the important people in their lives. To accomplish this goal across all channels, they must realize that they need an integrated customer service program to assist their online shoppers.

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1-800-FLOWERS.com Website Evaluation 1-800-FLOWERS.com’s website is very important to the business; it is their main interaction point with the customers and very crucial to their success. Below we discuss the most important factors that make their website successful. Informational: 1-800-FLOWERS.com are making an effort to showcase items that are likely to be of interest to visitors, obviously with the intention of helping visitors to find something they will buy. 1-800-FLOWERS.com is using a large area on the homepage to promote current sales, new product lines. Moreover, they update the homepage more often in order to promote different occasions such as Mother’s Day. Ease of purchase: In 1-800-FLOWERS.com’s website, once the visitor adds an item to the cart, he/she will immediately see the contents of the shopping cart. They will be presented with the options to continue shopping or to checkout. If they chose to checkout, the visitor can login as an existing customer or create a new account. The checkout involves a minimal amount of steps thus it is as easy as possible for shoppers. Simple graphics: 1-800-FLOWERS.com includes many different pictures of products. The pictures even show how the products are packed up. Potential buyers will be able to get a very good feel for the product based on these photos as selling online is different

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than selling in a physical store because the buyer cannot touch the product or see it in person before making a buying decision. Ease of navigation: 1-800-FLOWERS.com uses a drop down navigation menu to help visitors find what they are looking for. The navigation menu contains links to the major product types that are available on their site, and roaming over a link will bring up the drop down menu that helps to narrow it down to find more specific products. Effective navigation is important for their website and critical for their success (Figure 1).

Figure 1

Redundant navigation: Although navigation is critical for making it easy on visitors to find what they want, there is still the need to allow them to search. Some visitors will still have trouble finding a specific product even with good navigation, and with larger e-commerce sites it may often be more feasible to simply do a search than to move through several layers of links. 1-800-FLOWERS.com offers a search bar that helps the users to find redundant ways to reach their desired products. 12

Legible text: The design and color scheme of their website does a good job of matching up with their products. The website also looks professional and appealing to the users who are interested in their products. Multi-browser functionality: 1-800-FLOWERS.com’s website supports most of the browsers such as Internet Explorer, Firefox, Chrome 6 and Safari 5. Functionality: The website is very user friendly and its design and features is appealing to visitors, thus visitors normally do not have any problems within the site. The website also provides clear image and additional information on products. Moreover, the website loads its pages quickly and does not take time when it navigates between pages.

Recommendations

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Let the customer compare between products: 1-800-FLOWERS.com website will benefit from letting their users compare two or more products.

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Make the website available in other languages such as Spanish to allow nonEnglish speakers to navigate through the website easily and use its services.

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Include videos about production: an easy way to gain the customers trust is by introducing videos that explains how the main products are being created.

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Improve Internet marketing and search engine optimization. 13

Conclusions Assuming a stable to better US economy, we believe 1-800-FLOWERS.com will show more positive results and success in the upcoming years. Their diversified product portfolio will allow them to grow and reach more customers. 1-800-FLOWERS.com continuously adds florists to its fulfillment system network to be able to respond to customer orders and guarantee their satisfaction. Their success depends on satisfying customers in an efficient and effective manner. Another factor that will help 1-800-FLOWERS.com succeed even further is to expand to other US states and even other countries. Their current geographic concentration is limiting them from reaching customers and giving their competitors the opportunity to increase their market share. 1-800-FLOWERS.com is known for its strong marketing and promotional activities which have helped them attract millions of customers. They were the first to use Facebook to sell products which gave them a competitive advantage over their competitors. If they continue with their innovation especially in utilizing mobile ecommerce to target customers they will definitely increase their profits and succeed. 1-800-FLOWERS.com had previously adopted several technologies in order to improve the way they conduct business; for example, they are using cloud computing to cut IT costs costs, increase efficiency and productivity. They plan to invest in other technologies and make enhancements to the current technologies

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they use; this should enable them to cut costs, increase productivity and efficiency and therefore increase revenues.

1-800-FLOWERS.com is very customer-focused and their business model is built around guarantying the customer’s satisfaction and a “100% smile”; all their future initiatives should be carefully studied and planned to continuously ensure customer satisfaction and fulfillment.

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 Appendix: Financial Statements

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