The 1M1M Deal Radar 2010: DollarDays, Scottsdale, Ariz.

DollarDays is an online wholesaler that helps small businesses compete against larger enterprises by offering more than 80,000 high-quality goods at closeout and wholesale prices close to those at which large chains purchase the same merchandise.

The Scottsdale-based company was founded by Marc Joseph, who has worked at numerous retail stores, including Federated Department Stores, Crown Books and Bill’s, a chain of variety stores in Jackson, Miss. He was the general merchandise manager in Everything’s A Dollar stores, based in Milwaukee. Previously, Joseph founded the $5 & $10 Stores chain. He is also the author of The Secrets of Retailing…or How to Beat Walmart, published by Silverback Books.

The idea for DollarDays came when Joseph recognized that the Internet was to become the newest and most efficient channel of distribution for wholesale and closeout products, because it leveled what was a very uneven playing field between big companies and small and medium-sized businesses. Back in 2001, when DollarDays was founded, wholesalers did not understand the Internet as well as they do now, and it took the company considerable effort to convince suppliers to believe in DollarDays and let it use the Internet as an alternative distribution channel.

DollarDays estimates the closeout market alone at $30 billion. Because it offers an assortment of products—all the categories found in a Macy’s, Target or Walmart—DollarDays has become a one-stop shop for businesses. Top target segments include apparel stores, drugstores, discount stores and dollar stores. Goods are sold under 32 main categories ranging from party supplies to clothing to electronics and media. DollarDays carries products from brand-name manufacturers, including Gillette, Fruit of the Loom, Avon, Calvin Klein, Disney, Black & Decker, Tommy Hilfiger, the NFL and Victoria’s Secret, among others.

The beachhead in revenue growth was organic search. Joseph says that 176,000 keywords and phrases drove customers to the DollarDays site in May. It remains an important revenue stream: approximately 75% of DollarDays’ gross sales in 2009 came from organic search engine traffic. Another revenue stream is a subscription program wherein customers pay $49 to join and $15.95 a month for discounts and savings on goods, services and freight. Through the [DollarDays] Distributor [P]rogram, entrepreneurs can clone the DollarDays website [for merchandise]. DollarDays handles all orders and pays the independent site owners a commission on sales generated through that site.

DollarDays has 1.5 million registered customers, and an average of close to 1,000 new customers register each day. According to Google Analytics, there are 600,000 unique visitors a month to the site.

Low barriers to entry mean that competition on the online wholesale segment is intense. DollarDays competes with local wholesalers that may have close relationships with retailers; catalog sellers such as SMC; liquidation e-tailers; online general retailers that offer discounts such as Amazon, eBay and; online specialty retailers; and traditional wholesalers such as Costco.

Joseph believes that customers come to DollarDays for five reasons: price, assortment, [no minimum order requirement], the fact that it is open 24 hours a day, and [its renowned] customer service. The inside sales team works with each customer to assure the best assortment for their business.

DollarDays is a public company. In fiscal year 2009, revenues were approximately $12.5 million. Initial funding came from a VC firm, and in 2008, DollarDays did a reverse merger into a public shell. Joseph says the company went public for two main reasons. First, he argues, the Internet can be a scary place for entrepreneurs just starting up. Many of the company’s customers are entrepreneurs and small businesses that are venturing onto the Internet for the first time because they are beginning to understand its value as a distribution channel for wholesale and closeout products. Unless you are a well-known brand, customers don’t know who is on the other side of the computer screen. Joseph says that DollarDays’s going public gives everyone equal access to understanding revenues and business models as opposed to being a “Wizard of Oz” on the Internet. […] The other reason for being public is that it gives DollarDays the stock liquidity to grow the business by acquisition.

The company is looking to raise additional funds for a new consumer site it is launching. It plans to grow by adding more product categories and targeting additional customer segments.

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