Web Garb

Los Angeles Business Journal
July 4, 2005
By RACHEL BROWN

Brett Morrison can be considered a dot-com stereotype. After launching an online photo sharing company in 1998, he and his partners were flush with venture capital funding, but not a workable business plan. As a result, Ememories.com Inc. never made any money. Morrison's takeaway: "Don't be just a pure e-commerce player. Mix the online part with old-school shipping and packing, trucks, warehouses."

Morrison, John Tomich and Steve Tandberg are now trying to do that with Onestop Internet Inc., an e-commerce business that operates virtual storefronts for one of the oldest of old-school players: apparel manufacturers.

Onestop is among a handful of companies that develop and manage Web sites, investigate Internet scams, operate customer service lines and run warehouses for shipping out client products.

The company is on target to hit $10 million in annual revenues this year and counts as its clients T-shirt maker Von Dutch Originals LLC, denim manufacturer True Religion Apparel Inc. and Trunk Ltd., which specializes in vintage rock T-shirts. "There is this huge opportunity for us," said Tomich.

The three partners have fixed their sights on mid-market owners of apparel firms who want to sell on the Web but are nervous about the hassles involved or the possibility of cannibalizing from their customer base. "If you take a list of the top 500 apparel brands, greater than 50 percent do not sell online still today," said Tomich. "Part of the reason is that they can't get their head around it. It doesn't fit into their operational infrastructure."

The partners cooked up the idea for their business following the dot-com bust. Tomich was working as an analyst at Shelter Capital Partners, an L.A. venture capital firm, where Morrison had an office as an e-commerce consultant.

Tandberg founded PayCom Inc., one of the leading credit card processing firms for Internet merchants. Before selling out in 2001, PayCom had reached worldwide revenues of over $400 million.

The three saw their opportunity after meeting the marketing director of Von Dutch and learning that the company was struggling to fill Web sales orders through e-mail and fax. "The e-commerce experience was very behind," recalled Morrison. "We recognized that immediately and said, ‘Yeah, we could do much better than this.'"

Onestop would do everything Internet-related for Von Dutch, from Web design to shipping merchandise to trolling eBay and other auction sites for counterfeit goods.

As for payment, they opted for a share of Internet sales instead of charging up front. "We have our skin in the game," said Tomich. "If the site is not successful, then neither of us are successful."

Onestop was established in 2003 just as Von Dutch's signature product – the trucker hat – became hot. "With the way that this company grew and as few people as we had multi-tasking, it would have been just another burden on our shoulders," said Chris Detert, Von Dutch's spokesman. "They are very good at what they do."

When Onestop got a second client, Los Angeles-based shirt maker Teenage Millionaire LLC, the company rented a 5,000-square-foot storage space to warehouse and ship inventory. They ended up staying only a few months before moving into their current space: a 50,000-square-foot warehouse in the Garment District south of downtown.

The facility is dominated by stacks of boxes filled with everything from hats to handbags. Along one of the walls is a row of offices for the technology, customer service and creative departments. At the far-end, photographers shoot models wearing merchandise to be sold on client Web sites. Onestop is also in the process of adding a bar code system that will allow employees to identify each product with the wave of a scanner.

Smaller retailers and manufacturers have little expertise in any of this. "It gets to a point when you say, ‘I am not handling this, I am not an expert in this,'" said Julia Cardis, a market analyst for Mintel International Group Ltd., which estimates that the online apparel market will grow 9 percent to 12 percent per year through 2009.

Onestop has several competitors, including Secaucus, N.J.-based eFashionSolutions LLC, which targets mid-size urban streetware brands, and King of Prussia, Pa.-based GSI Commerce Inc., which handles both apparel manufacturers and sporting goods retailers.

Edward Foy, eFashion's chief executive, said the biggest challenge is convincing apparel makers to sell online. "They want to be leaders when it comes to design, but they don't want to be leaders when it comes to technological processes," he said.

Foy said that his company will generate $35 million in revenues this year, but noted that that there are hundreds of brands still not selling online that could become big on the Internet.

True Religion was a recent convert, although Chief Financial Officer Charles Lesser remains cautious. "Our customers are wholesale customers, whether that is our stores or the Internet sites of our stores," he said. "You better have respect for those people."