When K-tel International announced plans to launch an Internet retailing division in Calabasas in 1998, the company's stock rocketed from $6 to nearly $68 in under a month.
Investors could hardly be faulted. Unlike companies rooted in brick-and-mortar retailing, K-tel was already something of a virtual mall--peddling records and kitchen gadgets on TV for 35 years.
But K-tel floundered anyway, despite its proven product line, distribution network and brand identification. The company's shares are back down in the $6 range, and company officials are revamping the Web site (http://www.k-tel.com).
What went wrong? Company officials and others point to marketing, saying the K-tel experience is evidence that selling goods over the Internet requires a strategy all its own.
"Just because a company has a successful business model doesn't mean they can bring it over to the Internet," said Douglas Christopher, an analyst with Crowell Weedon & Co. in Los Angeles.
K-tel, a pioneering TV marketer, is best known for its compilations of Top 40 hits. The company doesn't have any retail stores of its own, but it does market its products through other brick-and-mortar retailers, wholesalers, distributors and licensees.
Randy Malinoff, general manager of K-tel's 10-person online operation in Calabasas, blames poor sales on an uninspired Web site.
"We're rebuilding the site because the original Web site that was built in May of 1998 is inadequate in terms of the standards that have developed since then," he said.
Malinoff said K-tel's online plan is to revamp its Web site into an electronic version of a music store that includes 250,000 titles as well as thousands of videos and DVDs. Browsers will also find news and information on the music industry and stories on featured artists.
The new Web site, scheduled to debut March 15, "will be like walking into a retail store," Malinoff said--but one with "a retro feel that will be a reflection of what the company has meant to consumers for decades."
For the most part, that means compilations--of love songs, dance tracks, country hits--you name it. But K-tel also made a name for itself with TV commercials selling now-nostalgic household products like the Veg-O-Matic. Malinoff said the new Web site might have some fun by including icons like "Search-O-Matic" and "Browse-O-Matic" for navigating the site.
"Our general direction is to make it retro and make it fun," he said. "The consumer knows K-tel for compilations, so we want to take advantage of that."
Marc Adler, an Internet commerce consultant, said K-tel has the right idea in redesigning its site.
"The great thing about the Internet is that you can reinvent yourself whenever you want," said Adler, president of Atlanta-based Macquarium Intelligent Communications.
Adler said one of the biggest challenges for online retailers, ironically, is to achieve the same kind of merchandising and marketing on the Web that successful brick-and-mortar retailers achieve in the real world.
"If you walk into a successful brick-and-mortar store, they're telling you right away what you should buy, just by the way the merchandise is arranged and by lots of other techniques they've refined through the years," Adler said. "Internet retailers have to figure out how to do the same thing on their Web pages."
Adler said the tricks of online retailing have to do with how the page is designed graphically, how different pages of the same site are linked, and how easy or difficult it is to shop.
"It has to be very easy to buy something or the site won't work. You shouldn't have to be a computer expert to buy something online," he said.
Making K-tel's site more appealing and easier to use are among Malinoff's goals.
"When our site was originally designed, the industry standard might have been six or eight [mouse] clicks to buy something. Now it's more like two or three," Malinoff said.
One reason Amazon.com has been so successful at generating sales, Adler added, is that the company developed proprietary software that makes online shopping simple, in part by greatly reducing the number of mouse clicks required to make a purchase.
Malinoff said the company also has announced a number of online ventures recently, including banner advertising on the Internet, a new online radio station that is linked with Microsoft's MSN network, and a custom CD site in partnership with catalog retailer Damark International.
K-tel finds Internet retailing "particularly attractive" and "intends to continue to invest in marketing and enhancing K-tel.com," the company said in its 1999 annual report.
However, it added, operating losses relating to its online business are likely to continue and it cannot predict when it may become profitable because of intense and growing competition in the online world.
K-tel's e-commerce division lost $432,000 on revenue of $242,000 for the first fiscal quarter ended Sept. 30, down from a loss of $571,000 on revenue of $50,000 for the same period in 1998.
The first-quarter loss followed a full-year 1999 operating loss of $2.2 million on revenue of $400,000, according to company financial statements.
Overall, parent company K-tel International lost more than $11 million last year on revenue of $78 million before returning to a $2.9 million profit on revenue of $18 million for the first quarter of this fiscal year.
K-tel's online traffic quintupled during the first fiscal quarter compared with the previous quarter, according to company financial statements. The company's challenge, according to analyst Christopher, will be not just to boost online revenue but to make that revenue profitable.