Newegg.com may be the best kept secret in L.A. business and a big one at that.
Since it launched in 2000, the City of Industry-based online retailer of computer hardware and peripherals, and now consumer electronics, has consistently been one of L.A.’s fastest growing private companies. This year it’s No. 77, last year No. 76.
In fact, its $1.5 billion in annual revenue makes it one of the few fast growing companies in Los Angeles with sales that top $1 billion, allowing it to boast being the country’s second largest pure online retailer behind only Amazon.com.
Newegg has clearly emerged from the pack. And while one day its pace of growth will likely slow, it is now the thirteenth largest private company in Los Angeles, according to another Business Journal list published last month.
Out of three massive warehouses in Industry, Memphis and Edison, N.J., the company ships 40,000 hard drives, memory chips and other orders each day, an amount its U.K.-based competitor Dabs.com takes two weeks to ship.
It’s a reflection of the company’s busy Web site, where customers spend an average of 20 minutes four times the 5 minute industry average for online retailers. Moreover, the average basket size for shoppers is about 10 times that of Amazon.com.
In an era where numerous competitors sell similar products, Lee Cheng, the company’s legal counsel, thinks the company’s success has largely been attributable to one thing.
“We’re fanatical about customer service,” said Cheng. “We like to think of it as a Nordstrom level of quality.”
But there is more to it than that.
Newegg.com is an online computer geek haven, a sort of a do-it-yourself tech equivalent of a Home Depot. Besides being able to offer lower prices than brick-and-mortar retailers, which incur more overhead costs, Newegg’s inventory beats its main competitor Fry’s Electronics by a mile. Fry’s might carry a couple dozen motherboards, compared to Newegg’s 600.
And while every other retailer will say its puts its customers first, Newegg appears to live its mantra.
It has a 24-hour customer service support via instant messaging on its Web site. The company also has an inventory data base that doesn’t allow customers to place orders of a particular item the minute the warehouses run out of it.
Unlike other online retailers, where an ad about life insurance might pop up at check out, Newegg.com is not inundated with advertisement. This bewildered Rick Quiroga, vice president of finance, when he came on board from an Internet service provider.
“When I was at Earthlink, we were always trying to generate incremental revenue, like two dollars for each subscriber. When I came here, I thought there was going to be a big opportunity to somehow monetize the Web site, monetize the customer,” Quiorga said. But management was adamant about not selling advertisement that would clutter the customer experience.
Clear vision
Newegg was founded by Chairman and Chief Executive Fred Chang and a handful of colleagues just as the e-commerce sector was about to crash. Between them they had just $1,000.
But Chang had a vision of a computer peripheral e-retailer that owned its own inventory. Chang had previously launched ABS Computer Technologies, which assembled and manufactured built-to-order systems mostly for gamers and high-end users. It served as a buying arm for the fledgling Newegg.
With a name that connotes new beginnings in Chinese, Newegg was profitable within the first few months. By 2003, the company had about 1,000 employees, and this year staff is up to 1,800, including 800 in China who handle the company’s management information systems.
In 2003, the company added consumer electronics, such as digital cameras and flat screen TVs, to its offerings. Without much advertising, the company saw its sales of lifestyle consumer electronics climb to $100 million the first year.
Today, some 600,000 unique visitors come through the site every day. But Newegg is not alone in its success.
Across the board, online retailers of computer hardware, software and peripherals, have been experiencing robust sales, and are expected to post about $20.5 billion in sales this year, up $2 billion from last year, according to Forrester Research. The market is projected to grow to nearly $30 billion by 2011.
“Technology upgrades used to be a niche market, but it’s become more main stream as we’ve seen a rise in a technically competent user base,” said Shaw Wu, senior analyst for American Technology Research who covers computer manufacturers. “The advantage Newegg has is that the brick-and-mortar stores that carry peripherals are somewhat limited.”
However the market is getting more competitive.
Fry’s is bolstering its own online presence, and Amazon.com continues to expand its own electronics and computer peripherals products. Moreover, manufacturers such as Apple Inc. and Hewlett Packard are increasingly moving into directly retailing peripherals for their products.
Newegg, though, is counting on its old-fashioned dedication to customer service to hold off the competition. In the past six months, Newegg’s customer satisfaction rating scored 9.9 out of 10, compared to Best Buy’s 2.1 and Amazon’s 6.2, according to Resellerratings.com’s, a user-generated online rating service.
It’s something that suppliers such as Advanced Micro Devices Inc., a manufacturer of computer chips, peripherals and components, have not failed to notice.
“They offer a very clean, customer experience,” said Larry McIntosh, director of North America for AMD. “Most online retailers want to capture as much sales as they can and take backorders. These guys show the product only if they can ship it. I think that’s why on-time delivery and customer satisfaction is so high.”
