CSN Stores, Amid Rebranding and Financing Rumors, Looks to Become “Amazon for the Home”

4/18/11Follow @gthuang

It’s pretty impressive what a couple of engineers have built here in the Back Bay. But truth be told, the engineers themselves aren’t all that impressed yet. That’s because they have their eyes on a bigger goal: running a billion-dollar e-commerce company.

I’m talking about Niraj Shah and Steve Conine, the co-founders of Boston-based CSN Stores, which just might be the world’s biggest online-only retailer focused on home goods. The company, which owns more than 200 websites including Cookware.com, Strollers.com, BedroomFurniture.com, Luggage.com, and EveryFaucet.com, is New England’s largest e-commerce firm, not counting big retail brands like Staples.

CSN Stores has gotten a fair bit of press lately—after years of no press—because of its strong revenue growth and bootstrapped culture. (The company has taken zero venture financing to date.) But its story also holds important lessons about navigating a very competitive market, using technology as a unique tool, and maintaining its culture through its growth. There are also a few rumors swirling around this company—about how it plans to rebrand itself with a more consumer-friendly name, and how it might be raising a growth financing round to go really big (more on those below).

The company started in 2002 and has been profitable basically since its inception. CSN Stores had $380 million in revenue in 2010—an increase of more than 50 percent over the previous year—and it is on pace to grow by about 50 percent again this year, Shah says. The firm just opened a new distribution and customer care center in Utah that will employ about 300 people, adding to the company’s headcount of some 750 worldwide. Shah, the firm’s CEO, says the firm will have more than 1,000 employees by year’s end.

An obvious parallel in terms of growth would be Amazon.com, the Seattle e-retail giant that started out as a bookseller. In fact, Shah says, “We’re Amazon for the home.” He notes that CSN has watched what Amazon has done in the areas of customer focus and user interfaces. But he’s also careful to point out the differences between the companies—a key one being CSN’s focus on home products and its “specialized supply chain” for items like furniture. By shipping directly from manufacturers, CSN has managed to offer a large selection without having to stock its own warehouses (at least up to now).

“We’re at a point in our life cycle, if we do it right, we should be able to grow consistently over the next [few] years,” says Conine, CSN’s chairman. “Look at how fast Amazon grew in the early years. We have the potential to do something similar, and to emerge as a new e-commerce brand.”

Indeed, if CSN gets really big, its main competition will come from huge retailers (and household names) like Walmart, Target, JCPenney, Macy’s, and Sears, as well as Amazon and large furniture stores. It will also be interesting to watch the rise of “mass customization” companies that let consumers design and personalize their own products—but how well these companies will compete with big retailers, especially in home wares, remains to be seen.

For now, Conine and Shah are focused on the challenges of continuing the company’s growth and promoting its culture. CSN (the name comes from the founders’ initials) is actually the duo’s third venture together since they were engineering classmates at Cornell University in the early-to-mid ‘90s. The firm has grown to the point where the founders now spend about half their time on recruiting.

“We’re looking for the same kind of people Google and Amazon are looking for,” says Conine. He sounds a lot like an engineer when he talks about his top criteria for hires: first would be “aptitude,” followed by being “more excited about the problem they’re solving than the technology they’re using,” taking criticism well, being constructive on a team and willing to make mistakes, and inspiring their peers. “Companies that succeed are ones that worry about getting the best people in and empower them to do their best,” Shah adds.

Besides people, of course, another big emphasis for CSN is its technology. Without getting too geeky here, what’s notable is that the company has built its own software systems to handle everything from enterprise resource planning to crunching vast amounts of customer data to doing product search and order management—all from the ground up. “We look at building systems to run our business,” Conine says.

And the key to CSN’s systems is automation. Its engineering team of 75 people runs software that integrates with some 5,000 brands and suppliers across 3 million products. When an order comes in, CSN’s software automatically checks whether the item is in stock using a reservation system plus statistics to account for how fast those items are selling that day—which is easier said than done, especially at high volumes. The end result, in almost all cases, is that UPS or FedEx delivers the item to the customer’s door without a hitch. There’s a lot going on behind the scenes, though: on a recent visit to CSN’s office, I watched developers monitoring three big screens on the wall, showing customers’ click-stream data, Web traffic spikes, and errors in the system.

That kind of real-time monitoring exemplifies the future of e-commerce, and to a broader extent, consumer Web systems. To that end, CSN uses a blend of traditional and open-source software for its toughest jobs—and it’s looking ahead to future platforms. To handle huge volumes of click-stream data and customer-tracking information, for instance, the company has started using Hadoop, an open-source storage and computing system, in addition to more traditional SQL database technology from Microsoft. “We’re just starting to get into how to deal with 50 terabytes of raw data,” Conine says. “Learn from today and plan for tomorrow.”

Stepping back a bit, there’s also an overarching lesson here about how and when to start a tech-based company. “People believe that to build a big business, you have to have a big idea,” Shah says. “We said, we’re going to build an e-commerce company selling stuff that others aren’t selling. The [usual] reaction is that other people must have done it.” Sure, there were plenty of companies trying to sell home furnishings online, but the devil is in the details—and the business fundamentals. Indeed, Shah says, the core idea behind CSN Stores is “not that exciting. We’re not creating Twitter. There’s an under-appreciation for [going after] a big market and executing well.”

In talking with entrepreneurs, Shah adds, “sometimes it’s as simple as get out there, start doing a good job, and keep your eyes open.”

Nevertheless, CSN Stores, like most successful companies, has had its share of difficulties. “Sometimes you’re growing fast, you wish you’d done things sooner,” Shah says, looking back over the years. At times, he says, “we were slow to bring people in who could help the company.”

One of the most challenging times was the recent recession. The company’s traffic, conversion rates, and the amount of money customers were spending were all declining fast. “We sell consumer discretionary products, and we’re also correlated to housing,” Shah says. “We took a step back, but we figured out what we were going to do, and stayed profitable through whole thing.” CSN went through a round of layoffs in late 2008 and early 2009, cutting about 40 people—10 percent of its staff at the time. “That was the only time in company history we had to let go of a large number,” he says. “It was pretty painful.”

The company got back on track the old-fashioned way. “We watched our costs really tightly,” Shah says. “We cut back on some advertising. We watched metrics closely. As we saw the market come back—we’re very quantitative—we became aggressive again with advertising. We didn’t have to cut some key strategic initiatives, [such as] our growth in Europe.”

Now CSN seems poised for its next growth spurt. “The next goal is to get to a billion in retail sales,” Conine says. “Over the next five to seven years, we could take the company public.” He emphasizes that any IPO is “still years off.” But those are very ambitious goals, especially for a company that hasn’t raised outside financing. (Venture capitalists, after all, like to say that you can’t build a billion-dollar company without VC.)

Which brings us to the current rumors. I’ve been hearing from investors around town that CSN is looking into raising a big growth financing round. The company declined to talk about any specific fundraising plans. Conine emphasized that CSN could continue to grow (and become a public company) without taking outside investment—but he left the door open for speculation. “There’s a question about whether it’s strategically smart to bring on institutional money at some point,” he says. “Having an institutional investor advise you along the way and have skin in the game could be beneficial.” Hypothetically speaking, he said CSN would be “too big for VCs” and probably better suited for private equity.

As for any company name change, BostInnovation reported on Friday (based on an internal company announcement) that CSN plans to rebrand itself as “WayFair.” In response to that report, a CSN spokesman told me that “calling it rebranding would be wrong at this point.” And in a statement, the company wrote, “CSN Stores as a name is not going away. We launch many new brands into the marketplace every year. Wayfair is a brand we are planning to launch this year, which we discussed at a recent company meeting.”

It’s no secret that CSN is looking to gain major brand awareness among consumers. With a catchier name, presumably the company could become more of a unified, return-destination site (like Amazon.com). But Conine was pretty cagey when I asked him early last week about any rebranding efforts. “We never intended for [CSN Stores] to be a consumer brand site,” he said. When pressed for more details on the company’s future brand name, all he would say is, “It’ll evolve.”

But he added that CSN’s main focus is on continuing to follow its game plan—growing carefully, building out technology, and focusing on customers. “Regardless of what name you use,” he said, “if you can’t deliver a consistent experience, it’s not worth remembering.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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