Shares of online luxury goods retailer Ashford.com(Nasdaq: ASFD) didn't take long to fall below their $13-per-stub initial public offering price of late September, but the addition of new product categories and anticipation of the holiday selling season have provided some pop in recent sessions.
And investors scurried to snap up the shares today following the news of a deal involving that most hallowed of e-tailing buzzwords: Amazon.com(Nasdaq: AMZN). The shares rose as much as 30% this morning on news of a "multi-million dollar marketing initiative and a strategic alliance" between the companies. Only 30%? Serves them right for not sneaking the word "Linux" into the press release.
A few other details were available: The deal between the companies will run through Dec. 31, 2000 and thus encompass both this and next year's holiday seasons. Ashford.com will offer its products -- including diamonds, watches, sunglasses, and pens, generally from top names -- along with special deals to Amazon's customers who, Ashford is careful to point out, "may be interested in buying luxury and premium products online."
May? They had better be, since the company gave Amazon a 16.6% stake valued at approximately $11 million based on yesterday's closing price (though Amazon paid $10 million). By comparison, Ashford spent about $8 million on marketing and sales through the first six months of fiscal 2000 (ended Sept. 30).
The holidays are far and away the prime selling season for luxury goods, so if Amazon's e-commerce-happy customers aren't interested then the question may be not only whether this deal was a good idea but whether Ashford itself is a good idea. As sometimes happens, though, this may be a precursor to a buyout with Amazon testing the waters with a bit of its cash. Let's hope for the time being that Ashford was simply hedging with its statement.
Whatever the case, for Ashford to build on its buzz it will need not only to ink marketing agreements -- it's supplemented an offline ad campaign with deals with Yahoo!(Nasdaq: YHOO) and America Online(NYSE: AOL) -- but increase its usefulness to consumers by adding product categories, improving customer service and its interface, and continually bringing new brands to its stable.
It's been doing just that, and more than 50 of its Internet supplier agreements are exclusive -- a feather in its cap. Ashford also has what amounts to first-mover advantage, though there are always growing pains associated with establishing a new business segment. There's a long way to go with Ashford, and long-term investors should remember that marketing is only a small part of the story. With a ton of cash on its balance sheet, Ashford has the money to do things right. Execution will be the key.
