RealTime IT News

The Right Start: The Revenge of Brick-and-Mortar

After reporting earnings last week, eToys (ETYS) has been in a downward spiral, plummeting from 61-3/8 to 50-3/8. Yet, the stock still has a tremendous market capitalization: $5.7 billion.

This is still much larger than the market capitalization of Toys R Us (TOY), which stands at $3.7 billion.

By all accounts, Christmas should be stellar for toy etailers. For example, in the eToys quarterly report, the company's revenues of $13.3 million beat many analysts' forecasts.

But eToys will not be the only beneficiary of the Christmas surge. Other companies such as Amazon.com (AMZN) will see strong revenue growth.

However, there is one company, which has been under the radar screen, that should get a pop as well. The company is The Right Start (RTST) .

Okay, it has its roots as a brick-and-mortar retailer, focusing on children up to age six (there are 45 stores). Though, it is a massive market of about $25 billion per year -- and the market is growing. For instance, there are four million babies born every year in the US. On average, a household spends $4,000 per baby per year.

At the end of July, The Right Start launched its Web site and within 90 days, e-commerce revenues reached $1 million -- without an advertising budget. Instead, the company has been pursuing a "clicks-and-mortar" strategy, such as by cross-promoting the site within its retail outlets with signage, hanging banners, shopping bags, coupons and catalogs.

The company will not rely solely on cross promotion, but also extensive advertising. Already, $6.5 million has been allocated for a marketing campaign, such as for TV, radio, print and direct mail. The TV spots, for example, will get national exposure for "Oprah" and "Martha Stewart Living."

The Right Start has been in existence since 1985 and recognizes that new parents demand high standards. They want quality products and strong customer service. So, RightStart.com provides free shipping/handling, same-day shipping, a 100 percent in-stock policy and return of merchandise to retail outlets.

The management team is strong. For instance, The Right Start recently hired Scott Harvey, who was the senior vice president at Tickets.com (this company is expected to go public this week, backed by Morgan Stanley).

Conclusion

RightStart.com is a division within The Right Start corporation and was established by a private placement of $15 million from venture capitalists Sierra Ventures and Palomar Ventures. In all, The Right Start owns two-thirds of RightStart.com and could easily be spun-off as an IPO.

RightStart.com is currently generating $350,000 per week in revenues. Yet, The Right Start has a market capitalization of a paltry $76 million. In other words, compared to eToys, the markets are woefully undervaluing The Right Start. But as The Right Start continues to execute on its business model, this should change very rapidly.


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