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Dec.99/
Jan.00

Cyber Cigar $ales:
Thriving or Surviving?
by Bob Ashley

Who would have ever guessed that dot.com mania would spread its tentacles so voraciously throughout the retail industry in so little time? But while books and widgets sell by the boatload on the Net, are cigars really a viable cyber-product? And is anyone making any money on this?

Trying to avoid the Internet these days is almost like trying to avoid death. It canít be done.

Thatís why legions of established smoke shop owners have turned to the Internet to increase sales, whether they wanted to or not. To ignore the Internet as a sales and marketing opportunity would be to deliberately send customers elsewhere, sometimes to companies whose only retail presence is on the World Wide Web.

But there remain doubts.

Joel Sherman, president of Nat Sherman International, New York City, says that even though the companyís Internet sales increased 300 percent in the last 18 months, he isnít sure the medium provides the personal touch that serious cigar smokers look for.

"Cigar smoking is a very personal and aesthetic pleasure," Sherman says. "Itís not like gourmet food, or even wines. I donít think the product can be categorized, talked about, and described in the same kinds of words.

"Cigars are basically a touchy-feely product. Most people who design websites donít understand the personal relationship between the cigar smoker and the cigar. Iím not sure that it can be translated. We havenít found a way to do it. The fact that we do pretty well on the Internet is irrelevant. I donít think it does well enough.

"Cigars have soul, and the Internet just doesnít provide that for me."

Today's most advanced e-commerce cigar sites utilize the power of sophisticated database searches and real time inventory to give shoppers an accurate, interactive shopping experience. But some retailers believe just selling goods isn't enough: Chat rooms, bulletin boards, even live web cameras, all vie for visitor's attention.
Lew Rothman, president of publicly owned 800-JR Cigars (www.jrcigars .com), sees other, more concrete problems with the Internet.

"The average premium cigar smoker is not conducive for Internet sales," says Rothman, whose company operates ten retail stores in three states and the District of Columbia, and publishes an extensive discount catalog. "Most of the people on the Internet are kids. Down the road itís going to be a very effective sales tool for everything. But right now, itís questionable."

Nonetheless, Rothmanís website, which opened last spring, attempts to attract visitors with a real-time chat room and a bulletin board where customers can talk among themselves or pass judgment on cigars. The site also contains a search engine that allows customers to find cigars based on the combination of their strength, size, wrapper, and price.

"If you just have a website that sells stuff, there is no reason for people to stay on there for long periods of time," Rothman says. "It has to be more than just a place for people to order things. Itís very easy to price shop on the Internet without leaving your chair."

Retailers who think they gain from a web page that does nothing but advertise their location are mistaken, according to Rothman. "Thatís worthless. That just doesnít do it."

Internet shoppers, Rothman says, are impatient, partly because of the illusion that the Internet is an instant medium. "We had a guy who posted a message on our bulletin board who complained that heíd sent in an e-mail order 12 hours earlier and he hadnít heard back from anybody. He sent it on a Saturday afternoon, when we were closed, and he sat in front of his computer for the next day and a half waiting for somebody to e-mail him back.

"Every time someone signs on, they expect to see something new. If we advertise a bulletin-board special, the next day people start e-mailing asking what todayís special is. We ignore those. We canít devote that kind of effort into making it a daily newspaper-type thing. The Internet raises expectations beyond the reasonable. You canít be all things to all people"

Nonetheless, Rothman, like Sherman, is committed to the Internet. He is also getting ready to install a password-secured website for his wholesale division - Cigars by Santa Clara - which he expects to have working by the end of the year, that will allow retailers to order on-line.

David Garofalo, president of Two Guys Smokeshop Inc., Salem, N.H., (www.twoguyssmokeshop.com and www.twoguys.net), says Internet-only discounters are muscling out established retailers. "At the very beginning - weíve been on-line since 1995 - business was fantastic because there was no competition," Garofalo says. "Now the competition is unbelievable, and we canít go below a certain point with pricing. Some companies can beat our prices because they are nothing but an Internet address. We try to protect the brands. We are not a flea market."

Besides its retail outlets, Two Guys sells cigars through a quarterly catalog that costs $50,000 to produce, yet accounts for 50 percent of the companyís revenue. "That compares to less than 1 percent from the Internet," Garofalo says. "Weíve tried loss leaders on the Internet, and sales do increase, but not nearly as dramatically as when we put loss leaders in the catalog."

Two Guys has added an innovative touch to its website by hooking up a live camera to the Internet showing the interior of the store. "Occasionally, weíll hold up a sign in front of the camera saying that if someone is watching and they call within the next hour theyíll get an additional discount. Sometimes it works. Sometimes it doesnít," Garofalo says.

"The Internet is not going to go away, unfortunately. I wish it would. Itís a different way of marketing. I do a good job with the catalog. There is too much competition on the Internet."

The perception that all on-line-only retailers are discounters isnít accurate, says Karen Rys, chief operating officer of The Smokeshop.com, (www.thesmokeshop.com) headquartered in Concord, Ohio, a suburb of metro Cleveland.

"We discount only to our club members, usually on discontinued cigars," Rys says. "And we will send some targeted e-mail for that cigar."

The company advertises with e-mail messages to existing customers once or twice a month, and provides an extensive selection of popular brands in an on-line catalog.

Orders can be made via the Internet or through a toll-free telephone number, which also provides customer service. The company also allows customer reviews to be posted on-line.

"We appeal to two very distinct markets," Rys says. "One is the long-term cigar smoker who knows the brand that he likes and knows that he will get them if he orders them. The second market is young professionals, who like to experiment with different cigars.

"Our customers donít want to have the Ďdramaí of trying to buy at the cheapest prices from someone they donít know. Even though we are an Internet company, they want to be able to pick up the phone and talk to a human being. People should get the cigar that they want and customer service to go along with it."

And Rys disputes the common wisdom that it takes little capital to operate an Internet company.

"Our capital costs are pretty much the same as a retail shop," Rys says. "Iíve got a humidor thatís larger than a lot of retailers. Iíve got more face marks than just about anybody."

Advertising costs are high, she says, and include paying a bounty to other Internet sites to direct traffic to the companyís website.


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