What Newegg Hopes Its Shoppers Will Buy This Holiday Season

At least one other company is betting on the success of Windows 8.

Online electronics retailer Newegg is gearing up for the holidays by promoting tablets and laptops running on Microsoft’s new operating system. It doesn’t have much of a choice. Like Amazon, Newegg isn’t an authorized reseller of Apple products, meaning it can’t offer much of a deal on MacBooks and iPads.

Microsoft introduced Windows 8 last month, the biggest overhaul to its flagship software in two decades, as it tries to make up lost ground to Apple and Google.

Newegg is looking to decade-old relationships with companies such as Intel, AMD and Microsoft to undercut competitors. Its users are usually geekier types — those who like to experiment with building their own computers and electronics, said Soren Mills, the company’s chief marketing officer. Holiday promotions provide a boost because non-geeks stumble upon the site as they’re hunting laptops for loved ones, he said.

“We have an even broader customer base than we have during the rest of the year,” Mills said. “Throughout the holidays we’re running basically a constant stream of Black Friday-type programs.”

As Newegg prepares to provide twice as many deals as last year, it’s pushing ultrabooks, TVs and home audio equipment, and especially devices made by Samsung and software made by Microsoft, who are both partners. Traffic during the season can be three to four times the normal amount, and conversion rates jump because consumers are looking to buy gifts, Mills said.

Mobile shopping is also increasingly popular — with 10 percent to 15 percent of traffic coming from smartphones and tablets, Mills said. While the company, based outside of Los Angeles, has begun discounting some of its three million items this month, it launches its official holiday sale on Nov. 21.

Newegg can use the spark. The company filed to raise $175 million in an initial public offering in September 2009, only to withdraw its prospectus in May of last year. While it didn’t provide a reason, meager growth could be the problem. Revenue rose 7.4 percent in 2010 to $2.46 billion, followed by 9.8 percent last year to $2.7 billion. Sales at Amazon.com, the largest online retailer, jumped 41 percent last year to $48 billion, while revenue at online marketplace EBay climbed 27 percent to $11.6 billion.

Both of those companies held initial offerings in the late 1990s, at least two years before Newegg was founded. To attract public market investors, emerging companies typically need to be growing faster than their older rivals. Newegg is also less profitable, recording a gross margin of 9.4 percent in 2010, the last time it reported, compared with 22 percent for Amazon last year.

Mills declined to comment on whether the company is reconsidering going public or its current margins.

Relationships with suppliers will help it provide better deals on a wider array of electronics than its competitors, said Merle McIntosh, senior vice president of product management. Newegg works with Samsung, Intel and other companies to relieve them of excess inventory and promote certain items, he said, helping the online retailer keep costs low and pass on savings to customers.

“We have become — for a myriad of suppliers — the primary online source for helping solve problems or get products to market,” McIntosh said. “Whenever there’s an inventory situation that needs to be dealt with, we’re the first our suppliers call.”

Newegg expects three-day shipping that’s often free to help it stay on pace with Amazon during the holidays. It’s also subsidizing expedited delivery, so that products bought at the last minute will arrive on doorsteps before Christmas. The company will run flash sales and curate content, along with offering longer-term deals — more or less rolling the models of the deal sites like Groupon and Gilt Groupe into one.

“This is an opportunity for us to really shine,” McIntosh said. “It’s the time of year where we get a whole lot of people coming to our website.”

By Danielle Kucera and Ari Levy

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