VCs bless Gazoontite
By Julie Landry
Redherring.com
December 17, 1999
Congested sinus and allergy sufferers, besides going to pharmacies,
can point their noses in a new direction for relief: the Web.
Among the new Web sites catering to nasal drip is Gazoontite. The
six-month-old startup announced this week it raised $26.5 million
from Hummer Winblad Venture Partners, Oak Investment Partners, and
Doll Capital Management, which also invested in an earlier round.
Gazoontite plans to use the new funding for a national expansion. In
addition to its Web and catalog operations, it currently operates two
retail stores in San Francisco and Los Angeles, with plans to expand
to New York, Chicago, and six other metropolitan markets next year.
Founder and CEO Soon-Chart Yu says his company's multichannel
strategy is key to distributing Gazoontite's hypoallergenic products.
"Consumers don't care if you're a pure-play Internet company," he
says. "They only care that they can find you when they need you."
Gazoontite is a phonetic spelling of gesundheit, the German term for
"bless you."
DOT-COM STORE FRONTS?
Gazoontite is one of a growing number of companies bolstering Web
operations with their own brick-and-mortar stores. Named
Gazoontite.com, its stores are reminiscent of computer manufacturer
Gateway's (NYSE: GTW) Gateway Country stores, places where customers
can talk to real salespeople and see real products. Startup firm
Vitamins.com, whose operations began with Vitamin Superstore
brick-and-mortar shops, recently renamed its stores Vitamins.com to
capitalize on the current Internet frenzy.
Mr. Yu says Gazoontite's offline stores originally were built to
drive traffic to the Web site. However, both stores currently are
profitable, he says. The company hopes the innovative approach to
modern retailing will strike a chord with consumers. "In the Internet
world today, everything you see in the retail world is just being
replicated," says Doll's David Chao, a Gazoontite director whose firm
provided financial backing, management support, and other incubation
services to Mr. Yu's company. Mr. Chao says that unlike other retail
"category killers" such as the Gap (NYSE: GPS) or Williams-Sonoma
(NYSE: WSM), which took years to combine Web and store sales,
Gazoontite will benefit from using all its channels from the
beginning.
Mr. Chao says the majority of his company's sales are expected to
come through the Web site, whose revenues are growing by 50 percent
monthly. The company struck a deal with online drugstore PlanetRx
(Nasdaq: PLRX) in October, which fulfills orders for prescriptions
placed through the Gazoontite site.
NOTHING TO SNEEZE AT
Prescriptions make up about $15 billion of the $30 billion "breathing
market," a term increasingly used by pharmaceutical companies.
According to the Asthma and Allergy Foundation, over 50 million
Americans are affected by allergies. Another 17 million people suffer
from asthma.
Mr. Yu, an allergy sufferer, says the idea for the company arose out
of the sudden popularity of air and water filtration, part of a
cleaner-living trend. While working at Clorox (NYSE: CLX) as a brand
manager, he took notice of the popularity of Clorox's Brita
water-filtering pitcher. "We will do for air what Brita did for water
-- make air a commodity that people think twice about to be
healthier," he says.
Gazoontite launched its first store, Web site, and catalog on May 1
with less than $1 million in angel funding. Products for sale include
hypoallergenic stuffed animals, skin care products, and vacuums, in
addition to more traditional asthma-care items such as air filters.
HEAD STARTUP
Unlike the market for specialized self-care items like vitamins, Mr.
Chao says Gazoontite's target market is large enough for allergenic
products to exist separately from drugstores. "It's a huge market,
even outside of prescriptions, that nobody's branded yet," says David
Restrepo, a health market analyst with Jupiter Communications
(Nasdaq: JPTR).
The company is relying on that lack of branding as its primary
competitive advantage in a market with a low barrier to entry.
Companies that offer printed allergenic-product catalogs could enter
the online arena, but Mr. Chao says it's probably too late for them
to overcome Gazoontite's lead.
The head start is both an asset and a challenge, because Gazoontite
is establishing a new umbrella category for its physical stores and
Web site. Success will be a matter of organizing the market under the
Gazoontite brand and educating consumers, says Mr. Restrepo.