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Giants like Target, Motorola and Microsoft are entrusting
Innotrac Corporation with the distribution of some of their core business
Services
Business Services
(INOC-NASDAQ)
Innotrac Corporation
6655 Sugarloaf Parkway
Duluth, GA 30097
Phone: 678-584-4000
Scott D. Dorfman
Founder, Chairman,
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - May 25, 2007
BIO:
Scott D. Dorfman
Founder, Chairman, President and CEO
Mr. Dorfman is the founder of Innotrac and has served as President, Chief Executive
Officer and Chairman of the Board of the Company since its inception in 1984. Mr. Dorfman
manages the executive committee and sets the planning, long-term marketing, financial,
sales and production goals for the company. Prior to founding Innotrac, Mr. Dorfman
co-founded and served as President of Features Mail Order Catalog, where he gained
experience in distribution, tracking and inventory control. Mr. Dorfman was employed by
Paymaster Checkwriter Company, an equipment distributor, where he developed and managed
Paymaster’s mail order catalog and developed proprietary software to track and
analyze marketing programs.
Company Profile:
Innotrac Corporation, founded in 1984 and based in Atlanta, Georgia, is a full-service
fulfillment and logistics provider serving enterprise clients and world-class brands. The
Company employs sophisticated order processing and warehouse management technology and
operates ten fulfillment centers and two call centers in seven cities spanning all time
zones across the continental United States.
CEOCFO: Mr. Dorfman, what was your vision when you
founded the company and where are you today?
Mr. Dorfman: “We founded the company 23 years ago
and I think back then we were trying to develop something that had not really happened,
which was to be a preeminent fulfillment company. As we evolved, the strategic vision that
we have today actually started around 10 years ago. We are focused on having an integrated
fulfillment operation nationwide across the entire footprint of the United States, with
fulfillment centers and call centers all integrated together. Therefore, we pretty much
can service retail direct-to-consumer clients, and ecommerce customers, seamlessly across
multiple facilities and be able to route orders to the best appropriate fulfillment
center. We have been very successful at doing that. We now have 10 centers across the
United States and all four time zones. We completed a very important part of our footprint
by acquiring a fulfillment center in Columbus Ohio late last year.”
CEOCFO: Is it typical in the industry to do the fulfillment
and the customer care?
Mr. Dorfman: “I would say that it goes either
way. The majority of the fulfillment companies do not do customer care. I think the high
profile companies have looked to do it; but we have always done it for this reason: We
want to have a single customer experience for our client so that there is no interruption
between services. If a customer just bought a service or a product, gets it shipped, they
can also have the care center know exactly where that product is. It makes it a higher
touch, better service offering."
CEOCFO: Who is your typical customer?
Mr. Dorfman: “It depends on the vertical. We have
several verticals. Our largest vertical is our direct-to-consumer retail, our ecommerce
vertical, and within that we have a multitude of high named companies starting with
Target.com (NYSE-TGT), and Ann Taylor Stores Corp (NYSE-ANN); brand names that you are
familiar with. That is our largest. Our second largest would be our telecommunications
sector which includes companies such as AT&T INC. (NYSE-T) and Qwest Communications
(NYSE-Q). We have a third sector which is our direct response sector, we have many clients
which market their products via direct response television and we service many of the
larger names in that market.”
CEOCFO: Where do you see the most growth coming from?
Mr. Dorfman: “A lot of the focus and where the
growth has been happening is in the retail, ecommerce sector where we are going towards
big brands like the Target.com; we are becoming their fulfillment arm so that they can
ship more product through ecommerce or through their internet site, out to their
consumers. We see that as a huge growth area for us and we have been focusing on that very
strong.”
CEOCFO: What is it about Innotrac that enables you to get
customers like Target.com?
Mr. Dorfman: “We think that we are probably the
preeminent fulfillment company in terms of service and economics. We are not necessarily
the least expensive, but we are competitively priced and we offer absolutely the best
service. Our IT platform that we operate under is as good as it can get, we have invested
a lot of money in it. What it means is we are able to implement processes on time and
effectively. The bottom line is we get the products out on-time if not faster than
anticipated, and accurately and we do that all the time. We are also ISO 9001certified,
which is an international standard for quality and process improvement which is very
unusual for a fulfillment services company.”
CEOCFO: Are you the part of the website that people do not
see or are you involved with the development of the website so that it works seamlessly?
Mr. Dorfman: “We do not have anything to do with
the actual creative part of the website; that is left up to our client. They will either
do it themselves or partner with a company that will do the front end of their website,
where we enter the process is once someone places an order we take it from there; from
shipping to returns and customer care. However, in the majority of the cases, we connect
directly to the web services provider, whoever is doing the website for the client and
then we will take the order from there and either route it through one of our fulfillment
centers or if it is set up for multiple fulfillment centers, we will route it based on the
best freight and delivery option is best.”
CEOCFO: You just opened a new facility; do you see the need
to open any additional?
Mr. Dorfman: “For 2007, we don’t anticipate
opening any new centers. We feel our footprint is more than adequate across the country
for our current needs. We opened two centers last year, one in Columbus Ohio, the other in
Hebron, Kentucky, which was for Target.com. At some point, we would like to have a
facility either in the southwest area or in the far northeast area.”
CEOCFO: What are the challenges in the fulfillment business
and how do you handle them?
Mr. Dorfman: “Our challenge is keeping our
pricing and our service offering competitive enough so that there is value add for the
client and we compete more with them internally. These large companies have a lot of
resources and we have to show them a value add, so that we look better both financially as
well as service offering wise and doing it themselves. That is something we work hard at
and always try to stay ahead of the curve, and if we’re not able to offer a
significant value then they would do it themselves. Most of the larger companies we work
with do have the capital to do it themselves so we have to be better than they would be
internally.”
CEOCFO: How do deal with far-flung locations as far as
management and being sure that you get the best quality from your people?
Mr. Dorfman: “We are a very culture driven
company so it starts with each center having a director, a senior level manager that then
reports into our senior vice president of logistics, Every month, the senior
management team, visit every center and we do an operational and a financial review. That
way we keep the culture intact and keep adherence to our financial and operational goal.
We go through a profit-loss review and also an operational review to find out how they are
doing. There are about 1500 employees and we try to stay pretty close to them.”
CEOCFO: Do you tend to have long-term contracts and what is
your retention rate?
Mr. Dorfman: “Yes and the retention rate is
great. One of our core strategies is to only do business with companies we feel are in it
for the long-term. We feel the customers or clients we work with are going to be around
for a long time. There is an investment on both sides. We have a significant investment to
bring a client up and the client has an investment. From our standpoint, we want to
integrate as seamlessly as we can into their organization so that it works the best. It is
also the more expensive way to do it and that makes it necessary to make certain that they
want to stay around for a long time and do not have any immediate desire to take their
fulfillment in-house, so that is one of the first questions we will ask.”
CEOCFO: What else is part of your core strategy?
Mr. Dorfman: “Labor is our number one issue in
terms of how fast we can do services and what our labor rate is in each market along with
the benefits associated with that and secondary, it is the facility itself and how much
automation we have to provide for a certain client. Some clients are fairly simple and
require a little automation and then you have the more complicated ones that have the
tremendous amount of sku's across a broad variety of products as well as volume and
everything else, requires significant resources and investment in equipment.”
CEOCFO: What is the financial picture at Innotrac?
Mr. Dorfman: “We have had a couple of years where
we have had some losses. This past fourth quarter has been very good from a revenue
perspective. Our revenue growth last year, 2006 over 2005, was over 69% revenue growth,
and up significantly for the year to date for those two years. We see that continuing and
a strong growth from a revenue perspective and a return to profitability for us. We are
anticipating to become profitable again in the second quarter of this year and be able to
keep it through the rest of the year. The revenue growth solves a lot of problems and we
have been able to generate the revenue consistently starting last year and it is going to
materialize into profits early this year.”
CEOCFO: Are acquisitions part of your strategy?
Mr. Dorfman: “They really have not been although
the Columbus facility in October was an opportunity that presented itself and we acquired
that through an acquisition of a competitor. ClientLogic who has merged with a company
called Sitel which is in the customer care business and as a result has become one of the
largest customer care companies in the country. They wanted to exit the fulfillment
business and worked out an arrangement with us where we purchased the assets and the
customers from their fulfillment group. We were able to add some impressive clients
including Motorola Inc (MOT-NYSE), as well as Microsoft (MSFT-NASDAQ) who were two of
their key customers. We are excited to be working with them.”
CEOCFO: Why should potential investors be interested?
Mr. Dorfman: “Our stock is trading below the book
value of the company. The book value at the end of last year was $3.45 and our stock was
trading below $3.00. That generally shows that there is value in the company. I will also
tell investors that generally earnings follow revenues. You see revenues increase; you get
leverage out of the business. Once the margins settle in, which usually follow the revenue
growth, and then you can see profit. We have had significant revenue growth; we have had
to invest in that to get it there so immediately there was no profit, but now that the
revenue is established and it is mature, we are going to see the margins start to smooth
out in terms of normal percentages. That will give us leverage which should result in
profit.”
CEOCFO: In closing, what surprised you most as the business
has developed?
Mr. Dorfman: “I would imagine that the ability of
a small company like us in 2007 will do $115-$110 million in revenue. A company like ours
is able to attract giants like Target, Motorola, Microsoft, AT&T and they entrust us
with some of their core business.”
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