With Amazon dominating the online retail landscape, how do smaller e-commerce players carrying third-party products without Amazon’s basement prices and unparalleled supply-chain efficiencies strategize to stay relevant, competitive and thriving?

This story first appeared in the June 19, 2013 issue of WWD. Subscribe Today.

That question keeps Dan Obegi up at night. As the chief executive officer of DermStore Beauty Group, parent of beauty e-commerce sites DermStore.com, Blush.com and HairEnvy.com, he is charged with cultivating a successful niche online by luring customers whose needs aren’t entirely fulfilled by Amazon and convincing brands that his Web sites offer unique and important points of differentiation.

“The e-commerce store of the future, I think, will be defined by what Amazon is and isn’t,” said Obegi. “More interesting for me [is] what Amazon isn’t. Amazon doesn’t help build brands, doesn’t help build demand. They just fulfill demand. We will need to focus on creating value above and beyond what demand fulfillment in historical e-commerce was.”

Added value is connected to information, service, media and advertising, according to Obegi. Expert information, for example, can distinguish one site from another. Obegi pointed to Bbqguys.com, which provides tips on barbecuing from people who are pros at it, and OpenSky, which gets celebrities and tastemakers to recommend products, as sites that make good use of expert information. DermStore has tapped a variety of experts to help address customers’ concerns and find the right products to remedy those concerns.

Enabling information sharing can also be a value-added element of Web sites. Obegi singled out Fab.com, which shows customers products that are trending and what their friends are buying or looking for, as providing a useful platform for sharing. At DermStore, he said, the problem with customers sharing information is that they might be searching for products to resolve conditions like rosacea or acne that they don’t feel comfortable sharing with others, but DermStore can figure out ways to enable its customers to share reviews and articles that won’t make them uneasy.

When it comes to service, DermStore can enhance its ability to engage consumers with customization. On Blush.com, for instance, a customer may take a survey and then, by matching that survey with data about customer purchases and Web surfing behavior, the site could be tailored to that customer’s preferences. On top of that automated customization, shoppers could have access to product suggestions made by makeup artists, dermatologists and similar beauty experts. “We will have many, many more guest curators who are helping make smaller collections within a massive collection,” said Obegi, who noted DermStore carries 26,000 items.

Online videos are critical tools to enhance both information and service. DermStore, which has built a 5,000-square-foot video studio at its offices, is learning from both Joyus and QVC, and has plans to produce live videos featuring products for purchase as well as shorter scripted shopping segments. “If E Entertainment can create a TV channel around a category, why can’t we create a narrow cast online around a category and actually distribute it into DirecTV and into Netflix, maybe Hulu?” asked Obegi. “There’s a new paradigm in video that it doesn’t really matter where it starts.”

Web sites can make themselves valuable to brands as well by generating editorial content and taking the lead in advertising. DermStore has a quarterly magazine with 125,000 subscribers that will possibly become a monthly. Ultimately, Obegi envisions that the company could act akin to an advertising agency that places ads to spotlight products and brands that DermStore sells. “There’s a real opportunity to disrupt the agency model where you find somebody like me who is willing to take all of the financial risk as well as significant financial upside and be a clearinghouse for your inventory and turn it into cash to buy advertising,” he explained.

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