The online retail shake-out: GSI's Rubin

Retail sales are down; even online sales are flat. But online's still doing "10 to 15 percentage points better than brick and mortar retail," and that leaves opportunity in an unsettled market, says Michael G. Rubin, chief executive at GSI Commerce, King of Prussia, which handles online shopping orders for Toys R Us, the NFL, Dick's Sporting Goods, Estee Lauder, Ralph Lauren and other national retailers.

Hershey's recently closed its online retail site, citing the cost of free shipping and customer service. I asked Rubin if there's a shakeout as his industry matures. "There are changes happening. The top 500 online retailers are growing nicely; the small are becoming irrelevant," he said. "It's an economy of scale." Amazon.com has trained customers to expect quick, free or cheap home delivery. "Small firms can't do that," and some big firms don't like the hassle. "They're seeking a company like GSI."

GSI's "order fulfillment" division employs 4,000 at a warehouse complex in Kentucky and at sites in Canada, the U.K. and other countries. Rubin figures GSI makes eight cents to a dime on every dollar of online sales. Its other, smaller business, online marketing services, employs 600 helping firms reach would-be customers online; it's more profitable, earning around 25 cents per dollar of sales. GSI added 50 people earlier this week when it bought Pepperjam, a Wilkes-Barre online ad software firm, for an undisclosed sum, to add to the services unit.

GSI passed another milestone when one of its main longterm investors, Softbank, unloaded its shares in a $230 million-plus secondary offering last month that included $88 million in newly-issued share sales, without wrecking the market for the stock. John Malone's Liberty Media and Rubin remain major investors; Rubin said the stock is more attractive to institutional buyers now that more of it is in public hands.