PhillyDeals: King of Prussia's new Kynetic L.L.C. among the top private Internet firms

In this punk U.S. economy, familiar places keep vanishing.

Our neighborhood Borders, one of my cable-TV-deprived kids' favorite hangouts, shuts this week.

The old Circuit City across the road, where we got our first mobile phones and our first factory-boxed PC, is empty again, after another electronics chain found that it couldn't make money there, either.

Let 'em go, said Michael G. Rubin, who last spring sold the online-retail contractor and warehouse company he built and ran, King of Prussia-based GSI Commerce Inc., to eBay Inc. for $2.5 billion.

As more Americans shop by smartphone and computer, GSI and its giant rival Amazon.com Inc. helped kill discount chains and replaced them with centralized "pick-and-pack" facilities that do online "order fulfillment," replacing masses of retail-sales jobs with a few programmers and a lot of warehouse workers.

Under the eBay deal, Rubin kept three ex-GSI business lines, which he has combined into a new, privately owned company he plans to announce Monday called Kynetic L.L.C. (Why that spelling? "My daughter's Kylie.")

When the eBay deal was announced, Stifel Nicolaus & Co. Inc. analyst Jordan Rohan estimated that the businesses Rubin was keeping had sales of $700 million last year. To justify eBay's investment and continued backing, Rubin will have to boost sales quickly, Rohan told clients in a report. Rubin said that sales could hit $1 billion next year, and that employment is already close to 1,000, with "hundreds" of permanent and seasonal hires next year.

That puts Kynetic somewhere below Facebook Inc., in a class with Zynga Inc. and Groupon Inc., among the largest private Internet companies, Rubin said.

Kynetic is camped temporarily at landlord Brian O'Neill's office as Rubin prepares to move with an initial 150-plus headquarters staffers to O'Neill's Milennium 2 building in Conshohocken, close to Rubin's home, and also, last week, to the flooded Schuylkill.

Kynetic includes:

Fanatics, a Jacksonville, Fla., office and warehouse that sell college sports paraphernalia under licensing agreements with 75 colleges, plus Rubin's King of Prussia-based NFL Shop, NBA Store, and NHL, NASCAR, and Major League Baseball e-commerce lines. Fanatics employs 200 in Florida, 100 in King of Prussia, plus hundreds of supporting workers at eBay.

"It's a $600 million-a-year sports- merchandise business," Rubin said. "That's more sports gear than Target sells. Or Wal-Mart."

Team sports gear works well online "because there's tremendous complexity in the products they sell," said Rubin lieutenant Fiona Dias. "Men, women, kids, pets, all the teams, all the players, all the sizes." A well-programmed warehouse crew "can manage these things."

ShopRunner, a 2010 start-up shopping service (eBay is a minority owner), with a staff of more than 30. Members pay $80 a year and get standardized ordering and free two-day shipping. "We've got 49 sites live and dozens in the pipeline," and "hundreds of thousands of customers," said Dias, Chief Strategy Officer. "Our biggest are Toys R Us and Newegg electronics. We do Walgreen's consumer drugs. For Domino's, we do pizzas."

Ru La La, a Boston members-only shopping-deal website bought by Rubin in 2008 that claimed $200 million in revenue last year. It employs more than 400 in a Boston office and a Kentucky warehouse.

"Stores serve an important purpose, but the model is becoming more and more challenged," he said. "I now have a business focused 100 percent on growth on the Net, without the liability of the stores. That's a great place to be. There'll still be malls, but it's going to be more difficult each year. The growth in retail is from e-commerce."

The eBay agreement provides financing, call-center, warehouse, and software support for Kynetics' lines. Doesn't that make Rubin eBay dependent, as the California-based company struggles to remake itself from a private-auction venue to an Amazon competitor?

Rubin prefers to see eBay as "a critical strategic partner," alongside "Ralph Lauren or Estee Lauder" and other retailer-partners.

Won't he try to sell shares when the investment bankers offer to stack more million-dollar bills on his desk?

"It's heavenly not to be public. Look how we're dressed," Rubin said, noting his and Dias' jeans. "When you run a big public company, you spend 20 to 30 percent of your time on HR, legal, security, Wall Street analysts."

Plus, Rubin added, leaning forward as his clear eyes open wide: "I really like being private, and reporting to myself."

 


Contact Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.