Jul 1, 2007

Telling Their Stories, Changing Their Lives

Novica has developed a business model that other companies probably wish they could implement—one that is at the same time innovative and philanthropic. The online retailer of art and crafts is bringing a new wave of unique, handmade products to customers worldwide, and by doing so,it is changing the lives of the people in developing nations who make these goods.

Using an atypical method of buying and distributing its merchandise, Novica focuses on developing relationships with individual artisans and cultivating a supply of distinctive pieces. Gaining access to a wide variety of authentic works has helped Novica quickly differentiate itself from other retailers. It has also given the artisans a tremendous opportunity by
providing them with a global market that they would not have been able to reach otherwise.

José Cervantes was working at BCG when Novica was founded in 1999 by one of his college friends from Stanford, and after helping establish the company’s Mexico office, he was brought on board as managing director for the Mexico region.

“We just thought the idea of a worldwide market for arts and crafts was something that made a lot of sense,” said José, who now works at Novica’s headquarters in Los Angeles as vice president of sales and operations. “We could connect artisans from developing countries with the market, and by doing so, we could help preserve the arts-and-crafts tradition. And once we decided how we would use the Internet to do it, it was the perfect way to make the connection between the producers and consumers.”

All of the artisans Novica works with are from developing countries in seven regions that were chosen because of their strong arts-and-crafts cultures. The offices in Brazil, Peru, and Mexico were opened with local contacts the company already had, while the Bali, Thailand, India, and Ghana locations were started from scratch after the Novica founders saw the strong market potential in those countries.

“In India, there are places where the whole village depends on certain arts and crafts,” José said. “In Peru, there’s a town that lives on the ceramics the artisans produce.”

By bringing its new way of doing business to these countries, Novica has helped the local artisans realize a once unimaginable level of success. As José explained, under the traditional business model, a buyer purchases a large volume of goods, driving down the price paid to the artisan. By the time those goods are shipped to a country such as the United States and sold to a department store, the consumer price is 10 to 20 times more than what the artisan received.

“The buyers are just after the best price. They’re not preserving the art, and also the customers are paying a lot more for each item,” José said. In contrast, Novica goes directly to communities in which the livelihood of residents depends on arts and crafts. It pays above-market prices for the products, and because it ships directly from the country of origin to the end consumer, it can still sell the goods for less.

“There are places where consumers can’t get authentic arts and crafts and we are able to provide them at a low price,” José said. “It’s also a priority for us to create something sustainable for the artisans through these relationships. We try to work with them on the business aspects of their operations, and we’ve been able to help some of them improve the quality of their products.”

When the company was starting up, Novica employees simply recruited artisans by telling them about the idea and photographing their products to sell on the Web site. Then, if a piece sold, they would return to the artisan, pay him or her for the product, and take it away for shipment. As the artisans saw how simple it could be to sell their work, more and more became willing to work with Novica. In fact, José said, some of them now work exclusively for Novica—because it is so profitable and convenient for them—and have built homes and put their children through college as a result.

“We’re able to work with the artisans and pay them fairly for their goods, so it makes sense for them businesswise,” José said. By establishing a reliable network of artisans in different countries, Novica can guarantee quality and time of delivery while streamlining the supply chain. The company does not have to depend on what local buyers stock in any country at a particular time. Novica has regional distribution centers that house local stock—all of which is featured among the 25,000 items on the company’s Web site. When a customer places an order online, the product is shipped directly from the region where it is made and can still arrive in two to six days with expedited shipping.

“We’re importing these items in real time. There are really no other companies that do that,” José said. “We went out on a limb to do this, and it has paid off for us. Other companies that have tried similar ideas generally have had central offices and warehouses in the United States. They haven't established offices in the regions; they've just sent buyers there. They've ended up with a lot of stock in the United States and haven't been able to be as responsive to the demands of the market. Also, they've ended up with a lot of their capital tied up in inventory.” Novica has tried to differentiate its product offering by focusing on higher-quality goods, with an average order in the range of $80 to $100. To illustrate the value of the products, the company packages an artist biography and product card with every order and also certifies that everything is authentic and made in a traditional manner. “We’re giving them the story behind the product,” José said. “A lot of our customers really like that. Aside from knowing that they’re helping a particular artisan, I think they like seeing the whole story and being able to talk about it with their friends.”

Another factor in Novica’s success is its association with National Geographic, which owns 19 percent of the company. National Geographic provides worldwide name recognition, which is critical when selling items over the Internet solely on the basis of a photograph. It also provides a mailing list of 25 million current and former subscribers to the magazine.

With tens of thousands of products typically for sale on the Web site, a global customer base, and products from around the world, running Novica involves a tremendous amount of logistical coordination. José said his BCG experience has helped him particularly in that area of the operation, as well as with setting pricing strategies and optimizing the supply chain to reduce variability and keep shipping prices low. “A lot of the expertise I’ve brought to this company comes from BCG,” José said. “When I was with BCG, I worked on a project in Mexico for a white-goods manufacturer, studying its logistics and streamlining its supply chain. That has been directly applicable to the work with Novica.” José’s time at BCG working with clients who were willing to think in unconventional ways has also given him an appreciation for what Novica is doing and for the success the company has realized by establishing its own business model.

“Our way is hard to do because we have to really get to know the artisans. But at the same time, that also makes the barriers to entry for competitors significant,” José said. “It has been tough for us. We made big investments during some difficult economic times, but we made it through. And now that we have established our system, I think we’re bringing a great service to the global market.”