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Newegg: Redefining E-Commerce in Challenging Times

September 07, 2021
(Photo credit): Newegg

CEO Anthony Chow leads the tech-focused retailer to a Nasdaq listing and record profits

When Anthony Chow rejoined e-commerce company Newegg in 2019, its path was uncertain. The company’s strategic position was unclear, sales had dropped, and corporate culture was in need of an overhaul.

It was a homecoming for Chow, despite the challenges ahead. He had co-founded Newegg some twenty years prior and held executive positions during its rise to prominence as the leading tech-focused online retailer in North America. In 2011, he left Newegg to work with the German e-commerce company OTTO Group, and later became vice president of Haier, a Chinese home appliances and consumer electronics company.

The lessons he learned leading multinational companies would be instrumental to Newegg’s turnaround. “When I rejoined the company (as CEO), I was committed to take the necessary steps to get the company back on the right track,” Chow says. “I believe that innovation and a growth-oriented mindset are vital to the future of any business.”

Within a year, Newegg increased gross profit by 66% and merchandise sales volume by 36% under Chow’s leadership. The company listed on Nasdaq in May 2021. Instrumental to the dramatic turnaround was the systematic overhaul of the company’s structure, transforming the business model to increase revenue streams, optimizing relationships with vendors, and working with East West Bank to increase working capital.

Refining supplier relationships

Chow’s first order of business was to increase cash flow. After an extensive analysis of the company’s existing business, he made the strategic decision to discontinue money-losing products, shutdown unprofitable business divisions, optimize products that were in high-demand, and promote high-margin services.

Refining Newegg’s product selection meant improving relationships with suppliers, which include global organizations such as Intel, Dell, Microsoft, and Samsung, among others. He successfully executed an innovative strategy aiming to establish a “quarterly strategic partnership execution program,” wherein Newegg provided customers and suppliers much needed support to ensure that “the right products, were presented to the right customers, at the right time.”

Anthony Chow, CEO of Newegg
“I believe that innovation and a growth-oriented mindset are vital to the future of any business.”

-Anthony Chow

“We shared with our vendors a lot of data from our robust business intelligence program,” Chow says. “I personally flew out to Taiwan to meet with some of these vendors to promote the benefits and the support they would be getting through our platform. This is how we created mutual trust, which motivated them to put more of their products on the Newegg platform, instead of other e-retailers such as Amazon. I believe in the power of personal connections, which often lead to new business opportunities.”

Evolving the marketplace

In addition to its direct-to-consumer business selling computer hardware and consumer electronics, the Newegg platform is a marketplace for third-party sellers. Newegg worked aggressively to build a platform that charges competitive—and, at times, the lowest—commission to vendors.

“We charge 8-15% commission, which is very competitive,” he adds. “I also created a robust team in China to drive new business to our platform. Our team focused on building relationships with vendors and emphasized the benefits of using Newegg’s marketplace platform. When we started the process, most of the businesses and vendors we approached were already selling on Amazon, but our competitive commissions played a big role in bringing them over to us. We were very much aware of their business model of maximizing profitability, and they understood that the more products they placed on Newegg, the more money they would make. It was a win-win strategy for us and our vendors.”

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Additionally, the company established the Newegg Partner Services (NPS) business, which offers business support services to vendors on the marketplace, including logistics, advertising, and technology solutions.

Chow saw an opportunity to help sellers and vendors in China conduct business on Newegg. He understood that providing vendors the opportunity to sell their products through the Newegg platform was not enough. Many vendors needed help to differentiate themselves and remain a step ahead of competition. “We tailor our services based on the needs of our vendors. One vendor needed more brand awareness, for example. So, we hired a social media influencer to help them create rich high-tech content to raise their profile,” Chow says.

Creating a sense of ownership

Internally, he set ambitious goals to overhaul the company structure, incentivize employees to improve their performance, and transform the company into a matrix organization, which is a decentralized system of approximately 70 different teams, or “domains” throughout the company. Each domain acts as an independent micro-enterprise.

“The domain leader runs this business like their own business,” Chow explains. “The idea was to create a lot of regional CEOs who understood the needs and the challenges of their local markets, and we put revenue-sharing incentives in place to reward the teams that reached their goals. This organizational structure is easy to understand, easy to manage, and domain leaders are prepared and incentivized to treat their segment as their own business.”

(Photo credit): Newegg
"Since we have banks in both U.S. and China, Newegg can further leverage our cross-border banking platform to enhance their expansion in China and to support business initiatives to grow their marketplace business."

-Linda Lee

Leading the fight against COVID-19

At the onset of the pandemic, Newegg enacted commitments to address dangerous supply shortages that stemmed from the widespread and unethical scalping of masks and hygiene products. The company leveraged its supply chain durability and strong vendor relationships to provide customers and essential employees with access to masks, household staples, medical supplies, and other necessities. This included donating masks to a large medical facility near Newegg's New Jersey distribution center, where 40% of the state's COVID-19 patients were hospitalized.

Additionally, Newegg Logistics—the third-party logistics arm of the company—played a vital role in the broader response to COVID-19. The massive, immediate shift to bring work and schooling into people’s home placed enormous strain on e-commerce to deliver popular technology and household goods. At the height of the pandemic in March and April 2020, Newegg’s logistics maintained a same-day order fulfillment rate of 97.7%, with average delivery completed in fewer than three days and, in key metropolitan areas, one-day delivery times.

A financing partnership that drives success

During the pandemic, Newegg was able to keep its supply chain intact because of the strong vendor relationships that it had built over the years with help from East West Bank, which provided inventory financing and working capital.

“Our banking relationship with East West Bank has grown stronger over the years, especially due to the support we received during the pandemic’s challenging times,” Chow says. “East West Bank offers products and services designed to help us optimize our cash flow and make our processes more efficient. They are more than just a source of financing and treasury management for Newegg. We see a partner in East West Bank.”

Linda Lee, senior vice president of the bridge banking team at East West Bank, helped the company finance its trade cycles over the years. “For a company with billions in sales revenues, it needs a loan facility that can support their business dynamic and different borrowing needs,” says Lee. “Our loan structure provided a flexible and effective solution to support Newegg’s business growth throughout the year, during the low and high seasons. Since we have banks in both U.S. and China, Newegg can further leverage our cross-border banking platform to enhance their expansion in China and to support business initiatives to grow their marketplace business."

Opening a Shanghai warehouse

Newegg currently operates a 43,000-square-foot warehouse in the Yangshan Free Trade Zone in Shanghai, which is an important piece of Newegg’s global infrastructure. It became operational earlier this year, acting as a freight collection and fulfillment center for its marketplace vendors and third-party logistics clients. From there, Newegg transports merchandise to North America by freight and air as part of its partner service ecosystem.

“We see that the relationship with East West Bank provides us with access to a lot of untapped potential for our China business,” Chow says. “We can utilize the wide breath of financial services East West Bank offers in this respect, such as extending credit to sellers and vendors, access to payment systems, and more.”

Chow advises other entrepreneurs not to be afraid of making mistakes while exploring innovative solutions, but to be daring when making decisions. “You must also challenge yourself, day in and day out, and challenge the people around you to do the same and be able to reach their potential,” he says.

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