In November 2008, Gerry Harvey issued SmartCompany with a challenge – find 10 Australian online retailers who are making “real money”. Harvey was convinced the world has been conned by online retailing, claiming the concept is “a complete waste of time”. Sorry Gerry, you’re wrong.
While Australia’s online retailing scene remains dominated by big foreign-owned players such as Amazon.com, eBay and Apple’s iTunes, thousands of smaller Australian companies have built strong brands and solid sales by catering to niches of the retail sector.
And Australian shoppers are increasingly voting with their mouses. Recent figures from business research firm IBISWorld show Australian online spending will grow by about 5.5% annually for the next five years, from $15.1 billion in 2007-08 to $21.2 billion during 2013-14.
Australia’s biggest online retailers say if businesses are looking to survive – especially through the downturn – they need to meet customers on the web.
Fred Milgrom, who founded and operates Zazz.com.au (which has based its business model around offering one heavily-discounted product for sale each day) says all retailers need to be online.
“If you want to survive in retailing, you need a strategy to cope with online sales. You have to think about it and not ignore it,” he says. “More and more people will move online, because it’s fast, convenient and you get better value for money.”
Craig Reardon, director of online solutions group The E Team, agrees and says Australian business leaders – like Gerry Harvey – have been too slow to grasp the online selling trend.
“Australian retail as a whole just really doesn’t get the online thing. They don’t understand there are people behind computers, the value of whom is just the same as someone who walks into the shop.”
Veteran online retailers such as Paul Greenberg, who operates Australia’s largest online department store Deals Direct, and Naomi Simson, SmartCompany blogger and founder of online gift retailer RedBalloon, says many Australian retailers have misconceptions about how online retailing actually works.
“It’s hard work. If anyone thinks this is just two guys sitting in a small house, like the two guys who started Google, they’re wrong,” she says. “We have a massive warehouse and employ plenty of staff; this is a full-size operation.”
While the convenience and flexibility offered by the internet offers many advantages over traditional bricks-and-mortar, the age-old rules of retail – such as the importance of brand, customer service and supply chain management – still apply.
“The fundamentals of marketing remain the same,” Simson says. “Do I trust that brand? Can I rely on them to deliver what they’ve promised? None of that is negated because it’s online.
“But one of the great things about online is that it’s quite egalitarian. I could be a small business, but if the customer was having a better online experience at RedBalloon than at David Jones, they’re going to buy from me. It’s not about the size of the organisation, it’s about the experience,” she says.
“But at the same time, online shopping requires a lot of trust. When you try and sell something unknown you’ve got to really trust the description and images.”
Another advantage of online retailing is being able to receive customer feedback almost immediately through surveys and polls. Milgrom says this forces retailers to be quick on their feet.
“People don’t want to wait for a response online when they could go down the street. You have to be responsive and very fast at replying to queries and so on,” Milgrom says.
Simson agrees, but says not being able to “eyeball” a customer can be a disadvantage. “They don’t get to touch and feel us, so traditional stores should have an advantage.”
Reardon argues that traditional retailers who are yet to embrace online could even find themselves with some big advantages over pure online shops.
“The thing that never ceases to amaze me is that traditional retailers have the infrastructure to do this. They have the stock and financial systems, they have means of fulfillment, so they have a massive head start,” he says.
“It’s quite a bizarre scenario where those who are most equipped are the least embracing. For under $5000 they can get established and get marketing done. I’m not saying it’s simple, but it’s now affordable enough to trial and error very effectively.”
In answer to Gerry Harvey, here are 10 of Australia’s top online retailers, and they are all making “real money”. To be eligible, companies had to be Australian owned and sell actual product or services via their website. Aggregators and auctions were excluded.
This online department store is Australia’s largest, selling everything from office chairs to blenders.
Founded by Paul Greenberg and Michael Rosenbaum, the store has surged in popularity and, according to online monitoring firm Hitwise, is now the fifth most popular shopping website in Australia. According to Greenberg, the site records over two million visitors a month and ships between 15,000 and 20,000 parcels a day.
Greenberg would not reveal revenue figures, but it is believed revenue in 2007-08 was around $80 million.
This online retailer, started by entrepreneur Ruslan Kogan in 2006, produces its own products by building televisions, DVD players and other electronics with parts from different manufacturers. This allows Kogan to sell the devices at a cheaper price, but with the same parts from larger brand names, such as Samsung or Sony.
While the retailer has had its setbacks – it delayed and ultimately cancelled the release of a mobile phone based on Google’s Android operating system – Kogan projects a revenue level of between $15 million and $20 million for 2008-09.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
