With the resurgence of online retail in Australia following a number of investments from media companies and venture capital firms, industry experts are wondering whether niche-based, smaller websites will be the next targets.
While larger companies including Catch of the Day, which just received an $80 million investment from a consortium of backers including James Packer, and 99Designs have received funding, attention is turning to smaller, independent stores.
Certainly it seems appetites are growing – last month DealsDirect, after it received millions from James Packer’s Ellerston Capital, acquired children’s wear retailer The Kids Store, while Groupon Australia purchased the Melbourne-based group buying site CrowdMass.
“The bigger companies usually go in with something covering the entire country, but people are shifting to niches and that’s why you’re seeing that now,” Telsyte ecommerce analyst Sam Yip says.
There are now a number of mid-range online retailers turning over several million, including kitchenware retailer Everton Online, electronics manufacturer Kogan and furniture site Milan Direct that could be potential targets.
Several others including technology retailer MegaBuy Group and kitchenware and accessories retailer Peter’s of Kensington are also achieving success online with their respective niches.
And with the rising value of tech-based acquisitions, some say now is the time for these operators to be looking around.
“I think the small players that have picked a niche and a particular location to concentrate on haven’t just chosen a generic approach.”
“The investment that a lot of traditional retailers have made in their physical store is now going into the online space. You’re seeing Harvey Norman do that now,” Yip says, adding that some companies could potentially look at smaller firms instead of creating a whole new platform.
Deals Direct chief executive Paul Greenberg says the company is definitely speaking with smaller companies with which it could potentially join.
“We’re pretty much talking to all of them. We don’t want to set expectations too high, despite all the activity, because there are businesses that are still not reaching scale and struggling to make money.”
“But having said that, we see Deals Direct as the epicentre of what’s happening and on fair terms we are fairly happy to chat with everyone and anyone.”
Greenberg says now is the time for operators of smaller sites to decide if they want to continue, as they could probably earn a premium for their site if they sell now at the height of interest. If they don’t want to continue working, then now is the time to exit.
“If I was a small niche-based operator, I would ask myself if I was doing this for the lifestyle. If I was enjoying myself, and making money, then I would keep going. But if it’s too much hard work, and not making any money, then I could see the synergies with launching with someone else. “
But Leibovich says while his company may consider acquiring an option and that “there is a lot happening”, he admits that “this isn’t at our level”.
“I look around but I don’t see anyone we’d be interested in. We’re not an acquiring company, we’re better at picking a strategy and taking it to be a market leader.”
Leibovich also says the CrowdMass and Kids Store acquisitions weren’t material.
“What was it, some crappy site? And for the few million DealsDirect has now they can’t do much with it. And CrowdMass, Groupon said it wasn’t an acquisition for the site but more the talent.”
But despite the relatively small targets, Greenberg says now is the time for online retail to emerge and for smaller players to take advantage of the market.
“It’s finally having its place in the sun. There are models like RealEstate.com.au that originally caught everyone’s attention, but the next is online retail and the tide is rising quite quickly.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
