De­liv­er­ing on dis­rup­tion

A NEW GUARD OF IN­VESTORS AND ON­LINE EN­TREPRENEURS IS SERV­ING IT UP TO TRA­DI­TIONAL RE­TAIL AND LO­GIS­TICS BUSI­NESSES IN NICHES THAT HAVE BEEN POORLY SERVED.

The Australian - The Deal - - Cover Story - BY LISA MACNA­MARA

In the back­streets of the in­ner Syd­ney sub­urb of Alexan­dria, in an old ware­house space above a car re­pair shop, a group of peo­ple – mostly un­der 40 – are seated at long desks and­work­ing on mo­bile phones and lap­tops. The buzz of con­ver­sa­tion is re­lent­less.

Once used by fash­ion de­signer Wayne Cooper, the build­ing is now a hub for en­trepreneurs tak­ing ad­van­tage of the ex­po­nen­tial growth in on­line re­tail­ing. On one side of the aisle are the twenty- and thir­tysome­things from Tem­ple & Web­ster, a re­tailer of home­wares, from Wedg­wood plates to couches and ta­bles. On the other is the team at Par­cel Point, a sis­ter ven­ture fo­cused on the de­liv­ery of on­line pur­chases.

Back­ing the busi­nesses is Ar­denPoint, an in­vest­ment group set up in 2011 by Mark Coul­ter and Con­rad Yiu, two for­mer em­ploy­ees at the dig­i­tal arm of News Corp Aus­tralia (pub­lisher of The Aus­tralian). High net worth in­di­vid­u­als who have con­trib­uted funds in­clude Aussie Home Loans founder John Sy­mond and his son Stephen, as well as Adrian MacKen­zie, for­mer man­ag­ing part­ner at pri­vate eq­uity group CVC Asia Pa­cific (best known for his $5.6 bil­lion top-of-the-mar­ket pur­chase of the Nine Net­work from James Packer six years ago).

Coul­ter and Yiu are part of a new guard chal­leng­ing tra­di­tional re­tail and lo­gis­tics busi­nesses in niches that have been over­looked or poorly served. “In Aus­tralia, on­line sales rep­re­sent be­tween 5 per cent and 6 per cent of all re­tail sales,” Coul­ter says. “In Bri­tain, it’s al­ready 13 per cent and in the US 8 per cent. So the on­line re­tail mar­ket in Aus­tralia is go­ing to dou­ble in the com­ing years.”

At 34, Coul­ter’s boy­ish looks belie his ex­pe­ri­ence. A for­mer con­sul­tant at McKin­sey& Co, he was di­rec­tor of dig­i­tal strat­egy at News. That is where he met Yiu, who was over­see­ing the com­pany’s early tech­nol­ogy in­vest­ments, such as its Moshtix tick­et­ing busi­ness.

Yiu had anMBA from Cam­bridge Univer­sity and a pas­sion for star­tups, hav­ing cre­ated a mo­bile con­tent com­pany in Bri­tain when he was just 25. When daily deals web­site Spreets was snapped up by Ya­hoo!7 for $40 mil­lion in early 2011, his en­tre­pre­neur­ial instinct was reawak­ened. “I thought it was time to cre­ate some­thing again,” he says.

Keen col­lec­tors of fur­ni­ture, Yiu and Coul­ter de­cided they would start with a mem­ber­ship- only pure play sell­ing home­wares. “We had seen a busi­ness [in the US] called One Kings Lane, which­was a shop­ping club in the home­wares cat­e­gory,” Yiu says.

Once peo­ple have signed up as mem­bers, they are of­fered deals on a daily ba­sis. The model was largely pi­o­neered in Europe by the French ecom­merce com­pany Vente-privee.com, which kicked off on­line flash sales of de­signer brands. “A lot of com­pa­nies around the world are us­ing this model, which is ba­si­cally about daily deals com­ing through your email,” Yiu says. “It was a ques­tion of whether it would work in­Aus­tralia. We took the view that it would.”

They had money of their own, but needed size­able cap­i­tal. It came through fam­ily and pro­fes­sional ties, as well as Yiu’s Chi­nese busi­ness con­nec­tions. Ini­tial in­vestors in­cluded Henry Tam, a di­vi­sion di­rec­tor at Mac­quarie Pri­vate Wealth, and Chi­nese prop­erty de­vel­op­ers. “There is pri­vate money from the Chi­nese com­mu­nity. They knew our track record and they are very low-key folks.”

The ven­ture was named Tem­ple & Web­ster af­ter Wil­liam Tem­ple and John Web­ster, con­vict artisans com­mis­sioned to pro­duce fine fur­ni­ture for NSW colo­nial gover­nor Lach­lan Mac­quarie. An­other ex-News col­league, Adam McWhin­ney, joined the team, but he had ini­tial doubts about sell­ing large house­hold goods through a web­site.

“Be­fore we launched, I had a $100 bet with Adam that we would sell a couch on­line – with­out a store pres­ence – within 12 months,” Coul­ter says. “He said: ‘No, no, peo­ple don’t buy couches on the in­ter­net.’”

Yet Tem­ple & Web­ster was far more suc­cess­ful than any­one had dared to hope. “He owed me $100 within the first month of trad­ing,” Coul­ter says. Ac­cord­ing to Tem­ple & Web­ster, more peo­ple visit its site each day than IKEA’s seven Aus­tralian stores com­bined.

The site gen­er­ated more than $10 mil­lion in sales in its first full year of trad­ing and that is ex­pected to triple over the next 12 months. It has 400,000 mem­bers and 16,000 Face­book fans. Ev­ery day, more than 25,000 mem­bers visit the site, which of­fers items rang­ing from a $4.95 cake knife to a Kenzo-de­signed four-seater sofa worth $35,000.

As Tem­ple& Web­ster was tak­ing shape, an­other

busi­ness idea had started to show prom­ise a few sub­urbs to the east. Hav­ing worked at Tel­stra and Deloitte, Bri­tish-born Ju­lian Leach had es­tab­lished a par­cel de­liv­ery-point ser­vice in 2011.

His in­spi­ra­tion was a frus­trat­ing ex­pe­ri­ence with buy­ing a book from the US. “I missed the de­liv­ery and it end­edup be­ing sent back, so then I had to get it re-sent,” he says. “The waste of time and money seemed ridicu­lous. I quickly re­alised that this was prob­a­bly a big prob­lem in a grow­ing mar­ket, and the scale of the op­por­tu­nity seemed phe­nom­e­nal.”

So he turned his rented Bondi apart­ment into a neigh­bour­hood de­liv­ery point. He tar­geted peo­ple who made early-morn­ing vis­its to the post of­fice. “I handed out fly­ers that said if you have trou­ble with de­liv­er­ies, you can send them to me and come around in the evening or on the week­end and pick them up.”

Be­fore long, a steady stream of cus­tomers were pay­ing for the ser­vice. That prompted the 35-year- old to ex­pand his net­work to nearby late-night con­ve­nience stores and newsagents. The stores were paid $1 per par­cel.

As he set about find­ing a man­age­ment team and the cap­i­tal to take the busi­ness national, he en­coun­tered Phil Lee, a twen­tysome­thing en­tre­pre­neur who was chas­ing fi­nan­cial and man­age­ment sup­port for Par­cel Point, a sim­i­lar op­er­a­tion on the other side of town.

Lee had re­cently done a deal with Coul­ter and Yiu, who re­garded Par­cel Point as the ideal new ven­ture for Ar­den Point, one that would sup­port the de­liv­ery busi­ness of Tem­ple& Web­ster and other retailers. “We joined to­gether very quickly to form a national pres­ence,” Leach says. They re­cruited for­mer Moshtix chief Adam McArthur as the com­pany’s chief ex­ec­u­tive.

ParcelPoint now uses a chain of 1500 cen­trally lo­cated stores and newsagents and plans to have 3000 by the end of next year. Its backers be­lieve that size will en­able it to chal­lenge Aus­tralia Post, which has 4000-plus lo­ca­tions and a smart-locker net­work.

One niche Leach and McArthur have fo­cused on is the re­turn of goods. ParcelPoint has made a spe­cialty of man­ag­ing this for retailers such as Sportscraft and Saba and yd. Its client list also in­cludes David Lawrence, Groupon Aus­tralia and Miss­guided.

“De­liv­ery and re­turns are of equal im­por­tance tous,” Leach says. “[How­ever,] it’s much eas­ier to start with a re­tailer on a re­turns ser­vice. We are able to ac­ti­vate a re­turns so­lu­tion for a re­tailer within a sin­gle day, whereas the click- and­col­lect ser­vice … takes more time.”

The value of mak­ing re­turns easy is just dawn­ing on Aus­tralian retailers, which have been fo­cused on web­sites and ini­tial de­liv­ery. Leach says ease of re­turn may be­more im­por­tant in the long run for con­sumers than price.

“If a cus­tomer has an is­sue with some­thing they have bought, you should make it easy for themto get it back to you and easy for themto change it and get some­thing else. If you man­age to do that, you have a very good chance of con­vert­ing the min to a re­peat buyer.”

Adrian MacKen­zie says Par­cel Point’s mar­ket niche is built on a com­bi­na­tion of con­ve­nience and cus­tomer ser­vice. “It of­fers a so­lu­tion to th­ese fac­tors, par­tic­u­larly for a work­ing pop­u­la­tion whomay not be at home to re­ceive de­liv­er­ies or who are look­ing for a con­ve­nient way to re­turn their on­line shop­ping,” he says. “And the busi­ness plan is be­ing ex­e­cuted by a group of young, tal­ented and driven en­trepreneurs. This kind of in­vest­ing is as much about the peo­ple as it is about the idea.”

Stephen Sy­mond says Par­cel Point’s busi­ness model has enor­mous po­ten­tial. “There is a rea­son one in five on­line re­tail de­liv­er­ies fails in Aus­tralia,” he says. “The ex­ist­ing de­liv­ery and re­turns in­fra­struc­ture just isn’t good enough. Aus­tralians don’t have time to wait at home for a de­liv­ery or queue at the post of­fice be­tween 9am and 5pm on a work day. [Par­cel Point] is prov­ing to be more nim­ble than the in­cum­bents in giv­ing Aus­tralians a bet­ter on­line shop­ping ex­pe­ri­ence.”

So far Yiu and Coul­ter have raised about $10 mil­lion for Tem­ple & Web­ster and Par­cel Point. Mac­quarie Cap­i­tal is be­lieved to have put in $5 mil­lion and the for­mer man­ag­ing di­rec­tor of Na­tion­wide News, Alas­dair Ma­cLeod, has also pro­vided funds.

Brian Shana­han, an au­di­tor who went into merg­ers and ac­qui­si­tions at JPMor­gan and knows the on­line game, was re­cruited as Tem­ple & Web­ster’s chief ex­ec­u­tive. The 43-year-old had been the chief fi­nan­cial of­fi­cer at eBay Aus­tralia be­fore head­ing up its Gumtree In­ter­na­tional classifieds web­site. He says the fur­ni­ture and home­wares cat­e­gory gen­er­ates more than $15 bil­lion a year in Aus­tralian sales.

He dis­putes the pop­u­lar the­ory that busi­nesses must have both an on­line and a bricks-and-mor­tar pres­ence. “Peo­ple used to say that about cloth­ing. They’d say: ‘I’m not go­ing to buy any­thing un­less I can feel it and touch it.’ And yet cloth­ing to­day is the big­gest cat­e­gory on­line,” he says. “It’s the same with fur­ni­ture. The ad­van­tage of the model is that we don’t ac­tu­ally hold the in­ven­tory and be­cause of that we can have this con­tin­ual [change] of prod­uct to of­fer our mem­bers.”

While rev­enue is ris­ing, Shana­han says the true po­ten­tial lies in the rich data gen­er­ated by the mem­ber­ship model, which al­lows the retailers to iden­tify who is shop­ping. It re­minds him of the hey­day of US mail-or­der cat­a­logues, which be­gan in 1888 with Sears, Roe­buck and Co. “They had to build up a data­base of what peo­ple had asked for and then send those con­sumers more rel­e­vant of­fer­ings. And that is what we are here to do on a one-to- one ba­sis, and not just in terms of seg­ments. We even­tu­ally want to get to the point where we can of­fer peo­ple some­thing that they are in­ter­ested in ev­ery day.”

Coul­ter ar­gues that there is plenty of po­ten­tial for lo­cal on­line re­tail­ing busi­nesses in ar­eas other than fash­ion. “If you look at where the pen­e­tra­tion is, some cat­e­gories are gone. Fash­ion is gone. Books are gone, with Ama­zon. But home­wares ... not yet. And some of the cat­e­gories are com­pletely un­der­served on­line, such as sports gear, kids cat­e­gories and fi­nance.”

For Coul­ter, Yiu and their col­leagues in Alexan­dria, it’s very­much a case of watch this (ware­house) space.

PHO­TO­GRAPH ADAM KNOTT

From left: Adam McWhin­ney, co-founder, Tem­ple & Web­ster

Mark Coul­ter, co-founder and prin­ci­pal, Ar­denPoint

Brian Shana­han, co-founder and CEO, Tem­ple & Web­ster

Con­rad Yiu, co-founder and prin­ci­pal, Ar­denPoint

Adam McArthur co-founder and CEO, ParcelPoint

Ju­lian Leach, co-founder and com­mer­cial di­rec­tor, ParcelPoint

Me­hdi Fas­saie, co-founder and chief tech­nol­ogy of­fi­cer, ParcelPoint

ParcelPoint’s Ju­lian Leach says ease of re­turn may be more im­por­tant to on­line cus­tomers in the long term than price.

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