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.
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.
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.