Clicks versus bricks
IF YOU STILL NEED CONVINCING THAT ONLINE TRADING HAS CHANGED THE RETAIL SECTOR FOREVER, TAKE A LOOK INSIDE ANDREW COOPER’S DSTORE.
Back on September 10, 2001, Andrew Cooper didn’t have a lot of time to congratulate himself on his purchase of dstore.com, now one of Australia’s major online stores. The successful Brisbane-based entrepreneur, who with his younger brother Tim had created HotShed, a software house providing ecommerce systems to big retailers such as Rebel Sport, Blockbuster and Angus & Coote, had rescued dstore from its collapsed parent, Harris Scarfe, for a bargain price.
Little more than 24 hours later two planes flew into the twin towers of New York’s World Trade Centre. As the iconic skyscrapers burned and collapsed, dark plumes of smoke rose over lower Manhattan. Even after the physical cloud had cleared, a metaphorical one remained.
“I stayed up until about 5am watching the live broadcast and when my wife woke up I told her I was sure we’d go broke,” Cooper, 46, recalls. News reports were already full of predictions of a global economic meltdown. “I just didn’t have the cash reserves to fund losses over a significant period.”
It wasn’t until a month or so later, he says, that it became apparent there would be no such economic collapse. And within a year, thanks in large part to a new software system installed by Tim, an IT wizard, dstore was turning a small profit. For the past five years, it has grown at an average rate of 16 per cent annually (and 20 per cent for the past two years). The business sailed through the global financial crisis and it has withstood the rise and rise of the Australian dollar with barely a scratch. It has a large warehouse facility in North Carolina (and plans to open another in Britain later this year).
So confident is Cooper of the future for online retail that he’s sold all his other bricks-and-mortar businesses, including a car wash and video shops,
to focus on dstore. “Some years ago I thought having a portfolio of businesses was a good risk strategy. But now dstore has matured I see it as being a rock solid entity all by itself.”
If you need more evidence that the internet has forever changed the retail industry, take a look at the dstore business model. “The key ingredient about ecommerce is that it allows merchants to slash their fixed trading costs,” Cooper says while cradling a cup of coffee in an inner- city Sydney cafe. Inefficient advertising, staff and shopfronts can all go.
“It seems funny now, but when I started out I considered online simply as a dynamic form of mail ordering, with real-time payment, fast delivery and better merchandise presentation on the site. That’s why I don’t really consider ecommerce anything more than a logical step in the evolution of the mail- order business.”
The ruling rationale of the early days of the internet – get big fast, get even bigger faster, and then sell up – had pitfalls for the unwary, as Cooper found out shortly after buying dstore. The previous owners had sold products below cost so as to ramp up the number of customers, a strategy he immediately discarded.
I HAVE A PRETTY PRIVILEGED LIFE. IN THE EARLY DAYS OF DSTORE I WAS WORKING 80-HOUR WEEKS. BUT WITH TWO YOUNG CHILDREN NOW, I HAVE DIFFERENT
“Just because you sell products below cost doesn’t mean the customers will stick with you. The strategy then was to get big, get funded and work it all out later. But sooner or later you have to sell at the proper price points.”
He also discovered that about $ 12 million had been spent on advertising in the previous 18 months, most of it on television advertising, to rope in about 80,000 customers. “Based on that number of customers, there was no way they could get a commercial return from that level of advertising spend.”
Since then, dstore’s database has ballooned to nearly a million names, including 650,000 active customers. “If I am faced with a choice between spending $ 200,000 on a television ad campaign or spending it online, I know that online advertising will give me a much better dividend. I can measure the results. With TV, you’re just crossing your fingers.”
But online stores don’t own the world just yet, Cooper emphasises. Although online purchases are increasing at a rapid rate, now accounting for between 5 and 8 per cent of total sales, up from less than 1 per cent a decade ago, that is still a very long way from demolishing the bricks-andmortar retail giants. David Jones and Myers will still have impressive firepower because of their branding, loyal customer base and their huge advertising budgets, Cooper insists.
“There will always be people who prefer to shop the old-fashioned way. And if those big stores fully embrace online retailing and new technology as a back-up, they shouldn’t fail.”
(One of those emerging technologies is the ability to identify customers in stores through their smartphones, which is being opposed by privacy advocates in the US.)
The next game-changer for bricks-and-mortar stores, Cooper predicts, could well be a critical mass of wealthy bargain hunters buying luxury goods online. He recently sold a Rolex watch to a local customer for $ 12,000, or $ 4000 less than the in- store price in Australia.
“At the moment only a small percentage of Rolex customers purchase online, but they are beginning to realise they can not only save big dollars, but they can have a much wider range of Rolexes to choose from. Most actual stores can stock only a thin range.”
Cooper argues that momentum is building for a global flattening of consumer prices. “Take that Rolex. Faced with increased competition online, the physical stores have a choice: Don’t stock Rolexes or meet the new market price.”
But it is the products Australians can’t buy locally that are dstore’s biggest hits. “Our No 1 jeans brand at the moment is called Not Your Daughter’s Jeans. Targeted at women over 40, the brand is popular in the US, but has poor distribution in Australia. We have sold at least a couple of million dollars’ worth of those jeans in the past calendar year.”
Cooper grew up in Clermont, in central Queensland, where his parents cleared 2400 hectares of land for farming. After moving to Brisbane for the sake of their children’s high school education, they opened a mobile-home park and developed commercial properties.
“They worked pretty hard to build up a solid asset base,” says Cooper, who still collaborates with brother Tim. Older sister Elizabeth has an interest in an aviation company.
“I have a pretty privileged life. In the early years of dstore I was working 80-hour weeks. But with two young children now, I have different priorities. I work much smarter and have really good people working for me.”
Before the internet, tracking down the best prices required a monumental effort by even the canniest of bargain hunters. Now the right price, he grins, “is just a click away”.