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.

The Australian - The Deal - - Clicks Versus Bricks - BY GREG CAL­LAGHAN

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

PRI­OR­I­TIES.

“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”.

PHO­TO­GRAPH ALAN PRYKE

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