"The combination of content and commerce in e-commerce and also m-commerce is going to become very interesting and will define who will win and not win within the online retail space" - Adam JacobsIn the brave – and relatively recent – new world of Australian-based fashion e-commerce, few have commanded attention like The Iconic.
Launched in October 2011 by Berlin-based Rocket Internet - which calls itself the world’s largest e-commerce incubator, operates in 102 markets and generated US$1billion in revenue in 2013 - The Iconic exploded onto the then virtually blank canvas of Australian fashion e-tail, offering a dazzling variety of local fashion brands with an at the time unprecedented three hour delivery window.
Australians lapped it up, prompting the need to decamp to larger warehouse facilities four times in the first six months.
Cracks began to show on June 28 2013, when company records surfaced that documented first year financials, as well as some explosive leaked emails from Rocket Internet co-founder Oliver Samwer.
From August 2011-December 2012, The Iconic made A$30.6million and a loss of A$44.7million – with sales and marketing accounting for $19.1million and distribution nearly $10million.
The leaked emails, sighted by Fairfax Media – dated October 2011 and intended for Rocket Internet management teams in India, Australia, South Africa and South East Asia – provided a fascinating insight into the scope of Rocket Internet’s imperial ambitions and it’s “German detail oriented” MO:
Noted Samwer, ‘‘...I only care for net revenues after returns to prove you are number one. Summary; I give you all the money to win, I give you all the trust but you come back with unmatched success. If I see you are wasting money, that you are not German detail oriented, that you are not fast, that you are not aggressive, that you are not data driven, that you are not doing logistics well, upload inventory fast, buying wrong inventory, then I get angry and do like in Russia where no people leading the company now and I lost a ton of money. I am the most aggressive guy on the internet planet. I will die to win and I expect the same from you!’’
Two days later, The Iconic managing director and co-founder Adam Jacobs told The Australian Financial Review that the company was letting go just under 10percent of its 300-strong workforce. Jacobs denied the company was looking for a quick sale – even though a Myer representative claimed the company had been approached.
Although Samwer had threatened a potential “blitzkrieg” there is as yet no sign of jackboots on the horizon.
On the contrary, in the twelve months interim The Iconic has received an additional A$48million in venture capital funding, bringing its capital raising to an approximate total of A$100million since launch, making it the most heavily-funded Australian e-commerce venture.
Although constantly referenced in the media as “Australia’s No 1 fashion website” – and cached results show the company once used the tagline “Australia’s best online fashion and footwear store” - The Iconic today calls itself “the latest destination for fashion and footwear.”
Whatever the moniker – and sales, figures for which the company continues to keep close to its chest - it’s a pioneer in the Australian fashion e-commerce space. If sales have grown 50percent year-on-year, as claimed by Jacobs, The Iconic could potentially be pulling in A$70million this year.
For more insights about what makes the company tick and where to from here, FELLT Industry had a one-on-one with Adam Jacobs, who will also be speaking at the Online Retailer conference in Sydney on July 22.
PATTY HUNTINGTON: So talk me through when the Samwer brothers first looked at Australia.
ADAM JACOBS: Rocket Internet had experienced running online fashion ventures in Europe and those ventures were very successful. The most obvious one is Zalando, which is now Europe’s largest online fashion retailer. Zalando started in Germany and now operates in around about 16 countries across Europe and has a very high annual revenue turnover [1.8billion EUR in fiscal 2013, up 50percent on 2012] and is a great success story. Rocket are the main investors behind Zalando. So a few years into that growth journey – around 2009-2010 - Rocket said ‘You know what, this model is working really well and e-commerce in general globally is a macro trend that is really changing the way that people shop, so let’s look at other markets where the model may apply’. When you look at the Australian market, really we were a perfect market for e-commerce in that time. We have a high internet penetration. We have a high use of smartphones. Australians have a high interest in fashion and in addition to that, there was no strong domestic player doing online fashion. So really it was a combination of the white space that existed in the Australian market and the success story or the experience with Zalando in Europe, which meant they really wanted to invest in the Australian market.
Zalando obviously being a totally separate entity to Zalora, The Iconic's parent company. Which came first, Zalora or The Iconic?
Yes, Zalora operates in south east Asia. We are separate websites. We’re part of the same regional group. From an investor point of view, we belong to the same portfolio. But we have a management team here in Sydney that runs The Iconic and there’s a team in south east Asia that runs Zalora. The Iconic was established first, in October 2011 and then Zalora was established in early 2012.
How much funding has been secured so far?
We’ve announced over A$100million over the course of the past two years. We haven’t used all of the funding yet. We’re still on our growth path and moving towards profitability.
What are the sales?
We don’t talk about revenue numbers but in terms of growth, we’re growing at a very healthy rate of above 50percent year-on-year.
Obviously there was an awkward moment last year - reports about losses of A$14million and layoffs - but I note further capital investment has followed and the company has been recruiting of late so presumably things are on the upswing.
I think the life cycle that a startup goes through is not very well understood by the business community in Australia. There was commentary we were going through a tough time. We were going through a change that any startup will go through during a hyper-growth period. You grow really fast and then you do everything you can to [sustain] that growth and then once you hit a period of stability you go back and say right, ‘Where are we inefficient and how do we need to improve our efficiency so that we can continue to grow at the speed that we want to grow?’ That’s what we did last year. We certainly did not have significant redundancies, even though that’s what was reported.
So, not 10percent of the workforce?
It was less than that. And the roles that we removed were a very natural process and looking at the organisation and where do we want to invest and where do we not need to invest anymore in terms of our growth path. It was definitely a period of change because we were saying, 'Where have we come to so far and how do we need to change the organisation to where we want to go to?’. But it was also very exciting in the sense that we were building for the future and the work that we did then is certainly paying off now.
The Iconic is often referred to as Australian's no.1 fashion website. That's according to who?
In terms of traffic and also we believe in terms of revenue. Of course not everyone’s revenue is public. But certainly in terms of traffic, we are the leading Australian full price fashion retailer. So we’re not a discount model, we're not a goods buying site where we’re selling old season stock. We’re selling fresh stock, current season, full price stock and we track the largest amount of traffic.
What is the traffic currently?
We’ve been averaging over three million visits per month. Last month’s was larger – over four million. That just talks to the growth that we’re seeing at the moment. Also because June is an end of season sale period.
Which tracking tools do you use?
Google Analytics. ComScore, also Hitwise and public sources too.
What kind of customer numbers?
Unfortunately it’s not a number that we talk about. We prefer to say the customer base is growing very quickly. We only ship to Australia and New Zealand and most of our customers are in Australia. In terms of our customer breakdown, we typically see that urban customers - so from the capital cities - are more active in online fashion shopping. That talks to e-commerce being more mature within urban areas and that customer having a larger wallet when it comes to shopping fashion. And of course we skew towards female, because women love shopping a whole lot more than men do. But we also have a pretty substantial male customer base.
Did it surprise you that Australian retailers were so slow to embrace online retail?
Absolutely. It very much surprised me and I think that it’s widely recognised in the industry now that e-commerce is a huge opportunity and one that is there for the taking for smart, agile organisations and that generally the Australian retail community was quite slow moving in adopting e-commerce. And it’s natural. You can understand why that would be. For example, there are less competitive pressures in the Australian market to drive that form of change. And in addition, Australian retail was doing really well and there wasn’t the impetus for change straight away. So in terms of taking a risk, I think some were more risk-averse vis-à-vis a change in the business model. Having said that, from my point of view, of course investing in e-commerce for a while, I’m now seeing that other companies are doing the same and that’s great and bringing more value to the industry that we operate in, more talent and more awareness for customers of the benefits of shopping online.
And then of course the international e-tailers arrived and Australia emerged as one of their biggest global markets. Did that surprise you?
Yes and I think it goes to show how valuable this market it. A lot of those companies were shipping to Australia for five or more than five years. So they, over time, were able to build up real brand awareness and a customer base within the Australian market. It was a very wise move from them to start shipping to Australia from an early point on.
One of your strengths is obviously fast delivery. What are the other key pillars of The Iconic's business model?
We see that we have three pillars and we focus very much on the three pillars, in terms of setting ourselves up for success. The first and most important in any retail organisation is your product assortment and the value of an online retailer is that we’re far more flexible in how we put together our product assortment than a bricks-and-mortar retailer may be because we’re not limited by our shelf space. We stock over 700 brands, both top international brands and local Australian brands, and we have over 45,000 products from those 700 brands. So the strength and the breadth of our product range is without comparison in any other Australian retailer and that means that more often, when someone is shopping for fashion, they’re going to find what they want exactly. So that’s the first pillar. The second pillar is really about delivery. From a very early time we said, ‘We want to stand out on delivery. We want to make customer experience core to what we do as a company. So when people try shopping for the first time they love it so much they just want to keep doing it in their lunch breaks each day'.
So we pioneered the three hour delivery in Sydney and then in March this year we launched it in Melbourne. We also started doing free returns for 100 days from very early on and in addition, we launched live chat on our website very early on. So we make customer service frictionless and immediate as well. The third pillar is really technology. Technology is the way that we interface with our customer and provide a shopping experience to them. So this year we invested a lot in all of our platforms. We totally redesigned our website, made it fully-responsive, really fast, really easy to use. Late last year we launched an Apple app for the iPhone and iPad, which we’ve been building on this year and in February this year we also launched an Android app. So we are continuously building and investing in our technology that our customer uses to make sure that they have a really frictionless, hassle-free shopping experience.
You mentioned in one recent interview that more "ground-breaking" technologies would be unveiled this year. What are they?
We’re working on one really exciting one at the moment but haven’t announced it as yet. It’s a few months and something to do with delivery.
[Laughs] Not drones. Drones are fun but not to make commercial.
Who were your initial competitors?
Any fashion retailer in Australia is effectively our competitor. The question for the customer is where they want to buy a dress or a pair of jeans from. We don't focus much on our competitors. We're very internally focussed as an organisation. But what we do want is we want to be top of mind or front of mind for a customer when they’re thinking 'Where should I buy fashion'?
What were the biggest challenges, the steepest learning curves at the beginning?
For me personally, I think the steepest was really around how do we build a successful warehouse operation. It’s not to be underestimated - the complexity and the difficulty of a warehouse operation like ours. To give you a simple example, when a customer orders a pair of shoes for three hour delivery in Sydney, what happens is, instantaneously a booking is sent to a courier company. And in the time it takes the courier company to get to the warehouse, which is on average 12 minutes, we need to have picked-and-packed that order perfectly, so we can hand it straight to the courier and it can be delivered within three hours. For that to occur, you need a range of things. You need fantastic systems. You need very, very high degrees of inventory accuracy. You need an extremely efficient picking-and-packing process. And you need staff who are talented, trained and really engaged. So we put a lot of effort into our warehouse, optimising the speed of bringing product in, bringing product onto the website and then shipping product to the customer. So the speed of our delivery is less about transport and it’s more about the efficiency of the warehouse. To do that, in our first six months, because we grew so fast, we actually had to move warehouse four times in six months. It was a very intense period of my life, I have to tell you. Building those various warehouse processes and managing through that growth period, without letting down our customer service standards, was an incredible challenge but also very rewarding.
Did you have to purpose-build?
Yeah we did. When we first started, we outsourced the warehousing to a third party logistics company. Which is something that a lot of retailers will do. We did that because we thought it was going to be more scalable as we grew, to use their infrastructure. But we actually found it was a very inefficient way of growing. Because e-commerce was so new in Australia that no-one really knew how to do it properly and leaving it to an outsourced partner wasn’t the smartest way to go about it. So we then very quickly in-housed the warehouse operation. And to do that we rented an empty warehouse. We built racking, we built equipment and processes, we built all the infrastructure. And we hired a full team of people as well. So we built it all from the ground up.
So what's your perspective on how the Australian e-tail landscape has changed over the past 3 years? Beyond the obvious fact that there are a lot more players in the space now.
Yes I think the most obvious change is that it’s a much more competitive landscape. And there are a number of impacts of increased competition. One is that online marketing has become much more expensive. So cost per click of a search result in Google has really become more expensive as the competition has intensified. We’ll bid on a keyword and the winning price, if you like, that we’ll have to pay to score a key word, has increased substantially. It's a very wide range depending on what the keyword is. But we think there’s been about a 20-25percent increase in the cost per clicks. It depends who you’re doing the advertising with. If we’re doing search engine advertising, that will be Google. If we’re doing social media advertising, that might be Facebook. So there’s a range of providers an online retailer will work with. It’s one outcome of an intensified market. Another is that our competitors have just gotten a lot better at what they do. So websites have improved, delivery standards have improved, customer communications have improved. There’s a positive impact or outcome of that, being that more customers are being brought into the online shopping world. And of course the negative one being that it’s harder to retain them, because they’ve got a lot more options of who to shop with. I think in terms of changes in the recent landscape, retailers have gotten a lot more serious about their e-commerce strategy. We're really seeing that in the quality of their offerings to customers.
The shift from e-commerce to m-commerce is obviously another major change. You recently noted that up to 50 percent of visits to The Iconic are now from a mobile device.
Absolutely. We see about 50 percent of our traffic from a mobile device and we adopt a mobile-first policy in our technology department, meaning that whenever we develop something new, we’ll first develop it on mobile. And then once we know it works we'll then expand it to desktop. We talk about ourselves now as being more of an m-commerce company than we are an e-commerce company and I think you are seeing others in the industry adopting the same mindset.
When did the shift to mobile begin?
That would have been early 2013. We said, ‘You know what, we really need to make this a strategic priority’. So we’ve been working on it for a while.
Do you put it down to any specific technology? Because obviously the iPhone for example was launched as far back as 2007 and the iPad, 2010.
That’s a really good question. I think that smartphone penetration, you’re right, was already high. It's higher now, but not a dramatic shift. I think it’s not so much a technology change as it is a consumer behaviour change. Consumers are becoming more used to interacting with smaller devices for more complex transactions. And retailers and technology is getting better at simplifying more complex transactions. So three years ago it probably would have been very difficult to buy a radio or a dress on your phone, whereas now it’s actually pretty easy. So I think it’s a combination of mostly consumers’ preparedness or willingness to shop across their phone and improvement in technology.
And in mobile you're obviously including tablets. Do you have any tablet-specific stats?
Correct. When I say up to 50 percent of mobile traffic, I’m including tablets. We definitely see more traffic from mobile than tablet. Tablets are a great platform for us. We see customers spending more time when they’re browsing with their tablets. They’ll look at more products, they’ll often have a higher basket size. They really enjoy that shopping experience, so it’s certainly a platform that we think is worth investing into.
Where does social media fit into The Iconic's marketing strategy and how effective is it in driving sales? There is a lot of divided opinion over this.
I think that social media is an engagement channel, not a sales channel. And I think where brands get into trouble is when they treat social media like it's sales channel. And so they will push product or push offers at their customers in a space where customers are actually wanting a different kind of experience. They’re wanting fun pieces of content, they’re wanting news about their friends. They’re not wanting a very hardcore sales message pushed down their throats. So our goals or our targets for our social media are typically centred much more around engagement with our customers or engagement with really interesting content and delivering them content that is relevant and fun for them, that they enjoy and that they share. Something we often say in our social media team is, ‘If you wouldn’t say it to your friend at a pub, then don’t say it to your customer on social’.
But that's the interesting thing about the new native advertising arena and specifically when it comes to tapping social media influencers. It is a paid sales pitch, but presented as editorial or word of mouth. Easy to understand given recent research - that for example 70 percent of people would rather hear about a company from an article than an ad. Do you work with bloggers?
We do work with bloggers. We do it for specific campaigns. A good example is we recently ran a winter campaign with Tuula Vintage/Jess Stein. And she picked out of our range her favourite outfits. We then did a photoshoot and then over a series of weeks we produced content around the outfits that she’d chosen and what trends and brands they relate to. So really giving Jess’s following, as well as our customer base, access to some editorialised content around our brand.
So was that on The Iconic's media channels or hers or a mix of both?
It was primarily on ours, but Jess I guess because, she quite likes the work, she had fun doing it, also talked about it on her social channels.
A campaign on your site and social media channels is a clear campaign. It's when the campaign moves beyond your channels that things can change [comment was sought from Jessica Stein on this, with no response as yet]
It is a good point and I think that you’re right that there’s a blurred line here. And blogging is such a new industry that there aren’t exactly standards set or precedents set as yet. And you're right that bloggers do command a lot of power, in terms of the value they can add to a brand and the following they can attract. I think from our point of view as a brand or as a company, our goal is to stay true to our brand values. And if we're doing a campaign with a blogger like Tuula Vintage and that’s interesting content that’s adding value to our customer base then we want to do it. And from Jess’s point of view, if it’s interesting content that adds value to her followers, she buys into the product and she really enjoys it and she would want to talk about it anyway, that I think it makes sense for her and her followers. I think where you get into trouble is where you start placing commercial benefits over genuine engagement for your customer. So you start trying to sell them stuff.
But you are trying to sell them stuff. And there is in fact guidance set out by regulators such as the FTC and ACCC, pointing out that commercial relationships need to be clearly disclosed to consumers. As a marketer is this coming you are conscious of?
Yes of course we are aware of all of our obligations. The example of that campaign with Tuula, it was very clear that it was a campaign that we were doing around our season and our range. The imagery was on our website and in all our newsletters. So I certainly believe that that was not misleading. And similarly, I agree, we would not want to, as a brand, be seen to be misleading our followers. But I do also agree that it’s a very grey area, one that’s very interesting.
So where is The Iconic moving and what do you see as the next evolution of e-tailing?
We think in waves of e-commerce. The first wave of e-commerce was really about getting the cheapest price. It was websites like Deals Direct or Groupon or Catch of The Day, where you're just bargain-hunting. The second wave of e-commerce, which is the one that we’ve really been pushing in Australia, is more around service levels. And that's High-Touch customer experience to engender loyalty amongst your customer base, so they’re coming back to you for the shopping experience, more so than the price points. The third wave, as we look forward, and it’s one that we’re already working on, I believe is content. And I think that the combination of content and commerce in e-commerce and also m-commerce is going to become very interesting and will define who will win and not win within the online retail space. So a good example is we recently have been publishing a magazine. The magazine gets fantastic feedback and responses from our customers. They really love being able to access a more editorial side of our range and they love that physical connection with the brand too. I think video marketing is going to become very important when it comes to content. The video usage online is just skyrocketing at the moment.
And surprisingly, fashion seems to be relatively under-represented on YouTube.
I agree. Really noone is doing it well.
You recently signed with a new ad agency, Razor Group.
Razor will be working with us with more our above-the-line marketing. In terms of content production we do that in-house, we have a production department. I think it’s important to keep that in-house, for the same reason that I told you about the warehousing story - in a new industry when you're attacking a new space, you don’t want to outsource it. If we want to be extremely strong at content then we have to really hold that close to our heart and do it ourselves. Because no-one is going to do it better than us. And we want to develop that skill internally and deliver a very high quality product to our customers.
Have you hired a team specifically to develop the content?
Yes and in fact we still have one or two roles open in that area if you know anyone.
What kind of roles?
We’re looking for a fashion features writer and perhaps a sub editor. So within our organisation we have a team that’s focussed on producing fashion editorial content that will appear across a number of our platforms. And over time what I think is important is that an online retailer thinks about the intersection of that content and also the products they’re stocking. Not in the sense of deceiving the customer, but more to give the customer stories around the product, so they really understand the brand that we’re offering. Once they understand the trends that are coming up, they understand what people are wearing and therefore they have richer information about the products that we offer.
You also recently announced a distribution deal with British brand New Look. Which others are en route?
We’ve actually launched a number of UK brands on our website recently, for example River Island and Dorothy Perkins. Hunter Boots is another important one. We've been stocking them for a little while, but the cool thing we’re doing with them is a pop-up store at the Splendour In The Grass festival later in July. So we’ll have a really cool pop-up where people can buy Hunter Boots but also in advance, our customers can shop Hunter Boots or pre-order them and pick them up at the festival.
Beyond the recent outdoor campaign, what other campaigns are in the pipeline?
In May we repositioned our brand. We refreshed our look and feel in terms of the logo and the website. We also released a new tagline – ‘The New Icons of Fashion’. That tagline is really a brand position that we’ll be reinforcing over the coming 12 months through a number of different activities. One being the above-the-line activity. We’re running tv, radio and some really interesting APN outdoor, the Transit Technology that you read about, as well as online video. But then we'll be doing a number of consumer-facing activations with consumers between now and Christmas.
What is The Iconic's best selling brand?
What we’ve found this year actually is the Australian Fashion Label brands are selling really well. Australian Fashion Labels are an Adelaide fashion house and they’re run by a couple, Dean and Melanie Flintoft, in business about seven years or so. Just this year and last year, they’re really started to skyrocket. They’ve got Cameo, Finders Keepers, Keepsake, The Fifth and recently launched Jaggar.
They are your best sellers?
They certainly feature heavily in the Top 5-10. Particularly Cameo and Finders Keepers. Our best selling brands really vary depending on the time of the season, because obviously fashion is quite seasonal.
You've talked about the initial business challenges. Was there a moment you had concerns it wasn't going to work? And what was the lightbulb moment when you knew you'd nailed it?
I think we knew that this business was going to work probably in January 2012. It was about three or four months after we launched the website. We launched with a small range to really test how it would work. And in January, we were seeing a huge surge in customer interest, in traffic and in orders. Such that we thought, ‘Wow, we need to start really scaling our infrastructure’. And that was the first indicator to us that, ‘OK, this is a model that Australians want to shop. They want to shop great fashion online’. In terms of the darkest moments, certainly there were a couple of times in that six months where we thought, ‘However will we find the space?’. I remember one weekend where it was a Thursday and we knew we would run out of space by the following Thursday, so in a week’s time, and we still hadn't found a new warehouse. We finally locked down a new warehouse on the Tuesday and moved on the Friday, over the weekend. And the following Monday we were live in the new warehouse. So we were just doing it on such tight time frames and quick turnarounds that there were a lot of potential points of failure. It's a cliché but 100percent true, that I had the most amazing team working with us through that period, who were so passionate about The Iconic and what we were building and the idea of what we were creating in Australia, that they stood by us and worked tooth and nail through all of those difficult times and plugged all the holes that needed to be plugged and made sure that all of the customers were looked after. It if wasn’t for our team then I don’t think we'd be here today.
That's just the nature of entrepreneurism - no pain, no gain or rather no risk, no gain.
And it attracts a certain kind of person who in a way enjoys that pain, because it’s so rewarding once you get through it.