Appeared in BRW 26 August 2004 Issue.
Chief executive: Andrew Cooper
Problem: Company was a financial basket case, but had a well-known brand and a good customer database. Severe order fulfilment problems.
Solution: Outsource fulfilment of orders to third parties. Implement software solutions to reduce staff expenses. Provide a product offering relevant to on-line shoppers.
Lessons for other retailers: Whether on or off-line, customers must be suer they will get efficient service. Word of mouth is the most powerful marketing tool for any retailer.
When online retailer dstore was formed in 1999, e-commerce was being heralded as the retailing revolution for the new millennium. Some very public, and as time would show, very misguided backers (including former NSW Premier Nick Greiner, who left the board of Coles Myer to become dstore's first chairman) pumped $36 million into the company in just over a year, most of which was spent on advertising.
Only two-and-a-half years after its creation, dstore was part of the failed Harris Scarfe retail group in the hands of receivers Ferrier Hodgson, and was itself a disaster, losing an estimated $300,000 each month.
Enter, in September 2001, Andrew Cooper, chief executive of Brisbane technology company HotShed, which bought dstore for about $600,000. “Yes, it was a basket case,” says Cooper. Why, then, would a small IT company want to take on such a challenge? “We thought we could get it cheaply, and as our business is mainly software, we thought it would be a great demonstration of what we could do,” he says. Cooper has done just that.
By the December 2002 quarter, dstore was already turning a profit, albeit a modest $35,000 but its sales had grown by more than 80% over the previous Christmas trading period to $1.2 million. Growth has continue, with sales in December 2003 quarter of about $2 million (Cooper declines to reveal annual sales figures). The figures are small compared with traditional retailers, but dstore's gross margins are nevertheless a healthy 8-9%.
“We needed to address the underlying problems, which were mainly related to order fulfilment,” Cooper says. The cost of delivering a product to a dstore customer's door was more than the product cost itself. “The more we sold, the more we were in a loss spiral,” Cooper says. The solution was to apply an integrated suite of software that, among other things, removed the need for dstore's own, costly, warehouse.
“We integrated HotShed software with suppliers, providing them with easy tools to accept dstore orders and send them out directly to the customer,” Cooper says. “The brand building work had already been done for us by [the previous owners], but customers were not being serviced.” The new business model allowed HotShed to slash staff numbers from 45 to four, although that number has doubled because of the rapid re-growth of the business.
When HotShed bought the company, it had a database of 125,000 customers, which has now swelled to more than 200,000. “The most important thing has been to make sure we service those customers well, because like most businesses, word of mouth is your most powerful marketing tool,” Cooper says.