Top ten online retailer comes out of hiding

Mark Freidin

22nd Aug 2012

Keeping a low profile is not a strategy that has been followed by all of Australia’s leading online department stores. Catch Of The Day and Deals Direct certainly made use of the media as much as they could to assist the growth of their customer databases and the commensurate sales that came with this growth. OO.com.au, one of Australia’s larger online retailers, has risen up the ranks alongside its two counterparts, under the radar, and consistently growing its customer database and sales by ensuring relevant product and content for its customers.
Each of the pioneering online retailers has a different story about how they started off. OO.com.au saw its beginnings in electronics. The founder was involved in IT and electronics and wanted to blend his skills in IT with his links to the consumer electronics industry. The business’ humble beginning started in 2004 when it started trading on eBay. In September 2005 OO.com.au was launched, (OO meaning Overstock Online) and traded well in the first few years.
In 2007, the company launched a SlamDunk deal website, but this proved to have little success. “We didn’t give it enough focus and attention. We cleared warehouse stock instead of buying for the SlamDunk site,” said OO.com.au’s managing director Rolf Krecklenberg. After a review, a 24hr deal was introduced and exists to this day. It is now treated as a revenue, traffic and profit driver. The 24hr deal is important for the business during the quieter months of February to May and July to September.  

In 2008, around the time Krecklenberg joined the team as managing director, it was apparent that the online clearance concept was starting to become commoditised and many copycat websites were starting to appear. These were tough times for OO.com.au. With little growth, this was the time to fundamentally change the business. The management team at this point were very concerned, and asked themselves “Are we going to get this right?” They had seen trends over the previous three years in the online retailing industry, and it was hard to resist the temptation to fragment the business.

Further introspection identified that most online retailers were doing the same thing. The OO team realised that to stay ahead of their competition, they needed to re-invent themselves. The company brand was changed from Overstock Only to Only Online and the business model was repositioned to be an online department store, with more of a focus on brands and ongoing product range. Core ranges (originally electronics) were added, and homecouture.com.au was acquired to complement OO.com.au’s homewares range. This instantly added 4000 SKUs and was a quick fix start to this category, which has grown seven to eight times in size since. OO also partnered with sportsHQ.co.uk. This strategic repositioning moved the business from a clearance business to having four keys categories and brands that represented something strong. The key categories selected were homewares, electronics, sports, kids toys and incidentals as fillers. Out of the mix, 20-25 per cent were clearance products and 10-15 per cent innovative products, to ensure that impulse buyers remained interested and excited. This meant that about 60-70 per cent of the business became products ranged for the long term from strong brands.

When the site was launched in 2005, MivaMerchant a simple eCommerce platform was used. Over time though this platform could not meet all the needs of the developing business and a decision was made to develop a new site in-house. The site was built on ColdFusion, and management also looked at the best-of-breed products available, to ensure that decisions could be made most efficiently and customers taken care of at all touch points. The result of these efforts has provided OO.com.au with some impressive tools. This site now uses Coremetrics for analytics, PowerReviews, ExactTarget for email marketing and International Freight Systems (IFS). Customer service is provided by Zoho Support and SLI provides internal site search. With the continued growth of the business, some development has remained in house and some external resources are used as well. The organisation always considers:  “What will the impact be to the customer?” before deciding to make any change or implement new technology.
Not surprisingly, as with many other growing businesses, MYOB was used as OO.com.au’s accounting software. This was recently changed to NetSuite, a fully cloud based Enterprise Resource Planning (ERP) system.  All systems are now integrated; even the company’s eBay site has near real time stock synchronisation.
Launching an online retailing business in 2005 required platform development from the ground up. There were no off the shelf systems compared to what exists today. Other challenges were dealing with the continued growth of the business and managing the logistics of stock moving in and out. Getting great products was very difficult, especially the more traditional products.  Another challenge was finding good and experienced staff, a challenge also faced by many other growing online retailers in Australia. Growing relationships with vendors and greater understanding of multichannel from distributors means it’s getting easier all the time to get hold of quality stock. While there are still some challenges behind some electronics brands, suppliers do want regular business and they want to see their brands up online.
OO.com.au’s competitors come from various sectors. At the moment the biggest concerns are traditional retailers moving online, online deal sites which focus only on price (not customer service), and flash sites and group buying sites moving into product. In such a highly competitive environment, it is a core trait of the management team to be adaptable and flexible to remain ahead of the competition.
One of the most important sustainability drivers of a business is its database. OO.com.au’s original eBay database was small, and therefore the company needed to be innovative in its approach to growing this database. Through an early partnership with Virgin and Velocity, it doubled its database by giving away one million Velocity frequent flyer points. The company understands that having the right product creates great relationships with customers and word of mouth is not to be underestimated.
To grow the database and encourage sales, OO.com.au invests in Google traffic, banner advertising, radio campaigns and brand sponsorships. OO.com.au also has a rewards program (Cool Rewards), which exists for all customers. The program rewards loyalty for first time buyers through to frequent purchasers. There are 26 KPIs with a focus on continuing to grow the database. Email is segmented and an external party is used.
Kreklenberg says the key recipe for sustainable growth is the ability to continuously reinvent and experiment. He acknowledges that the company questions its business model and positioning on an ongoing basis. “OO.com.au loves its data too,” he says. OO.com.au has also added drop shipping to its portfolio of services. Drop shipping accounted for 1 per cent of sales 18 months ago, but now accounts for 15 per cent of sales.
On asking Kreklenberg what advice he would give other budding online retailers, his answers were:

Have a point of difference

There may be a low barrier to entry for you, but there is also a low barrier to entry for everyone else. Be aware of this.

Every retailer will have a great online retail offering, which you are now up against.
Look to the US for ideas. They have already experienced our hardships in their marketplace.
There are some serious challenges facing online retail according to Rolf. For starters, resources are always a challenge in marketing and IT. Externally, traditional retailers moving online make things more competitive. Krecklenberg says that free delivery to bring the customer on board is not free. Someone has to pay for this, and this is sacrificed in margin. High costs of freight and getting delivery right are also major challenges.
Price transparency has been a huge problem for traditional retailers, and is now something that affects online retailers as well. When asked about the role of Amazon in the Australian market, Rolf notes the company is already a big player in this market, so their official entry into Australia will not make much difference.
“It’s more competitive out there than ever in the online retailing space,” says Krecklenberg. “At OO.com.au, we are constantly asking ourselves, what are we doing to protect ourselves in these tough times? That flexibility and adaptability has been a key driver of our success.”