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Distribution wins return sales online

Simon Evans (via AFR) | July 16, 2013
Online retailers are building glittering websites as they attempt to claw away a higher share of the $225 billion spent by Australian consumers in the retail sector each year.

For some of the new retailers it's all about growing the revenues, but unfortunately some of the costs have been going up with it."

The "jaws" (simple graphs comparing revenue and costs which are closely tracked by company accountants) may not be getting wider, and may in fact be closing up.

In the past few weeks, online fashion retailer The Iconic has been in the spotlight as it went through a painful period, cutting staff after substantial initial investments as it made a big splash in the Australian fashion retailing sector.

The Iconic is a business that is part of a stable of online retailing businesses backed by German group Rocket Internet and has suffered heavy losses since it began in Australia in late 2011.

Last week, The Iconic announced that it had raised a further $28 million in funds as overseas investors including Belgian firm Verlinvest pumped extra funds in. The Iconic managing director Adam Jacobs says the additional funding was part of a planned strategic approach: "It's us focusing on long-term growth." He dismissed speculation the group was either aggressively pursuing revenue growth in order to position the business for a sale, or running out of cash. The Iconic claims to be Australia's No. 1 online fashion retailer.

It's also important to keep online retail in context. The National Australia Bank closely tracks online sales and for the 12 months to May 31, 2013, estimates Australians spent $13.7 billion with online retailers. This represents about 6.1 per cent of total spending in the overall retail sector of $225 billion, a figure which doesn't include money spent in cafes, restaurants and on takeaway food.

In the 12 months to May 31, 2012, $11.3 billion was spent in the online retailing sector, which represented 5.2 per cent of the total. In the 12 months to May 31, 2011 it was $9 billion, which made up 4.2 per cent of the total.

John Winning, the chief executive officer of the Winning Group, which sells ovens, dishwashers, cooktops, washing machines and televisions, is having a bet each way.

The company has nine retail showrooms, including a new flagship store in the Sydney suburb of Redfern but also a large online business trading under the names Appliances Online, Big Brown Box and PowerBuys.

The Winning Group has more than 350,000 customers, and prides itself on a seamless experience for customers that ensures repeat business and plenty of word of mouth endorsement.

He is bemused at the heavy investment being made by some online retailers, and the prospect that some of those business models may not be sustainable. "At some point when the tide goes out, the ones that are not profitable won't be there," Winning says.


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