A case study and insights from Paul Greenberg and DealsDirect, Australia's number one Online Retailer
DealsDirect.com.au is perceived to be a company that has virtually become an overnight success. What most observers do not see with succesful businesses is the five years of hard work that it takes to become an overnight success. From its early days as eBay's premium seller to Australia's number one online retailer Paul Greenberg suggests its been a lot of hard work to get to this point five years on.
It's 7am and Paul Greenberg has suggested prior to this meeting that we chat over the phone while he travels to the DealsDirect warehouse and administration centre. The journey takes about an hour every day to DealsDirect.com.au's warehouse in Ingleburn, South West of Sydney. Paul jokingly comments that he looks forward to the day that he can have a car that finds its own way to work. He has pondering whether to separate the administration and order fulfilment parts of the business but has for the time being decided to shelve the idea.
Paul (49) originally studied psychology in the late 1970's. Put his skills to use first in psychological services while doing compulsory military service in the South African Defence Force. In the early 80's he spent a few years at Old Mutual an international insurance and investment Management Company. In approximately 1985-86 Paul resigned and somehow found himself working in a family auction business doing general and motor auctions. He loved it so much he stayed for ten years before immigrating to Australia.
In viewing the internet Paul felt that the World Wide Web offered a fantastic platform that was a level playing field which offered incredible efficiencies (e.g. low cost base, economies of scale, available 24 hours a day etc) and if utilised correctly could be an excellent channel to sell and distribute products. Combining this with Paul's experience in the auction business, he understood what eBay was doing in America and he started communicating with eBay in San Jose even before they launched in Australia. When eBay did launch in Australia in 1999, Paul contacted Alison Deans from eBay to discuss possible opportunities. He asked Allison to consider him as eBay Australia's auction broker.
Shortly after Auction Brokers (the precursor to dealsdirect.com.au) launched it also became eBay's first commercial seller, and pioneered the $1 no reserve auction format. At that time traditional eBay sellers were not comfortable with commercial businesses coming on board. Paul to a certain degree thinks this is still perhaps the case, as in his view many eBay purists view eBay as a home for collectors and enthusiasts etc.
Paul knew the traditional model of business and auctioneering and realised he needed someone with passion and some web/technical skills to assist him on the technical side of things.
Mike Rosenbaum who was passionate about technology and loved the internet, responded to a small advert in the Sydney Morning Herald. Paul and Mike started off on a handshake and their partnership has grown on this. For the first two years, things were tough and the operation hardly made any money.
Acer computers were the first brand supplier to come onboard with Auction Brokers allowing them to promote Acer products on eBay. A commercial agreement was soon thereafter formalised between eBay and Auction Brokers. This meant that if eBay received an enquiry for commercial purposes, eBay would refer the enquiry onto Auction Brokers. At this time Paul and Mike did all the buying and there was a small accounts team of approximately 8 people.
In October 2004, while still trading on eBay, Auction Brokers started up DealsDirect.com.au to create their own identity and meet the needs of customers who were looking for fixed price goods. From the substantial database of customers from Auction Brokers, DealsDirect.com.au was able to generate sales relatively quickly and start growing.
Business theory and practice
Paul consistently refers to a professor's comments from his university days, that price is driven by the law of supply and demand and nothing else.
With 24 key consumer categories across 7,500 products including some of Australia’s most popular brands, Paul says DealsDirect in some ways would like to align itself with the Amazon business model however he made it clear that DealsDirect.com.au is still an end to end etailer, which purchases, owns, and distributes all its merchandise. However slowly and carefully DealsDirect are rolling out a drop ship offer to their customers but with all the KPI’s and safety of the in house DealsDirect experience. DealsDirect has started to invite commercial sellers on board and promotes their product under the DealsDirect banner as the company has developed a trustworthy brand and also as not to create any dissonance from customers. Suppliers with good inventory control, solid business management and integrated IT systems can come on board as suppliers of choice. The customer experience and perception is that of dealing with DealsDirect from placement of order to fulfilment and delivery. Each product that is sold is assessed objectively and subjectively. No product is sold that management wouldn't consider buying themselves and quality is an important aspect of maintaining customer loyalty. Moving forward DealsDirect aims to be a competitive business and their buying and management team are still committed to offering excellent value, as per their slogan, “Love a Bargain”! However Paul recognizes that there is more to a bargain than just price. “We are heavily focused on the quality, value proposition, and are adding well known Australian brands to our product mix every day” says Paul.
Adding to the portfolio of products, is DealsDirect's house brand Eurolab. This brand is doing very well and Paul says there is an ever increasing focus on consistency and quality of product within the Eurolab range of products. Paul states that quality is remembered long after price has been forgotten even on a discount or bargain.
Administration, Strategy sales and metrics
It is clear that the journey has not been an easy one. Paul notes that all aspects of the business require constant attention. For example he suggests that quality is a no end game and his team is constantly working hard in quality and compliance with Trade Practices.
With approximately 100 staff, staffing is another challenge and a lasting culture that retains its nimbleness has also not been an easy task. It is important to have the right people in the right job and be human before being a manager. Paul has found this aspect of the business very trying.
On the technical front there is a shortage of good technical staff and the company is consistently on the lookout for PHP programmers and commercial graphic designers.
From a customer service point of view the team is constantly working on easier and more transparent returns processes, terms and conditions and an automated returns authorisations system including the ability for clients to print Australia Post labels to enable them to process returns.
DealsDirect does its own warehousing and order fulfilment and manages 5000 SKU's and growing. The site at Ingleburrn is 40,000sqm and the warehouse is 25,000 sqm. Australia Post is a key partner in providing fulfilment and a parcel is packed and shipped every 30 seconds. The company also recently shipped its 3 millionth parcel.
There are over 700,000 customers with approximately 2 million visits to the site a month. Understandably as Australia's top online retailer, Paul is hesitant to divulge further key business metrics.
Paul and Mike believe clever web design is important in that visitors to the site should be able to easily navigate around the site and see what other people have bought relative to the items being looked at. The up sell is an important feature in online selling and Paul and Mike have worked hard to ensure their buyers are shown what other customers have bought with the item they are buying, and what other customers have looked at. There is also an online chat facility on the site. To find new products and provide great value has and is one of the biggest challenges of the business. One way to maintain number one position is to have the widest range of stock available to give consumers the widest choice and value. Word of mouth has been one of the most important sources of growth and new business
Mike now heads up the buying team which is a team of about twelve people and the company has recently taken on a new PR agency and will be taking a strategic approach to PR opportunities going forward. Since 2005 DealsDirect.com.au has been ranked as Australia’s #1 Online Department Store by Hitwise, being the most visited online shopping website in Australia. To create this brand in five years, a true value destination is quite remarkable.
DealsDirect has their own servers in Sydney and Brisbane, as well as in the USA. They use hosting providers to manage the network and physical infrastructure for them and everything above that is supported by internal staff.
For a content management system (CMS) the business initially started off using a packaged product, for its content managed website which has been so heavily modified it is unrecognizable in its current form. Mark Cohen DealsDirect's CIO says it counts as internally developed now.
In terms of systems integration, DealsDirect runs several systems, mostly integrated. Some integration runs using batch jobs, so it is loosely integrated. A few systems are still disparate, but most core systems are tightly integrated and run out of a core dashboard.
A Custom built in-house solution is used for email marketing, and all email marketing is done in house and search engine marketing is done on all the major search engines in Australia.
The warehouse management is a core competitive advantage. The warehouse management system is integrated directly to the website to manage stock levels etc, and orders come through from the site in batches. The warehouse management system allows for optimization of product placement etc and this is key.
Thoughts on eBay
Paul is always mindful that eBay was their initial launching pad and acknowledges that eBay is still a fantastic platform. Paul says "I still use eBay, and still have a strong relationship with eBay through Paypal." Dealsdirect has many transactions processed through Paypal every day.
Thoughts on the Australian online marketplace
Paul likes innovation, this is the key to success online. Examples are dinosaurdeals.com.au's originality and theme where the site shows for example the words 'nearly extinct' for items low in stock, (Dealsdirect has now acquired Dinosaurdeals.com.au). Paul also likes catchoftheday.com.au taking on the concept of social shopping.
Barriers to entry
Barriers to ecommerce can be understated such as the complexities of integrating stock, warehousing and distribution.
The top end of town have seldom asked for advice on how to do internet Retailing and sell online successfully. Big operators would tend to see DealsDirect as a small to medium sized business. Paul consistently looks at what traditional retailers do, and is fascinated by multi channel retailing, however he comments it is unlikely that DealsDirect will ever open stores. They are committed to pure play online retail.
Retail is detail and it’s been lots of hard work building the business. An online business has the same rules as a bricks and mortar business; you build your business a customer at a time, offer the best service, great value and a brand starts to emerge. There is no science, just persistent hard work.
Some other points:
• You have to consistently ask yourself what you stand for
• You need to be a good trader
• Obsession with web traffic and turnover can side track the success of an online business
• A bargain is not a bargain unless you are looking for it
• Adapt and embrace change
• Automate or perish
• Remove the words EXIT strategy from your vocabulary
DealsDirect.com.au embraces competition as the online market starts to mature, and it intends to deepen its understanding of its customer, and work on evolving the end to end customer experience. Other plans are to expand the depth and breadth of categories to provide an ever increasing choice to their customers and continue to focus on delivering value, such as combining shipping with multiple items to save customers money. With years of online retailing experience, DealsDirect are years ahead of any of the National brands in the online retailing space in Australia and will continue to maintain a strong presence for the foreseeable future.
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