Australia’s top 20 online retailers – Smart Company

What a year it’s been in online retail.

This time last year the retail industry was up in arms over the “unlevel playing field” supposedly caused by the GST-free import threshold. Now, that argument has been diluted by concerns over wages, penalty rates, and workplace relations.

And online sales have continued to climb.

According to the latest figures from NAB, online sales accounted for 5% of all retail business in 2011, or $10.5 billion. Most of that actually stayed in Australia, despite the continued debate over imports.

This year, SmartCompany has expanded the list of Australia’s top online retailers from 10 to 20, in a reflection of just how big some online players are becoming in a growing variety of niches, such as groceries and wine.

The unranked list is based on factors including data from Nielsen, Hitwise, and information on revenue and consultation from industry sources. Prominence was given to retailers that are pioneers in their category.

The list excludes auction sites, price aggregators and offshore websites.

The past 12 months have seen more retailers take the online space seriously – including retail veteran Gerry Harvey, who started selling his products on the internet late last year.

More have received investment, including online shoe seller StyleTread with its recent $12 million injection, or Catch of the Day with its $80 million investment from a James Packer-backed consortium.

DealsDirect also received an investment from the Packer-backed Ellerston Capital.

More retailers are also moving into new areas, such as Catch of the Day and its venture into the wine and grocery markets.

But as Telsyte senior research manager Sam Yip says, the online retail market is fast becoming a domain for discounting, in a trend that is coming to dominate the approach of many local retailers and bring its own challenges.

“Consumers are increasingly seeing online as a discount channel,” he says. “Whether that’s pureplay online or multichannel, they’re viewing the internet more around discount strategies.”

“Those that have done this have succeeded in this market, especially those that have embraced group buying.”

The group buying market has exploded, with Scoopon, Groupon and other companies such as Spreets at the top of the pack. Their emphasis on discounts has stirred plenty of discussion about value and whether brands can afford to be associated with such cheap prices.

But, as Yip says, whether you like it or not, customers now view the internet as a place for cheap deals – and it’s those businesses playing to that need that have managed to stay ahead.

“Those who have embraced daily deals-type strategies, those that have refurbished websites to address discounting pages, or daily deals pages, those have flourished.”

However, that presents new challenges for established players attempting to carve a space for themselves in the high-end department store market.

For those companies, 2011 was a landmark year. Larger department stores, including Myer and David Jones, started selling more products online and chief executives started disclosing how much of their business was made up of online sales.

Forrester Research analyst Steven Noble says the more successful online retailers, are growing at incredible rates and barely keeping up, finding new staff and new floor space to cope.

These larger companies are having a hard time adjusting. But they’re also at an advantage, as Noble says many successful online retailers are still incredibly small.

“But having said that, many of the most successful online retailers are individually quite small, and would be still small from the point of view of these department store giants.”

Most of these successful online retailers are just a drop in the pond when compared to David Jones or Myer. With David Jones unveiling its multi-channel strategy in the past few weeks, Noble says these domestic retailers may have a lot more competition in the year ahead.

“What we’re going to see this year is the larger retailers becoming much more agile and attempting to emulate the success of these sites. As these online retailers are achieving scale, the larger businesses have to take notice of them.”

Meanwhile, there are plenty of other revolutions happening in the online retail space, including the growth of mobile technology and the need for retailers to continue to pay attention to online communities. And certainly dedicated online players such as Kogan or Booktopia are experiencing massive growth rates – Kogan claims sales have more than doubled in the last year.

But these experts say 2012 will be a year dominated by the entry of massive, department store-sized players – and their need to juxtapose their offering against existing, better established discount operators.

As Glue and local Topshop franchise head Hilton Seskin told SmartCompany recently, bricks and mortar retailers entering online must stand apart in order to stay on top.

Yip says all of this is true, but it’s the companies that learn how to leverage the audience already tuned in to paying for discounted goods that will become the most successful.

“Online has been used as a tool for buying for so long, and as a tool for comparing deals for so long, that consumers are naturally there now.”

“How do you get more transactions from that audience? That’s the question, and the larger retailers can’t ignore that.”

With all that taken into account, the online space continues to grow. With department stores now in on the action, along with established bricks and mortar retailers, the number of top digital shops has greatly expanded – so we’ve expanded the list from 10 to 20.

Here are Australia’s top 20 online retailers, as chosen by SmartCompany:

1. Big W
Big W only introduced an online component relatively recently, but is fast becoming one of the most popular Australian stores given its focus on cheap goods and discounts. The frequent deals on free shipping don’t hurt, either.

It’s impossible to know how much revenue Big W is taking from its online operations, (it made $125 million overall in the first half of the year). But if Woolworths continues to emphasise discounts, the mobile channel and online-only deals, there’s no reason it can’t continue to do extremely well.

Nielsen: 1.138 million

(Nielsen Online Ratings – Unique Audiences in February 2012. Visitors with multiple devices are not counted twice.)

2. Booktopia
One of Australia’s few online booksellers, Tony Nash and his co-founders have built Booktopia into a bustling business with revenue now set to exceed $20 million for this year. The company was also chosen as one of the few to partner with Google, selling its eBooks alongside physical copies.

Nielsen: N/A

3. BrandsExclusive
This private shopping channel is the product of former eBay executive Daniel Jarosch and former PCW employee Rolf Weber. Between this, BuyInvite and OzSale, the trio have the private shopping channel cornered in Australia.

Revenue is unknown, but the company sold a 40% stake to European investors Oliver Jung and Klaus Hommels, the pair who originally invested in Facebook and Skype. Founders Daniel Jarosch and Rolf Weber also claim the company is profitable, with over 100 staff.

The pair also invested in group-buying site Spreets.

Nielsen: 582,000

4. Catch of the Day
It’s no surprise this online giant is on the list for a third year in a row. With revenue expected to hit $250 million for the current financial year, an investment from billionaire James Packer and an explosion in the group buying and grocery divisions, Gabi and Hezi Leibovich are slowly building an online empire.

There’s no secret to what Catch of the Day does – it just continues to do it very well. As Leibovich told SmartCompany last year, the strength lies in being nimble. When the company spies an opportunity, such as groceries, it explores and goes after it.

Much of the time, like with Scoopon, it pays off. As long as CotD can maintain this nimbleness as it continues to grow, along with its well-oiled supply channels, then it’ll remain one of the biggest online players in the country.

Nielsen: 1.401 million

5. Cudo
This venture from NineMSN and Microsoft was up for sale during the past 12 months, according to various reports – even with a prospectus handed out to potential buyers. Whether that’s a sign of confidence or disappointment, it’s hard to say. Nevertheless, Cudo remains one of the most popular group buying sites.

Nielsen: 898,000

6. DealsDirect
The country’s largest online department store, it continues to turnover in excess of $100 million and is branching out into more opportunities. During the past year, founder Paul Greenberg has spearheaded a number of acquisitions, including an electronics supplier and a children’s clothing chain.

DealsDirect has been around for several years, but it’s not keen on slowing down just yet. These acquisitions, and the growth of its “daily deals” and groceries strategies, indicate this online powerhouse isn’t keen to settle just yet.

Greenberg would not reveal an exact revenue figure, but said “group revenue” had recorded a “sizeable increase” on last year, partly due to acquisitions.

Nielsen: 923,000

7. Dick Smith
Obviously the most troubled of the companies listed here. Woolworths intends to hand off the Dick Smith chain and close up to 100 stores over the next two years.

Woolworths doesn’t disclose revenue for the chain specifically, but did say the consumer electronics chain only made EBIT of $19.5 million in the first half of 2011-12 – not great for a chain of hundreds of stores.

Yet there’s a lot to like here. The company’s ordering system is comprehensive, allowing you to see which stores have how many items of a particular product, and contact details for each store are clearly displayed, among other features.

Nielsen: 955,000

8. Get Wines Direct
The online wines market is bustling, with Woolworths, Cracka Wines and now Catch of the Day all wanting a piece. But Get Wines Direct is the largest online player so far, with revenue at $50 million.

Nielsen: N/A

9. Good Guys
This homewares chain is one of the best when it comes to clever use of the internet, making sure shoppers have access to localised information, stock information and the ability to pick up goods from their local store if they so desire.

Other chains would do well to emulate what Good Guys is doing with its comprehensive website.

Nielsen: 743,000

10. Harvey Norman
Gerry Harvey is fairly open about the fact his online store isn’t making much money, but that doesn’t change the fact it has a substantial amount of traffic, and therefore a potentially huge customer base. The company’s recent dedication to direct importing via online through its video game store sends a clear signal Harvey Norman is just getting started with online retailing.

Earlier this year, Gerry Harvey suggested the online store was turning over about $50,000 a week, or about $2.6 million a year.

Nielsen: 923,000

11. JB Hi-Fi
JB Hi-Fi is one of the biggest bricks-and-mortar chains supporting its online retail arm, and one of the few releasing figures on how much money it’s making online. Digital sales represented 1.4% of turnover, or $25 million, in the first six months of the current financial year.

The chain is succeeding by taking more of its offering online. With online-only deals and discounts, it’s attempting to separate the digital store and give it more of a presence of its own.

Perhaps more interesting than all of this is the company’s move into direct imports. These online-only deals see the company import equipment and then sell it for a much cheaper cost. It’s a clever way to get around tax, but also represents how nimble the company can be when adapting to a digital environment.

So despite the relatively small online performance, there’s a solid business here.

Nielsen: 1.082 million

12. Kogan
No stranger to controversy, founder Ruslan Kogan has managed to carve out a significant piece of the online electronics market – and made himself one of the country’s richest men under 30 in the process. Expanding into new categories has helped this online powerhouse exceed $100 million during the current year.

Nielsen: 443,000

13. LivingSocial
LivingSocial was actually locally-produced site Jump On It before the American company snapped up the firm just last month, two years after making an initial $5 million investment.

The investment was a success story for local founders Colin Fabig, James Gilbert and Adam Rigby, after the trio launched the site in 2009, following the group buying craze in the United States.

It won some hefty investors too, including Roger Allen of Allen and Buckeridge.

Whether the site will continue to do well is anyone’s guess – it all depends on the competition it faces in the years ahead, as the initial craze for group buying slows down.

Nielsen: 935,000

14. Myer
The traffic is here, even though the revenue might not be yet. Myer is keen on improving its online presence in the year ahead, having already opened its Chinese site – whether it’ll be enough to push it among the nation’s most successful online retailers remains to be seen.

Nielsen: 587,000

15. Oo.com.au
The inclusion of Oo.com.au on the list reveals Australia’s keen desire for discounts. This department store was founded in 2005, and has found success ever since as it continues to market to those looking for the cheapest price.

Nielsen: 844,000

16. OzSale
A $14.5 million investment from Twitter-backer Insight Venture Partners didn’t hurt this company’s chances. It remains one of the country’s largest private shopping networks.

Nielsen: 672,000

17. Scoopon

This Catch of the Day spin-off benefits from the company’s strong supply chain. Some big-name deals, including a recent deal with Hungry Jack’s, gives the Scoopon brand some clout, along with some branching off from the regular health and beauty routine.

Nielsen: 780,000

18. Spreets
Dean McEvoy struck gold when he sold this Pollenizer-backed start-up to Yahoo!7 for $40 million. The deal put the top four companies into the hands of major media businesses – and confirmed major corporations were paying attention to the industry.

A large sales team and constant attention to editorial is keeping this group buying site among the top of the pack.

Nielsen: 866,000

19. StarDeals (Groupon)
The fact Groupon is on this list without appearing last year indicates just how quickly this industry has grown – and how rapidly this American entrant has been able to dominate its share of the market.

Although group buying is beginning to taper off from its peak in April 2011, revenue hit $498 million last year and it’ll reach $700 million in 2012. Groupon has one of the biggest slices of that market, and as the smaller players start to fall away, it’ll only dominate more and more.

It’ll be interesting to see whether the company shifts direction under chief executive Tobias Teuber’s leadership after Patrick Schmidt’s resignation. But one thing’s for sure – the industry needs to start offering more than health products and restaurant vouchers to survive long-term.

Nielsen: 1.460 million

20. Westfield
Turning Westfield into an online shopping network was probably one of the better moves this property giant made in the last year. Giving all the merchants another outfit to get online is a win-win, and is yet another sign major Australian corporations are taking the internet more seriously as a sales channel.

Nielsen: 905,000