Lex Pedersen and Justin Cameron both had great careers. Pedersen ran Surfection, the surfwear shops, and Cameron was an investment banker and research analyst at Credit Suisse.
Eight years ago, they saw what was happening in the US with online retailers such as Amazon and sensed an opportunity. The two surfing buddies from Sydney’s northern beaches were in their early 30s and their idea would quickly grow to become SurfStitch, an ASX-listed business worth more than $500 million.
To test the water, they bought some wetsuits, put them them on eBay and quickly sold out, using Cameron’s garage at Mona Vale on Sydney’s northern beaches as a base.
“The take-up was phenomenal and we quickly scaled up the business very fast on the back of that,” Cameron told Business Insider.
“When we started our business back in 2007 we were one of the first pure online retail plays in the country outside of Amazon and eBay,” he said.
$3 million in the first year
Within 12 months, Surfstitch was turning over $3 million. In two years, $10 million – and it kept accelerating.
Surfstitch is now listed on the ASX with a market capitalisation of more than $500 million and with turnover of $200 million. The share price is around $1.90. Morgan Stanley has a price target of $2.50.
The business doesn’t pay dividends at the moment. It’s all about growth. The target is to be a $1 billion business by 2020.
When they started out, the success of online sales was driven by the breadth and depth of the range that wasn’t available in bricks and mortar retailers.
“Since then the ecommerce landscape has changed dramatically,” says Cameron. “One example, over the last two years our business has gone from 5% on mobile to 50%.
“And as part of those changes we are also recognising that consumers are engaging through a lot more content in their purchasing behaviours — researching and engaging in an environment of content and then making purchasing decisions.”
To meet that the company has been buying content, such as STAB magazine and the surf weather site Magicseaweed. SurfStitch now has an audience of more than 6 million across its websites and content plays.
The classic scenario is that someone who has been reading the content, such as a surf weather report, and then hits the retail section, is a lot more likely to buy something.
“Over time we will leverage our assets more and more to drive traffic to our network,” he says.
The content play
The numbers are hard to ignore when you link those content sites to the retail parts of SurfStitch.
The usual conversion rate — the percentage of visitors to the SurfStitch site who actually buy something — is about 3%. However, when they come from Magicseaweed or STAB Magazine, it rises to 10%.
The content means that the average spend per customer also increases, by about 50%, to $180 each from around $120. And the purchase frequency — how often people come back to buy more — is about five times a year compared to the usual 32%.
More recently SurfStitch bought Garage Entertainment, a local Sydney action and extreme sport video producer, for $15 million in cash and shares.
Garage has the largest library of action sports online with more 3,000 titles. It distributes them through its own video-on-demand platform and dedicated TV channels.
The content businesses — Magicseaweed, STAB and Garage — all break even or are slightly earnings positive in their own right, so they don’t cost the main business anything from cash flow.
And being within SurfStitch also has benefits in the other direction.
“They’ve (the content sites) been investing aggressively to build content on their networks and by bringing them into the group we can expose them to our 6 million plus audience,” Cameron says.
“If you look at our business, we are the largest online action sports retailer in an online environment. We are currently shipping to over 130 countries around the world from our infrastructure in North America, Europe and Australia.”
Acquisitions around content need to complement and drive the business. “We do see opportunities continually presented to the business and we will assess those as we review our business model,” Cameron says.
The banker-turned-retailer shared with Business Insider some of his insights on building a successful venture.
“It’s important to keep concentrating on your niche,” Cameron says. “One of the key driving forces of our business is that we’ve never strayed from our niche of action sports.
“As you build and audience you can be distracted and it’s important to stay focused on your niche and your skill set.”
Monitoring consumer trends
“The thing that keeps me awake the most at night is technology changes,” he says. “Using my example before, the business in two years went from 5% on mobile to 50%. If we hadn’t been closely watching that transition we would have been impacted.
“We need to ensure as a business that we are continually reviewing new technologies, consumer behaviours around those, and evolve our business accordingly. And maintaining flexibility in our infrastructure is key to that.”
Doing something you love
Cameron is aged 38 and still loves surfing.
“I am an avid surfer having grown up on Sydney’s northern beaches,” he says. “I grew up surfing all of my life and thankfully was able to make the transition out of the world of corporate finance into a passion.”
The average age of the SurfStitch work force is 24.
“Staff can work in one of our many offices around the world,” Cameron says. “We have offices in Venice Beach, California, the UK, in Sydney’s Bondi Beach, the Gold Coast.
“We have a number of locations which provide great training grounds and it gives them the opportunity to travel the world with the business.”