While the red ink spreads at online retailers SurfStitch and Temple & Webster, fashion site The Iconic expects to swing into the black next year after shifting its focus from “anyone with a credit card” to tech-savvy Gen X and Yers and getting retail basics right.
After losing $109 million between 2012 and 2014, losses at the pure-play online retailer narrowed in 2015 after a 60 per cent increase in sales and the improving trend has continued this calendar year, said The Iconic chief executive Patrick Schmidt and managing director Adam Jacobs.
“We were profitable in May and we’ll definitely be profitable in 2017,” Mr Schmidt said.
Three years ago The Iconic was bleeding so much cash that rivals were convinced its backers, Swedish investment company Kinnevik AB and German e-commerce incubator Rocket Internet, would soon pull the plug.
The Iconic has proven the doubters wrong, increasing its share of the Australian online fashion market five-fold to more than 10 per cent, not by expanding into new categories, splashing out on marketing and investing in content but by targeting a more profitable market and using digital technology to enhance the shopping experience for customers.
“It is about scale – we have grown the company eight-fold in the last three years and that helps pay for the overheads,” Mr Schmidt said.
“But we have also improved unit economics dramatically through higher margins, less markdowns, a more premium offering – every single unit we ship now is profitable, which wasn’t the case in 2012-13.”
Fine tuning customer focus
In 2014, The Iconic moved out of categories such as beauty and children’s wear and decided to target fashion-forward, tech-savvy customers aged 25-35 years old, who were prepared to pay full price and appreciated the convenience of three-hour and next day delivery.
“Initially it was anybody with a credit card,” said Mr Schmidt, 36. “We then looked at different customer groups and derived a conclusion of which customer group for us was the most attractive one.”
Mr Jacobs, 33, said: “By focusing on the right kind of customers it galvanised the strength of our assortment, we were able to put together an assortment that was the best one for that kind of customer, and we were able to increase our marketing efficiency because we were giving a relevant message to the right customer set.”
The Iconic also strengthened its executive team, hiring former Groupon executives Anna Lee and Michael Mattern as chief financial officer and chief operating officer, former Zalando buyer Mareile Osthus as head buyer and former Westpac and Deloitte exec Nicolle Strauss as chief people and culture officer.
“Our executive team is one of the best [online] retail teams in Australia,” said Mr Schmidt, “and we have a very brutal focus on a few things. Those things are cost and product – the product we sell, the merchandise and the other product, our customer experience.”
The company has emulated tech companies such as Spotify by putting in place cross-functional web development, app development and personalisation teams with their own engineers, designers, marketers and product managers and specific objectives and performance targets.
“By doing that it means they don’t depend on other parts of the business, they’re completely independent, they can experiment very quickly, they own their own road map and they tend to deliver higher quality technology in a much faster period of time,” Mr Jacobs said.
Like e-commerce pioneer Ruslan Kogan, who describes Kogan.com as a “statistics company masquerading as a retailer”, The Iconic team reviews “hundreds of metrics” every day. But Mr Schmidt and Mr Jacobs said the most important measures of success are net promoter scores and their share of customer spending.
“For us the technology is a means to an end,” said Mr Jacobs. “What technology is doing is allowing us to innovate around the experience of retail, but any retailer still has to be really focused on the first principles of retail – the strength of the assortment, the strength of the pricing strategy, the convenience around shopping and returns and the shop you’re entering.
“There’s a risk that when you start trying to take on too many things you don’t put enough time into those retail basics.”
While profits appear just around the corner, Mr Schmidt says The Iconic’s shareholders are not eyeing the exits and there are no plans for an IPO or trade sale.
After outgrowing its Surry Hills home and moving to a new 3500 square metre office in Sydney’s CBD, The Iconic’s 12,500sq m warehouse at Wetherill Park in Sydney’s west is bursting at the seams. The company is now in the market for a new warehouse and has recently received board approval to invest more than $10 million next year on a fully automated fulfilment system.
“Our board and investors are not keen on an exit – they see this as just the beginning,” Mr Schmidt said.
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