brandsExclusive, an invitation-only online shopping boutique, demonstrates how important strategic planning and careful thinking is for e-commerce success, reports Dr Lars Groeger.
Niche Australian boutique brandsExclusive sells fashion clothing, accessories and shoes from major fashion labels direct to the public via exclusive online sales events. Running for a limited period with limited stock availability, these sales events allow invitation-only members to save up to 70 percent off recommended retail prices. Members do not pay fees, while non-members are unable to access or buy from the website.
This highly successful website is the brainchild of founders Daniel Jarosch and Rolf Weber, who anticipated consumers’ need to buy genuine brands from trusted online sources affordably. Both foresaw the development of a revolutionary new distribution channel that would intermediate between brands and consumers. In doing so, they would guarantee intrinsic value for both.
In 2008, Jarosch and Weber decided to create a website that sold quality products direct from brands at a reduced cost to customers. The pair began to observe the development of highly successful exclusive online shopping clubs in Europe, the first of which was vente-privee.com. The French website subsequently expanded its foothold to Spain, Germany, Italy and the UK by the end of 2008. Its registered European membership grew to 6.5 million, with 2009 revenues soaring to an estimated €510 million [$1 billion].
They tracked other emerging companies including GILT.com, BuyVIP.com, hautelook.com and ruelala.com, which had adopted similar business models to that used by Vente Privee. As their ingenuity increased, some sites were able to match their French rival’s revenues in an even shorter period of time. Colossally successful German-based Brands4friends.de, for example, broke even in just six months and generated revenues of €30 million [$50 million] in its first year.
All the sites had an identical guiding principle: to fulfil apparel brands’ desire to sell excess stock quickly – without harming their image or forcing the website to compete against rival distribution channels.
Despite opportunities for success, as many online shopping clubs have failed as have succeeded. The online apparel market did not develop as successfully as expected and many players vanished as quickly as they appeared. The Financial Times referred to boo.com as ‘the highest-profile casualty among European e-tailing start-ups’ after the brand spent $135 million of venture capitalists’ money in 18 months but attracted dismal customer numbers.
The appeal for fashion manufacturers
Sustaining exclusivity is of utmost importance to fashion manufacturers. So much so that they often destroy their own goods if faced with the threat of jeopardising their premium image by having them relegated to bargain bins.
To sidestep this dilemma, a number of manufacturers had tried to bypass retailers by selling products directly to customers over the internet. Issues arose, however, as new online channels competed with traditional channels by selling to the same markets. A case in point is Levi Strauss & Co, a highly successful US apparel business that audaciously began selling its Levi and Dockers brands online in 1999. Retailers were flummoxed by the assault of competition, advising that Levi’s account could be cancelled if the company continued to sell its products direct to consumers online. Within a few months, Levi Strauss & Co had discontinued all online advertising efforts.
The Australian climate
Coco Chanel coined the phrase ‘fashion is made to become unfashionable’, underlining the unnerving unpredictability of the apparel industry. Yet despite its apparent volatility, the Australian retail apparel industry has moved from strength to strength, boasting a weighty turnover of $12.8 billion in 2008. A substantial share of this is assigned to overstock or season stock, providing an outstanding business opportunity for brandsExclusive to sell this inventory online as opposed to selling through classic channels such as DFO and warehouse sales.
Jarosch and Weber defined their customer base as those seeking genuine branded goods at a high discount from a trusted online source. Weber felt the business model didn’t necessarily need to be limited to overstock products in apparel – or to the apparel category itself. ‘It will eventually evolve as we see what’s happening overseas. This means the opportunity increases accordingly, with more available stock and categories added depending on the preferences and needs of the consumers.’
Despite Jarosch and Weber’s high hopes for success in the Australian market, the fact remained that only one Australian online retailer (ozsale.com.au) was taking a similar approach to Europe’s online clubs at the time of brandsExclusive’s inception. OzSale had launched in 2007, focusing on children’s wear and offering a self-registration membership strategy. In contrast to brandsExclusive, OzSale did not work with local brands but focused on bulk buying of liquidation stock overseas and importing it to Australia.
In contrast to those in the US and UK, the online market in Australia is still in its infancy, and this relates to two critical factors. Firstly, a large proportion of Australian consumers are wary of online shopping. Online transactions have attracted a moderate-to-high number of complaints, which has undermined consumer confidence and fostered e-consumers’ fears of falling prey to credit-card fraud. Secondly, experts cite the lack of a ‘catalogue-shopping culture’ as further cause for consumer hesitancy.
Jarosch and Weber’s venture would play directly into the hands of either the prosperity or the demise of the Australian online shopping market. The pair was plagued by a pressing question: that of whether or not a successful overseas business model could be transferred and adapted to the Australian continent, given the relative online inexperience of the country’s consumers.
The inherent challenges
Pure retailers face relatively few barriers to establishing online outfits; however, the combination of low capital requirements and the broad and large market opportunity outlined above increases the threat of potentially more popular new entrants. Compounding this threat is the fact that new competitors are a click away for consumers, making loyalty and trust far more difficult to obtain and maintain within the web environment.
Another issue lies in the difficulty consumers have in accurately assessing products online. The characteristics pivotal to the consumer decision-making process – colour, touch, feel and fit – present particular communication challenges in this arena. Customers are also stripped of the instant gratification their purchases can provide, as a shopaholic’s joy must be postponed until the goods arrive in the mailbox. Product presentation and website atmosphere are therefore critical factors in evoking positive consumer emotions.
To get around this potentially problematic issue, brandsExclusive placed considerable importance on the presentation of its online products. It created a quasi-3D effect by using human models instead of laying out the goods in one-dimensional form and provided detailed descriptions of model height, weight and size to further illuminate the assets of its product. In addition, they provided pictures of the products, taken from several angles, along with a high-resolution zoom function.
The venture’s dominion
The success of brandsExclusive boils down to its ability to sidestep the hesitancy of Australian consumers to shop online by establishing strong transactional trust. To rid any lingering uncertainty from the minds of online customers who may be unfamiliar with unconventional shopping channels, brandsExclusive offers a full return policy.
In addition, the business sources its stock directly from fashion brands and their distributors in Australia instead of sourcing branded goods from China, the US or via receivership goods.
This sourcing strategy differentiates brandsExclusive from other players, who may pay less by purchasing goods in higher volumes from several sources.
By contrast, brandsExclusive only orders the aggregated consumer demand at the end of the sales event. While this ordering process means longer waiting periods for the consumer, it mitigates inventory and cash flow risks by disentangling cash flow from inventory. It also boosts consumer trust by guaranteeing quality.
brandsExclusive further builds consumer trust by consistently guaranteeing high price discounts. In contrast to rival online companies, the business holds no inventory and therefore avoids warehousing and personnel costs. Meanwhile, online marketing costs are kept to a minimum, thanks to its invitation-only membership approach and a concentration on email announcements to members and personalised customer relationship management. Satisfied members spread news about the shopping club on behalf of the firm and, in doing so, provide brandsExclusive with the most powerful marketing tool: word of mouth. To foster member referrals, brandsExclusive provides a range of invitation applications from which members can choose, such as address-book uploads, Facebook integration and MSN messenger invitations applications.
But brandsExclusive’s success also lies in its ability to build trust with fashion brands themselves. It gives brands access to a proven online retail channel without extra costs or risks. This enables the supplier to generate high sales volume through fast clearance of excess inventory. It also avoids channel conflict because goods are sold to a new, exclusive and closed customer base.
The website also protects the identity of fashion brands by removing former campaigns from the site, leaving no trace of their existence. Neither can its sales be sourced within Google searches. The brand thus retains tight control and benefits from cross-selling via other channels, given that the exclusivity and short length of brandsExclusive sales events mean that members may miss buying what they wanted.
Along with the development of trust in consumers and suppliers, the success of brandsExclusive lies in its ability to provide customers with access to a thrilling buying experience. Not only does buying through the site guarantee hefty discounts; it also ensures that each sales event is exclusive, running only for a limited time and providing a limited quantity of merchandise.
With a growing sense of haste in people’s lives, there’s an increasing desire to buy from retailers that capture – or capitalise on – fleeting experiences.
The indomitable outlook
Jarosch and Weber are focusing on two key areas: growing the site’s membership and supplying members with a wide and deep range of products. The pair’s current objective is to increase membership to more than 100,000 in the first year and be showcasing between 25 and 50 sales campaigns a month, while maintaining a high conversion rate.
As predicted by Jarosch, other private shopping club operations have emerged in Australia as a result of his business model’s success. This is no surprise, as venture capitalists are eager to invest in the latest trends, driving up valuations and encouraging a glut of copycats.
But while the onslaught of competitors could spoil the party, The Wall Street Journal had it right in July 2009 when it noted that the importance of strategic planning for e-commerce firms cannot be overstated – and will eventually guarantee a sustainable competitive advantage.
This case study is extracted from the forthcoming book, Strategy: Theory and Practice, by Stewart Clegg, Chris Carter, Martin Kornberger and Jochen Schweitzer.