Dick Smith was built to lose

This is my third and final post about Dick Smith Electronics (DSE), the decades old tech stalwart that finally succumbed today after a long and seemingly incurable illness.

25th February 2016: Dick Smith Receivers announce the closure of Dick Smith Holdings Limited

Back in 2013 in a post called “Why Dick Smith Electronics is a dead brand walking” I questioned whether the 2012 acquisition from Woolworth’s was anything other than a smash and grab by a savvy PE firm. Having visited several Dick Smith stores in Sydney it was clear that the experience paled when compared with their all-conquering tech-retail benchmark JB Hi-Fi. In fact there was a complete absence of service at any of the DSE stores.

Then by late 2013 it seemed inevitable, Anchorage Capital’s genius smash and grab would lead to a Listing on the ASX before the PE clever clogs would bail with a sack full of cash.

Is Dick Smith Turning Around “No, I suspect the miracle turnaround begins and ends when Anchorage offloads its investment in Dick Smith in record time to Retail Investors through a listing, or to the management team beforehand, and for as much as 20x the $20m they paid Woollies!”

By December of 2013 DSE was listed and my 20x estimate was smashed. In truth, as detailed in this excellent breakdown by Matt Ryan at Forager, Anchorage invested only $10m of their own capital and reaped $520m in return!

However, behind the tragedy of today’s store closures and related job losses there’s a fascinating data point to be mulled over.

“on a per-store basis, JB staff outnumber Dick Smith 4 to 1!”

DSE grew to 363 stores by 2015 compared with JB Hi-Fi’s 187 stores, yet according to JB Hi-Fi’s 2015 Results, they employ 7,320 staff!

Ignoring HQ employees (and the impact of Part Time staff), JB staff their stores at a rate of almost 40 per store, DSE employees numbered 3,300 at its 2015 peak, meaning less than 10 per store! On a per-store basis, JB staff outnumber Disk Smith 4 to 1!

Which begs the question, was DSE ever likely to succeed on high street sales? Or was it built as a short term ASX investment rocket with aggressive plans for store expansion set against JB profits benchmark? It certainly was that.

Mobile Revenues Surging for Companies Like One Kings Lane While Traditional Ecommerce Remains Clueless

<<this post originally appeared on pandodaily, read it here>>

On a recent Friday night, One Kings Lane CEO Doug Mack was passively monitoring his company’s real time sales, catching up on some of that never-ending CEO work that slips through the cracks during a week of building a growing company.

He noticed some huge spikes in sales, and some uncommon buys, including a $17,000 vintage Hermes wallet. When he drilled down, he realized this was all happening on iPhones. That was the moment when it hit him: “The ceiling is absolutely gone,” he said to himself. “People will buy anything on a phone at this point.”

And they’ll buy a lot of it. In June, mobile made up 22 percent of One Kings Lane’s sales. That jumped to 25 percent in July and is up from basically zero two years ago. That 25 percent figure is almost exactly what Braintree — a payment vendor of choice for high-end retailers going after mobile — is seeing across its network too.

This possibly drunken wallet splurge wasn’t a one-time thing. The ticket prices on mobile are higher on average, Mack says. Other phone splurges have included a $7,999 freestanding oval bathtub, a $7,499 Vintage Turban ring, a $7,249 pair of Napoleon III Blue Linen Bergeres, a $6,999 Lexicon Dressing Cabinet, and a $6,998 Darla rug. I don’t even know what some of those things are.

Is drunk shopping the new drunk texting? Who cares if you’re Mack, Ready, Uber’s Travis Kalanick, Fab’s Jason Goldberg, or any of the early wave of ecommerce companies who have aggressively tailored their ecommerce experience to mobile. What matters is when you do it right, people are spending and they are spending more and they are spending at a time that was previously an ecommerce deadzone. And it’s just the beginning.

It’s not just Friday nights. We’re coming up on Labor Day — the time when traditional etailers rejoice that summer has officially ended and people can get back to work… and hence back to shopping online.

One of the biggest impacts of ecommerce was extending shopping time into the workday to such a degree that we have the silly flurry of news stories around “Cyber Monday”, the morning after Thanksgiving. What mobile has done is drag online shopping, not only into the weekends, but into vacation time. One Kings Lane was astounded to see that they effectively had no summer lull over the last few months — that’s directly tied to mobile growing as a percentage of revenues as the summer went on. “People are clearly taking us on vacation with them,” Mack says.

On July 4, the percentage of traffic from mobile devices went from its already high 25 percent to 33 percent — 40 percent higher than an average Wednesday. It’s as high as 34 percent of traffic on weekends.

Check out a recent seven day period of One Kings Lane shopping, the desktop and mobile trends are essentially mirror images of one another:

In the evenings, iPad shopping surges relative to other mobile devices, as people browse from their living rooms. Why does the distillation of type of device matter? Because as the handful of vendors doing this right know, mobile isn’t a catch-all bucket. In the case of One Kings Lane, the average order on the iPad was a whopping 10 percent higher than the desktop in July. On the iPhone, it was 6 percent higher than the desktop. The exciting thing about the iPhone is that it maximizes where people can shop, but the iPad makes them spend even more, according to Mack.

The implications of this are staggering to think about. Mobile commerce has both been over-talked about and under-hyped at the same time. We aren’t witnessing another mini-trend like flash sales or subscription commerce. We are witnessing the birth of an entirely new channel, opening up dramatically new ways to acquire, delight, and get money out of customers. The impact will be equivalent to the birth of the catalog industry and the birth of online commerce — maybe even bigger, Mack says.

Like the birth of ecommerce, this will not be a tide that lifts all boats. Think of what Expedia and Travelocity did to travel agents and what Amazon did to book stores. The carnage could be as great, and this time it’s not bricks and mortar that will suffer, it will be traditional ecommerce vendors.

Mobile commerce is fundamentally different from traditional online commerce. Clumsy shopping carts and log ins aren’t going to work. There’s little patience to even type in a credit card number on mobile. The browsing experience has to be gorgeous, lush, richly photographed and simple. Like flipping the pages of a magazine. It’s about curation, a deep understanding of who the customer is and guessing right at what they want. And it’s about pushing in the right ways — just enough that someone knows a new item is going on sale, but not so much your app gets uninstalled.

Traditional ecommerce was all about about cost-savings and convenience. Mobile is about entertainment. You have to revel in the fun part — the browsing and discovery — and make the unfun part — paying — as easy as breathing.

Braintree is a leader in ease of mobile payments, particularly with its recent acquisition of digital wallet Venmo. The company already enables easy, one-click purchases for existing customers. But thanks to the acquisition, it’ll be able to offer one-click checkout between sites operating on its network. In practical terms, if you’ve ever paid for an Uber, you could click to purchase anything powered by Braintree without entering any personal details.

Can too little friction be an issue? All it’s gonna take is someone’s five-year-old opening up One Kings Lane and ordering five Hermes wallets to see the downside of Braintree’s software. A few months ago we wrote about the next day hangover from Uber spending. But a $40 cab ride is nothing, compared to the semi-drunk sales some of the glitzy flash retailers are seeing.

The vendors I’ve spoken too aren’t worried about a backlash of shoppers’ remorse. They’re too busy moonwalking all over the old ecommerce world, much of which doesn’t even really realize the shift that’s happening right under their noses.

I have no doubt some of our more sophisticated readers are thinking, “This is news…why?” But it’s a very small percentage of the world that gets what’s happening in mobile commerce. (It just so happens a lot of those people read us regularly.) But it’s a very binary world in ecommerce right now. A handful of companies like One Kings Lane are seeing higher average ticket prices and experiencing banner holiday receipts. The rest of the traditional ecommerce world is still thinking about mobile in a theoretical sense, thinking they have time before consumers really want to spend money on phones.

It’s not just that their sales could be higher. The trend is actively hurting them. On average 20 percent of traffic is coming from mobile, but the sales conversion is 75 percent worse. In another year, Braintree’s Ready expects mobile to be 50 percent of traffic. Clearly, that’s unsustainable.

What’s more, Ready is astounded at how frequently he has to explain this to “tech” companies. He gives them the stats, and when they don’t believe him, he tells them to check their logs. They frequently come back stunned. “Most etailers are totally ill-equipped to allow people to buy things easily,” Ready says.

Given the challenges that even Facebook has had adjusting to a mobile world, I’m not too convinced most ecommerce vendors will make the shift even once they’ve had this a-ha moment. Mobile shopping is just too different from the way traditional ecommerce was created, and big companies can’t usually change their spots.

Either way, in five years the biggest mobile companies will undoubtably be the new class of etailers. Just like the early days of the desktop Web, the ad markets just aren’t there yet. No matter what device you are on, the easiest way to build a billion dollar Web company is still to get people to open their wallets. And that’s getting even easier now that opening the wallet doesn’t even entail actually opening a wallet.

Come back soon, the untapped power of the Thank You Page.

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Most transactional websites share a common shortcoming, leaving a significant amount of value up-tapped. The Thank You page is seen as a simple confirmatory page, there to provide certainty to the customer that what they think just happened, just happened. But the Thank You Page is a comma, not a full stop.

You have battled hard to win the customer, fought to provide the right product at the right price, and you have lost many along the way. But once a transaction is complete, you’re done, there’s a tick in the box and the user begins again, <close window>, <new tab>.

But your customer is, at that moment, your biggest advocate – you are in the Golden Window. Your Advocate is brimming with delight at the purchase of that holiday, auction item, or e-book, so why stop now?

Immediately post transaction is the right time to harness their advocacy, and here are six ways to get value from the Thank You Page:

  1. Cross Sell: Have a series of pre-determined product offers, “you bought X, check out Y” – providing such offers pre-transaction is tougher and will result in a reduced conversion rate overall, but it will lead to an increase in the average basket size and may be worth while in the long run. With post transaction, there is less risk and can be used to perfect product matching.
  2. Loyalty Discounting: Reward the first purchase with a discount on an immediate subsequent purchase
  3. Voucher offer: Provide a variety of vouchers, gather opt in to email alerts to grow your email base and encourage redemption
  4. Friend Get Friend: Great time to encourage your advocates to recruit for you, make it easy for them, and provide incentives the purchaser can give away, such as discount on first purchase (people don’t like to profit from their friends, but being able to secure a discount for their friends makes them feel important)
  5. Facebook promotion: simply “click here to Like our Facebook page”, or “share the news with your friends that you just secured a holiday!”
  6. Promote affiliates: (this option is possibly the easiest to execute but the lowest value adding) add a display ad to the Thank You Page which can be sold on a CPM or on a take-over basis.

[check out RockLive in Australia and the many other agencies emerging in this space]

Gerald, who the F**k is Gerald?

I was delighted to discover that I have a deceased relative called Gerald Tucker, albeit he sadly passed away it seems! But what’s this? He has an estate? wowser! Well, I didn’t know him, and, well, have never heard of him, but sure, why not? I may be his rightful heir! But he did contact me via Facebook, so it’s pucker for sure.

Please don’t suggest this might be a Nigerian scam, non! The gentlemen handling the estate is in Hong Kong, a Mister Shang Lee Esq.! I happen to know that HK is a long way from Abuja. May be worth pursuing after all, could be bucks in it for me! Even if I do have to shell out a small admin fee, say, a few hundred dollars.

Here’s the email:

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Bastards.

New name, new “location”, new channel. Same old crap.

If you get this. Ignore it. 419 in disguise.

Group Buying gone mad!

Some time back I blogged about GroupOn, the Chicago-based Group Buying phenomenon. Since then they have continued their astonishing pace of growth and are now available in over 100 cities including 10’s of locations outside of the US (all in 15 or so months from launch!). GroupOn’s growth is somewhat propelled by their early mover advantage which has afforded them a large amount of mainstream consumer press in the US, driving awareness of the segment and brand (all that’s required to acquire users) while they gathered cash to drive acquisitions that further accelerate their growth cycle and defend the space. The simplicity of the Group Buying model helps too, as does GroupOn’s excellence in execution. Much like Google the segment they dominate has now become synonymous with their brand in the US at least – something GroupOn’s competitors’ may find is impossibly hard to shake.

Ironically, Group Buying is a very easy segment to enter, it’s a a strong cash business that you can start with a basic transactional website and a couple of sales people, in Australia this has played out and there are already ten or more GroupOn pretenders live and running in only 5 or 6 months. Today’s winners in Australia started with a reasonably large base of consumers they could send offers to from sister businesses (www.scoopon.com.au from www.catchoftheday.com.au ) or smart Facebook  feeder strategies (www.jumponit.com.au from www.facebook.com/sydneydeals ) offering them clear differentiation from the smaller competitors.

Another similarity to Search and a challenge the also-ran Group Buying businesses face is the lack of Switching Cost, meaning that Consumers are able to jump between providers with little or no personal cost, switching “loyalty” at the click of an Unsubscribe link. Chances are a number of poorly funded Group Buying pretenders will come and go over the coming months, it will no doubt be fascinating to watch!

Android Phone beats iPhone, industry wins.

Ok, so I shouldn’t be ecstatic, but iPhone (at 21% share) being dethroned to 3rd spot behind Blackberry (36%) and Android (28%) in the US (Q1) means three things:

  • Switching cost is lower than originally thought

Given Apple’s mastery of the iPhone Ap Store, and the resulting average investment made by each user there was an incorrect assumption that iPhone customers would be highly resistant to switching platforms and losing access to their aps, not so.

  • OEM strategy still makes a ton of sense

Google have done an amazing job with the Android OS, moreover the Open Alliance is little different to Microsoft’s own approach to partnering with OEMs, great reinforcement of the potential of Windows Phone 7

  • iPhone is not infallible

Apple’s ascent has seemed unstoppable in the recent months, with Apple TV ranking as their principal failure, but Blackberry’s continued dominance of Business Mobility and Android’s performance in Consumer have served to remind us of the fragility of the market, something Apple could easily have forgotten.

Still, the iPhone 4G is just around the corner so the Wizards of Cupertino will rise again very soon; happy to enjoy the moment though!

Roll on Windows Phone 7, the fight is absolutely on.

Groupon Rocks – updated

The internet is full of adjacency; in the past five years only Twitter has felt like a disruptive innovation. Facebook is an evolution of a ten year old notion of social broadcast, even internet TV which is still struggling to gain momentum has been around the traps for a lifetime… Groupon is very new, and very disruptive.

The premise of Groupon is that small businesses offer deals to the Groupon audience, the businesses trade a substantial discount against a minimum number of of orders, the offer is “tipped” once enough Groupon members have signed up. The Groupon team get to decide which offer is published in each city as well as adding some colourful narrative to entice the purchasers.

Since launching Groupon has encountered many imitators, but their first mover advantage has meant grabbing scale across tens of US cities, immediate profitability (forecasting $100 EBIT by the end of the CY) and a resulting valuation or $1.2bn. Expect that number to grow as the launch cities grows. Can’t wait for it to hit Sydney.

: – – :

In the past month since posting this note I’ve become aware of a healthy stream of Group Buying sites, I’ve listed some below:

http://www.ourdeal.com.au

http://www.ouffer.com

http://spreets.com.au/

http://www.offerme.com.au/

http://www.crowdmass.com.au/

http://catchoftheday.com.au/

http://www.jumponit.com

http://scoopon.com.au

An article in Mumbrella suggested that the market opportunity for Group Buying had now been satisfied, I disagree.

In the US Groupon stole such a convincing march on its competitors that it grabbed a large chunk of market share and mindshare before a strong competitor emerged – no leader has emerged here in Australia. Given how fragmented the Group Buying market now is and how intense the competition is (read low margins) there is a real opportunity for a well backed leader to emerge in Oz, a space also exists for a Group Offers aggregation website supported by a large publisher.

It’s also only a matter of time before one of the existing large transactional audience businesses such as ebay or Facebook add Group Offers to their buying platforms (about time Facebook made good use of Facebook Marketplace!).

So good luck to the startups listed here – regardless of what happens next, the clock is ticking, I’d say you have 6 months.