Fighting (and winning) against Amazon: The Booktopia model

In Australia’s retail book market, some 1.2 billion sales are tracked every year. From that 1.2 billion, online retailer Booktopia accounts for between 17%-18%.

Not bad for a company founded in 2004 with a budget of $10 per day to spend on Google Ads. So, how do they do it? Part of the answer is, automation.

I travelled to the company’s combined distribution centre and offices in Lidcombe, in Sydney’s inner west to see the latest investments Booktopia has made in automation, including robots, conveyors and wrapping machines. These are the tools that help the company ship out between 30,000 to 40,000 units per day — and take on the Amazons of the industry.

It’s an incredible feat of engineering, allowing the company to sell across 150,000 unique SKUs, with 700,000 units in stock from the 6 million books sold through its website. It can ship all of those in one to two business days, and is moving towards bringing that down to just one day. Chief technology officer Wayne Baskin, the person responsible for the rollout, shared the business case and rationale for each new piece of tech with SmartCompany Plus (see below).

The retailer’s automation isn’t limited to its warehouse however: automated marketing controls the flow of orders to keep the cost-per-unit where the company wants it to sit. Chief marketing officer Steffen Daleng shared his secrets to real-time marketing tweaks to find that sweet spot, and how he stays on top of 27 different channels.

Co-founder and chief executive Tony Nash sees Booktopia’s future as a much bigger player in the broader book industry. He really does want to take on Amazon — and part of that is going to be further simplifying the supply chain. He shared its plans for the next 10 years in a sit-down interview, in between being whisked away for ASX announcements.

Five key takeaways:

1. If you’re going to compete with the Amazons of the world, you need to focus on one thing and do it better than they do.

2. Building your own warehouse management system gives you greater advantages and flexibility in the long term.

3. Marketing can be used strategically to speed up, and slow down sales when you’re not hitting the profitability sweet spot.

4. Every second counts at scale, which is something you should keep in mind as you grow your business.

5. There are greater opportunities in every industry, if you take the time to learn your contemporaries’ pain points.

Competing with Amazon

My burning question for Nash during our interview was how can an Australian company compete with one of the most streamlined, well-resourced online retailers in the world, Amazon? 

It turned out he had asked himself the same question some six years ago while planning for a possible Amazon incursion into Australia.

He did his research on companies in North America and Europe that were flourishing in spaces where Amazon had already matured, and found the answer: they focused on one thing and did it really well.

“So when you come to Booktopia it’s about buying books. When you go to Amazon it’s about buying everything”.

It’s Nash’s belief that Amazon has mostly moved on from books, and sees itself as a tech company first. It wants other people to sell the books, and take a cut. Nash notes that Mackenzie Scott, founder Jeff Bezos’s ex-wife who helped him launch Amazon, has even lamented the company’s move away from books. 

Physical books now account for just a tiny fraction of Amazon’s revenue. Amazon’s huge warehouses and print book sales are mostly for customer acquisition, so the company can then sell them all of its other products.

Booktopia has invested millions into its outbound logistics to match Amazon for speed. For any potential buyer, the delivery time will be similar. Booktopia differentiates itself with the way it curates books, relying on human intervention and tastemaking instead of pure algorithms.

Algorithms need prior data, and without it, they cannot predict performance. Booktopia instead relies on people. It has in-house book experts that can champion new releases by communicating them well in advance to customers. This is a real value add for book buyers, which Nash says are typically passionate, learned people.

As Nash explains, “if it’s an Australian debut author, and already been earmarked by the BookExpo as an award winning bestseller, it’s very hard for an algorithm to tell customers that it’s a great upcoming book”.

Robotics and automation in action

Booktopia has invested heavily in automation after its early years of chasing its tail to meet growing demand. Now its goal is to always be ahead of the curve, so the customer promise is never missed.

On the software side it has two main systems, with its warehouse management system built internally. A locally hosted server runs the onsite database and its distribution centre, with the advantage of low latency, while its online sales systems are hosted through Amazon Web Services. Both can communicate with each other in real time: for example if a person cancels an order after making it, the worker on the floor will get a notification that they no longer need to grab the book off the shelf for packing.

This wouldn’t be possible with a third-party system, which is why chief technology officer Baskin prefers building over buying for warehouse management software.

On the physical side, its automation covers three major investments: conveyors that can move the books from touch point to touch point; packing machines that automatically wrap each order to its exact size; and now, robots that will take over parts of the picking and packing.

As Baskin points out, reducing a single task by one to two seconds makes a monumental difference at the scale of 40,000 units shipped out per day.

How books move through the warehouse

At Booktopia, books arrive, are unpacked, scanned, and checked for marks, then placed into a tote (a sort of divided tub for moving them). Workers then move through the warehouse to place each book in its correct spot, with the software in the backend giving them the most efficient order to move through the warehouse.

These robots will eventually take and transport books that have been unpacked by staff.

Even though the robot will not physically move faster than an employee would, they can carry more weight safely, and take the shortest distance possible.

Wrap it up

Booktopia’s new packing machines have a dual purpose: cutting costs and improving sustainability.

By scanning and wrapping the book in a thick paper, exactly to size, they can then fit snugly into their Australia Post parcels. Previously, they would have to be wrapped additionally in bubble wrap, leading to more plastic waste.

 

It also allows them to ship a smaller cube, which Baskin says will help in its next contract negotiations with Australia Post.

After being wrapped, the books are taken again on the conveyor, and moved through the warehouse to be sorted state-by-state for delivery.

Once all of its robots and packing machines are fully integrated, Baskin anticipates Booktopia will easily be able to ship 100,000 units per day from its Lidcombe site.

Is there a future where humans are entirely replaced by robots in the warehouse? Baskin says it’s not likely.

“Books are like eggs. They’re very fragile. If you drop it on its corner and it’s a hardcover, that’s going to be a problem,” he explains.

Humans are crucial for quality assurance for customers to get a pristine product, and staff check newly arrived books for damage, marks, and scuffs.

This doesn’t mean the company has reached its automation end-point. Baskin is looking ahead; after one completed distribution centre the team can look towards a multi-site operation, interstate, then international.

Controlling the tempo with marketing

Booktopia has 27 different channels to engage customers on, and nine marketplaces where it sells its books. Steffan Daleng, chief marketing officer at Booktopia, has responsibility over all of them. 

The channels include email, push notifications, SMS, and various social media platforms under both Booktopia, and Angus & Robertson, which it acquired in 2015.

Each channel and marketplace has its own KPIs and metrics, which feed into the company’s macro performance. They need to be kept in constant balance so the warehouse is never overwhelmed with orders that it is not able to move in time to meet its two-day promise.

To simplify a monumental amount of live data, Daleng focuses on six metrics every morning: profit, revenue, cost of sale, new customers acquired and customer retention.

He is constantly seeking the ‘sweet spot’ between revenue, cost, and profitability. Sometimes, when book demand outsrips supply, he has to slow down marketing, other times the reverse is true. 

Then there is the tricky aspect of matching the workforce to the work. No worker wants a late night call asking them to come in to work. That is why forecasting is crucial: the predictions need to be accurate, and followed.

“If we can be as predictable as being able to forecast our sales a year in advance, and do just that, no more, no less, that is the sweet spot of profitability for any business.”

To manage this, Daleng’s team built what it calls a ‘Tactical Toolbox’. They worked out what marketing levers they could pull to boost or decline revenue by 10%, 15%, 20%, or 30% at any given moment.

Think of it as a water flow: they create triggers that automatically kick in if the water is moving too quickly or slowly. The interventions can be deals, emails to certain audiences, or particular SKUs, which will let them achieve the best profit on a last minute notice.

There is still human intervention, but the tools can be executed within a 15-30 minute window when needed.

Slowing down sales involves using those same marketing principles, backwards. People buy online for speedy delivery and good prices, so when they need to slow down sales Booktopia can extend delivery times and increase prices. Then, even when additional sales tip the boat, the cost per unit can be covered.

Trimming the touch points

Booktopia is ambitious. It sees a wealth of opportunities in the book sector if it can simplify the complex supply chains that developed organically over years.

“It’s a 570-year-old industry, of which the last six decades, if not longer, has had siloed responsibilities of effort,” Nash says.

This includes authors, literary agents, publishers, printers, distributors, and then the retail stores.

What does this look like in reality?

Booktopia had a recent order from a PhD student for a technical book that needed to be ordered from the publisher, John Wiley. The publisher took the order, sent it to Markono Printing in Singapore, which printed and shipped it to Keppel, the company’s distributor in Queensland. Keppel trucked it to Booktopia in Sydney, which then sent it to the customer.

As Nash points out: “Who’s making money on this thing? Freight companies.”

He says Booktopia isn’t out to replace the publishers, who work with the big authors, handing out big advances. But it does want to handle logistics for them. For the publisher, that’s time-taking and loss-making work that would make more sense to pass on.

Printing is a bigger possibility for Booktopia, as technology improves to bring costs down for books with smaller print runs. Removing two steps of the supply chain clearly adds value.

Nash explains: “For me, it’s always been about: what can we do to add value? I see ourselves very much in terms of the win-win. What are you guys doing? Can we do anything to help you do it better?”

Then, there are plans for international expansion. Nash sees New Zealand as the first target, which he believes should make up 20% of the company’s business, then Asia, North America and Europe.

“What I focus on is what our customers want, and continue to move as quickly as we can towards meeting their needs and their wants,” says Nash.

“That’s how we’ve gotten from zero to 217 million books, while the number two is 22 million. Because we didn’t look at our competition.

“It’s probably a bit Forrest Gump in terms of, ‘Right, just keep running and going as fast as you possibly can sustainably, until in the end you look around and go, ‘Where’s everyone else?’ and you’re there on your own.”