e-Retail therapy

Paul Greenberg has almost doubled the revenue of online retailer Deals Direct, to $40 million, in a year. Now, he tells AMANDA GOME, he plans to double it again.

Paul Greenberg runs online department store Deals Direct with business partner Michael Rosenbaum (both pictured right, Michael on left).

He started the company in 2004 when he was 44 and he had a background in auctions.

Deals Direct is now Australia’s number one online department store. Paul’s going to tell us today how he got revenue from $24 million in 2005-06 and nearly doubled it to $40 million this year and he hopes to double it yet again.

 To hear the lunch with Paul Greenberg, click here. To download this mp3 file and listen to it later, right-click this link and “Save target as…” to your computer (Macs; option-click).

.

Amanda Gome: What was the idea for the business?

Paul Greenberg: We were eBay’s largest seller, we had a big customer base and they were asking for a fixed price buy and a consumer solution, and that was Deals Direct.

And could you explain how it works?

Yeah, it’s an online department store much like say Amazon.com. We’ve got 27 sub-categories of products right across the board and it’s a fixed price, discounted, buy-it-now website. We’ve got a huge big warehouse in Sydney’s western suburbs, about 7500 square metres, and we do all the distribution as well.

OK. Now how much did it cost to set up?

The cost gets blurred in the mix. It is a fairly expensive exercise because simultaneously with setting up Deals Direct we moved from 1000 square metres to over 7000 square metres. So the cost was certainly substantial but the business’s growth has warranted that.

So how did you get started? What was the hardest bit in the start up phase?

I don’t think there was one hard thing that I remember or one silver bullet solution to our success. I think the old adage ‘retail is detail’ certainly comes true and generally we found growing a big online business to be much like growing a big offline business. It’s moving a mountain shovel by shovel.

Oh come on. What kept you awake in the first few months and then first few years?

I think the challenges are all the same. I mean staffing’s a big thing. We’re now 45 people. We’ve got a wonderful team. That hasn’t always been the case. It’s taken a long time to find the right people for the right positions.

What mistakes were you making?

Well, I think that we certainly look for people who believe in the industry. The online industry’s still very new there and you’re looking for advocates. People who can see the growth. That’s not to say blue sky, but people who can really see the exciting opportunities in the online industry. We believe in recruiting to your potential so we often find people that are passionate and are looking for a fair go have been our best team members.

Can I ask, too, where do you find these people who do want to have a go online? They’re quite difficult. I know in our business just trying to find people with online experience or even who can see the potential for online is difficult.

Well, we’ve been lucky. We’ve got a few staff members from eBay. We found people with no online experience who just like the environment and they’ve developed their skill sets around it. And then you know, predominantly we don’t use agencies. We recruit through online recruitment websites you know, and people who are using those are already a little bit in the zone.

What else was challenging in the beginning?

Supply’s been an interesting challenge. With the early days of online we had a little bit of resistance from branded suppliers in Australia who supply online. They term it channel conflict in the industry, so you can understand distributors in Australia [were] reluctant to supply an emerging website. That’s changing, fortunately, as the industry matures. We’ve just chipped away at that and I’m very pleased to say we’ve got some very strong and credible brands on our website. We’ve also been very strong in China. We’ve got an office in Hong Kong and Shanghai so we source directly from Asia. That’s been very successful for us.

As for capital: we took on some equity, some venture capital from Harold Newman and Joel Bloom around early 2004. They’ve come from retail. They’re captains of retail in this country. They’ve brokered a very successful chain of 150 or so stores before selling out.

Right. So you’ve got to the point now where you’re a medium-sized business?

We still think like a small size, which is not a bad thing.

How are you going to double revenues in the next year?

Content is king and we’re definitely looking at growing our customer’s range so in other words there’ll be more products, more categories. With ‘content being king’ still the war cry in our industry, that will bring some more customers to our site because we’re providing a broader offer. We still believe that the silver bullet really in broad terms is great pricing and a great customer experience, so we’ll be working on both those KPIs. Keeping our prices as aggressive as we possibly can while retaining profits and also of course building our customer experience. Things like next-day despatch from our warehouse to our customers is an important KPI for us.

One of the ways you’ve been able to get your prices down is to partner with Chinese manufacturers who sell the firm excess stock at prices that are very good. What’s it been like building up that relationship with the Chinese?

It’s been an absolute pleasure. I think the China miracle everyone’s talking about … certainly we’ve experienced in our own micro way. Australia is not a big market for China; we’ve found the factories that we work with very responsive, able to provide us great quality, great price and in the quantity we need and that’s all been very very exciting for us.

Now Aussie Post has got a joint venture with China Post, which posts direct from a warehouse in China to your customers. Is that how it works?

Yes, we’ve done a trial with Aussie Post. We were the first to use their site, which is based out of Shanghai. I think that it’s an exciting opportunity and possibly explore that as we move into calendar 2008, but we’ve done the trials. We’ve shown that there is a seamless way to ship directly from China to our customers’ front doors. There are some challenges around pricing in the process but those will only get better over time.

What do you see as the greatest challenge of any online environment?

The cost and safety issue. Customer safety has not gone away. The average online consumer, in my view, is still concerned about paying online and lodging their credit card. There’s still resistance points. There has been online fraud. We all know and have read about these stories anecdotally.

What I find interesting is, let’s say hypothetically, in the offline world you have a bad experience at Myer – that won’t stop you from going to David Jones; but in the online world, if you have a bad online shopping experience, anecdotally I understand is people stop shopping online. So this is an interesting space and an interesting time. I’m pushing very hard this year that you need to shop at a trusted destination like Deals Direct, using trusted payment methods.

Do you think this is an issue that banks need to deal with, or the financial system?

Well I think that’s a good question. I actually think it is getting better and I think everybody’s got to get their back to the wheel. All the stakeholders in the industry and certainly we see that they are, some of the traditional merchants like MasterCard and Visa are offering their certified services where you can pay online using a PIN number.

PayPal are doing amazing work in developing safe anti-fraud mechanisms and of course the greatest of trusted merchants, this is like Deals Direct, certainly just add to that because people know who they’re dealing with. They know that it’s a trusted source and if things go wrong and of course things can sometimes go pear shaped, they know who they’re dealing with.

You started end of 2004. How have you been able to build up so quickly and get the awareness out there?

Well I think that the biggest growth for us is viral. I think that’s one of the real strength of online is that friends tell friends. We’ve had a phenomenal growth in our viral business.

Was it a slower build and then…

No, steady and slow growth. Keep in mind, Amanda, that we did have a customer base that we’d met on eBay. We’ve been trading on eBay since 1999. So when we flicked the switch in 2004 we had a bit of a head start. We had a good sized customer base.

I can’t recall the number. Let’s say 30,000 or 40,000. Now as I say, we’re moving to 400,000 so there’s been dramatic growth, but that start was what we needed was the spark if you like that lit the fire and from there we’re grown … using traditional marketing methods and natural search on Google. We do some TV marketing. We do email marketing. But word of mouth still continues to be our biggest driver.

What’s the search engine marketing like? What have you learnt about that?

My business partner, Mike Rosenbaum, is a real hero in this because I think … I’ve seen articles on your website and in your newsletters which I find most interesting about digital marketing. I think there’s a lot of uncertainty. A lot of misinformation.

Like any industry there’s good players and there’s some not such good players, in my view. It’s a difficult and complex and fast-moving area but if you’ve got someone in your organisation who understands it and is willing to start with it, it’s an absolutely fascinating and very exciting part of the marketing scenario.

I mean I come from an old-world marketing background, but pinpoint marketing like Google provides where you’re driving qualified traffic to your business is absolutely unbelievable and explains Google’s success – both its value to its shareholders and its iconic brand in a short time.

So viral’s the best. Would search engine then … search engine marketing then be your next major source of marketing, getting the marketing message out there?

Well, I think it’s out there. I think they often complement each other. It’s so often had to rank them exactly but you know, search engine, digital marketing is a big part of what we do and as I say, we do a newsletter as well.

Our customers like to be kept in touch, especially as you mentioned earlier, so we actually send a daily email Monday to Saturday, Sunday being our day of rest, and we find our customers are really enjoying the dynamic content in those newsletters.

And so what have you learnt works in the newsletter, the email, and what have you learnt doesn’t?

I think again the elements of retail apply is your product pricing, promotion, is the product the right product, is the price right, is it well presented, is it an exciting and dynamic offer?

I think what we find, much like retail, is that customers are looking for new experiences, new products, lots of variety and we feel very confident that we’d be able to deliver that and most importantly we’ll continue in 2008 the financial year, to deliver an exciting and dynamic offer.

Now most of your customers would be Australians?

We only sell into Australia at the moment.

What’s the plan then?

We will certainly have a New Zealand presence quite soon. Other international opportunities – hard to say. I sometimes get a little bit excited then I take a few Panadol and lie down. If you think about China or India or some of those markets, the mind does boggle but certainly we’re in China a lot. We have a look over there at the business to consumer marketplace, and who knows?

And what’s the competition like? Who’s your biggest competition in Australia?

Well there are lots of small players coming through. Competition is good I think both for business and the consumer. Often it’s very hard to distinguish from our website and what I’m saying to them in a gentle a way as possible is that the internet rewards innovation not imitation and if we want to grow this space we need to be dynamic entrepreneurially, and we need to think outside the square, so I’m hoping that some of these competitors and of course many of them are doing very well, will innovate, create and develop new ways of doing business. Exciting experiences for the customers, which will grow the whole online space because after all it’s going to be online versus offline.

What about overseas? Are there some great online department stores overseas?

Oh well of course. I mean you’ve got Amazon. King of the pile, and of course hasn’t their share price tripled in the last 12 months? Jeff Bezos is the hero of Wall Street.

Who else do you admire?

I don’t come from retail but multi-channel retail is very exciting to me so I’m a great fan of the Wal-Mart website, the JC Penney website, there’s some phenomenal multi-channel websites where the customer is offered the choice of buying online, picking up at the store, checking inventory online, going to the store.

The customer’s the real winner, so multi-channel retail is very exciting to me and a lot of my attention is on the traditional department stores in the states who are building very very exciting web platforms.

Who’s market share’s going to be affected by the growth in online department stores?

Wal-Mart is growing offline at about I think 6% per annum and their website’s growing at 25% per annum, so they would argue that they’re getting growth in both areas. So I think that if the offline retailers are anxious or nervous that their market share’s going to be eroded by online, I think it’s just the opposite. It’s just a complementary addition to their arsenal, another arrow in their quiver, and they should be getting with it.

And in Australia?

No one. I have to say and I mean we could talk all day for the reasons. I’ve got some ideas that I might be wrong. I don’t really know many people in offline retail but no, the big guys, Coles and Woolies are not really having a go. Coles have had a technology that sells online and not much else. Woolworths not really. Harvey Norman’s franchise model, not really. Target. K mart.

It’s hard isn’t it?

We’re not the only ones asking the question. I think there’s some confusion around the reason but these are clever people in the industries and they must know. I’d be interested to find out if you could hook me up with the soothsayers. I’d love to have a chat. I mean I’ve never met Gerry Harvey. I hold him in very high regard. I’d love to have a chat with him about it.

What’s your long-term plan? Are you going to float? Are you going to … do you want someone to buy you up? You’re going to do this forever and never die?

Well I can tell you at the moment I want to do it forever and never die. I’m not a youngster but at the same time I’m really enjoying the industry. We don’t think about floats or exit strategies because we’re certainly in the very early days of growing a brand in the business.

What that brings – I’m sure it will bring rewards to its shareholders but in the interim we’re very much in that building phase, which is very exciting and we think we’re going to be in that phase for a good few years to come. A float is definitely not on the horizon because we want to grow big and be nimble and push on.

If you had your time again, what would you do differently?

I think we made the right moves. I mean we’ve encountered many crossroads along the way and I know most of your listeners, your members on your site, would relate to that. One might argue we could have got it bigger a little quicker.

I think 2008 will be our year and I think we’ll really be on the map as an online retailer and hopefully an Australian brand. Full stop.

And just lastly, profitwise. Is it a profitable … very profitable business?

We are a profitable business. I don’t think we focus on bottom line profit at the moment. It’s top line sales and database growth. That’s our key metric but we’re making money.

We’re more than comfortable with the returns and as of the whole [runs] on the board but it’s not really at the moment … like a lot of online businesses, we’re not harvesting yet. We’re sowing the seed and we’re very excited about the future.