DealsDirect: Packer deal shows online retail is ‘coming of age’

Online retail in Australia is entering its maturity, according to DealsDirect, which has been the subject of a reported $10 million investment from James Packer’s fund Ellerston Capital.

DealsDirect, which brands itself as an online department store, says that the stake taken by Ellerston Capital, owned by the Packer family’s Consolidate Press Holdings, was a “minority cornerstone investment”.

The deal will allow DealsDirect, one of the country’s largest online-only retailers, to fund more rapid expansion in what is fast becoming a highly lucrative industry.

DealsDirect, which began as an eBay business back in 2000 under the name Auctionbrokers Australia.

DealsDirect was founded in 2000 by Paul Greenberg and Mike Rosenbaum, initially operating on eBay before moving on to its own retail network site in 2004.

The business sells 23 categories of retail goods to online shoppers, including electronics, kitchenware, watches, toys and games, and has returned to eBay in recent years as it seeks to spread itself across as many channels as possible.

According to DealsDirect, the business has more than 1.5 million unique browsers each month, buying an item about once every 20 seconds.

Greenberg says the deal signals a “coming of age” for online retail, and the fact that companies like Ellerston are investing in the market is evidence that it is “well and truly game on”.

“While traditional offline retailers are still facing the challenges of building a sustainable eCommerce strategy, we think we are well-poised to build on our first-mover advantage and our years of learning and experience in online sales,” Greenberg says.

However, DealsDirect has recently returned to eBay as it seeks to spread itself across as many channels as possible.

“We intend to grow our market share and enthusiastically pursue growth opportunities and this vote of confidence by Ellerston Capital allows us to do this rapidly.”

The investment will allow DealsDirect to make acquisitions and access strategic support while it seeks to consolidate its position in the eCommerce space.

“Given our leadership position in the space, combined with Ellerston’s appetite, one would expect this to be a substantial cornerstone investment, which ensures we are extremely well-capitalised and have the resources to capitalise on the many opportunities in front of us,” Greenberg says.

The first focus is to fund the development of the company’s new deal-a-day website Deal Me, which was launched in February.

Greenberg says he is also on the hunt for acquisitions, which could include smaller sites in categories that DealsDirect already covers, or acquisitions in new areas.

“We are starting to prowl for businesses that have adjacencies or similarities. We could buy and run them or drop them into our existing business,” he says.

He nominates the “experiences” category – offering services such as spa treatments, tourism services and hospitality services – as one sector where there are “too many players” and potential acquisition opportunities.

However, Greenberg says DealsDirect will be extremely wary of paying high prices for assets given the sharp rise in tech sector valuations.

“We won’t get caught up in this land grab mentality. People are throwing everything but the kitchen sink at these deals and I think that people are going to get hurt – customers and investors,” he says.

According to market research and analyst firm Telsyte, the daily deals industry will turn over half a billion dollars in revenue by 2014.

The forecast has attracted a flurry of interest from investors in recent months. In January, Yahoo7 took over group-buying site Spreets for $40 million, while competitor Cudo is owned by Ninemsn.