Invasion of the big brands
Despite the doom and gloom in the retail sector, there’s been a plethora of large, overseas brands enter the Australian market recently.
Spanish fashion retailer Zara recently opened its first store in Sydney’s Pitt Street Mall, followed by a Melbourne offering. UK brand Topshop is rumoured to be following suit, while in the online space British retail success story Asos is also heading Down Under.
Then there’s La Senza in the lingerie market, Airbnb in the budget accommodation market and Petals Network in the flower delivery market.
So what does this all mean for Aussie start-ups? How can they compete with this overseas invasion effectively and, perhaps more importantly, differentiate their offering?
Gabby Leibovich, founder of hugely successful home grown group buying businesses Catch of The Day and Scoopon says the entrance of overseas competitors including Living Social doesn’t phase him.
“We welcome competition, and if it means a better outcome for the consumer, even better,” he says.
“But I do feel any new entrant to the market – no matter how much clout they may have globally – will struggle to build their position for the simple reason that the sector is already very crowded.”
“Australia's group buying sector would have to be one of the most competitive markets in the world and there is bound to be an element of consolidation as it gets harder to source deals and to have a point of difference.”
Scoopon currently leads the Australian group buying sector, with 20.5% of revenue in this market, and Leibovich says he intends to build on this leadership position in the coming months with a number of new initiatives.
“Our goal is to make Scoopon a household name, synonymous with great experiences and savings.”
“That means expanding into new categories and larger value deals, along with bringing Australia’s best deals to more customers in more locations.”
An example is the business’s recent move into airfares and travel. Leibovich says this will enable him to reach new customer segments that traditionally may not have shopped on group buying sites, as will his investment in new technologies to support mobile commerce.
“But our competitive strength lies in our ability to source the best deals in Australia.”
“So a big part of our focus will be continuing to build our business-to-business partnerships and strengthening ties with high quality businesses to ensure we continue to deliver the best deals every day.”
Leibovich says he’s unconcerned about competitor businesses having large marketing budgets.
“Our success is proof marketing budgets do not matter in this space,” he says.
“We have grown from the ground up, one deal at a time. We have never spent any funds on marketing. We find nothing accelerates growth faster than placing a great deal on the site and letting our members talk about it.”
“Word-of-mouth is a very powerful tool. While hefty marketing budgets can build site traffic and sign ups with click through promotions and incentives, it does not guarantee transactions.
“Collectively the group has over one million registered members and sells one deal every four seconds, 24 hours a day, seven days a week.”
“That is why we lead the market on revenue, people don't just visit our site, they transact and bring their friends along too.”
Nikki Durkin, founder of 99dresses, a site where users upload their unwanted clothes to sell for a virtual currency called buttons, which they can then spend on other users’ unwanted clothes, says her biggest overseas competition comes from eBay.
She says the key to differentiating what she does from what eBay offers is appealing to “a different market segment such as women who don't want to deal with the hassles of eBay, or don't have designer clothes to sell.”
“Fast fashion changes hands frequently and smoothly on 99dresses in a community-driven environment, whereas on eBay this would be hard to do because it has gotten so big that the user experience and community have suffered.”
“We've innovated to stay alive, and a big overseas player like eBay isn't going to be able to implement some of the innovations that we've built into our product. That's our competitive advantage.”
For example, the business removes the background from every photo, which gives women the experience of shopping for new fashion but with second-hand clothes instead.
“We also have a focus on presentation and simplicity in the upload process and on the site in general,” says Durkin.
Durkin sees positives in the entry of fashion retailers such as Zara into the Australian market.
“More fashion consumption means there is more fashion to trade on 99dresses,” she says.
“There are also positives competing against an international giant like eBay. You can study their business model, and why it is so successful, and why many don't like it but use it because there is no other option – and then you innovate to make it better. It's kind of like a benchmark.”
Kath Purkis, founder of online women’s fashion retailer Le Black Book, agrees the entrance of overseas players is a positive for start-ups.
“It’s fantastic because it means established Australian retailers will have to up their game and innovate,” she enthuses.
She says an advantage smaller start-ups have is the ability to quickly respond to market conditions.
An example is her affordable house brand Noir Shop, a 10-piece capsule collection that sold out within three hours when she launched the first range.
The initiative has been so successful, she now designs a capsule collection every month.
This is in contrast to major fashion brands, most of which only release a spring/summer and autumn/winter collection.
Purkis says effectively competing with big overseas players comes down to creating a strong brand identity, much of which is about building up an online community through Twitter and Facebook.
She says many of her customers also know it’s Purkis herself behind the brand, rather than a faceless multinational behemoth, and email her personally from all over the world to seek her opinion and get in touch, something that’s impossible to do as a bigger business.
Bernie Cooper from Crane’s Wines, which has just opened a B&B attached to the winery, which is near Kingaroy in Queensland, says he’s not bothered by the arrival of accommodation provider Airbnb in the Australian market.
Airbnb allows anyone to offer their spare room to travelers for a small fee.
“There will always be people who want a cheaper alternative, but what we offer is something special. We want every visitor’s experience to be special and we are conscious of keeping things high-end.”
He also says people who offer their spare room as holiday accommodation might find it’s somewhat of an inconvenience after a certain point.
“It means being courteous even when they might not feel like it and putting themselves out a bit,” he says.
“Some will do a good job, but really, if they want to run it professionally they should probably be running it as a business anyway.”
Five top tips to stay competitive
Have a well thought-out, clearly defined proposition and do the basics well. Remember, you need more than a good idea to run a successful business, so if an international giant has vaguely the same concept as you, don’t despair.
Learn from the best. How does Zappos display its products online? How does Google encourage its staff to think creatively? How does Oprah Winfrey build and exploit her brand? How does Sir Richard Branson react to a setback?
Don’t radically alter your business model based on what others do. Always be aware of how the marketplace is moving, but don’t flee as soon as a big name arrives.
Make the most of your advantages. You are a genuinely Australian business. You have a warmth and personal touch that big brands lack. You know Australian consumers well and are small and nimble enough to react to their changing needs.
Don’t see new arrivals are solely competitors. With any luck, they will grow the market you’re operating in and indirectly benefit your business. You can even go a step further and formally collaborate with them.