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The Iconic’s India outsourcing sparks sale speculation

Friday, 1 February 2013 | By Michelle Hammond

Cashed-up online fashion retailer The Iconic has come under fire after it was revealed the company has been outsourcing jobs to India, with a retail expert suggesting the start-up is preparing to sell.


The Iconic, which last month scored $25.2 million in funding from US-based growth equity firm Summit Partners, has gone from strength to strength since it launched in Australia in October 2011.


At the time of the announcement, co-founder Finn Haensel told SmartCompany The Iconic website is recording 180,000 visitors a day. Over Christmas, this peaked to 300,000 a day.


The funding from Summit Partners wasn’t the company’s first cash boost either. In September last year, it landed almost $20 million in funding from JP Morgan Asset Management.


But now The Iconic has been forced to defend itself, following reports it has been relocating parts of its customer service to India.


The news comes after internal emails obtained by Fairfax show redundancy announcements in customer service were expected on Thursday, but have since been delayed.


In light of the reports, the company has issued a statement, confirming it will make a “small adjustment” to the size of its customer service team.


“It is expected that the business’ customer service team will be reduced by no more than five to eight roles at this stage,” it said.


The company stressed this is a small component of its 350-strong Australian workforce. The reduction in roles will also be made through voluntary redundancies.


“The need to review the size of The Iconic’s customer service team is being driven by a steady fall in the business’ ‘customer contact ratio’ in recent months,” it said.


“Customer contact ratios essentially measure the number of customers needing to contact a customer service team.


“The fall in the business’ customer contact ratio is directly attributable to an ongoing and concerted effort to enhance and streamline customers’ shopping experience on The Iconic’s website.”


The company said the adjustment in the size of its customer service term is independent of the third party service provider the business engages to support customer service.


The company said this service provider, which has a team based in India, was engaged for two key reasons.


Firstly, to access new technology called Intelligent Chat, which will “greatly enhance” the quality of online chat support The Iconic offers customers.


Secondly, to enable faster response times to written customer contacts, such as email and chat.


Brian Walker, managing director of Retail Doctor Group, believes The Iconic is preparing for a sale.


“Put those things together – they’ve raised capital and they’ve reduced their overheads by sending [customer service roles] to cheaper markets, where labour is cheaper… To investors, that is attractive,” Walker says.


“It’s the classic private equity model… Drill into the cost of the business, reduce it where you can and get it ready to drive it down to sale value.


“The other thing about the model too is about scale and, being an early adopter, you’ve got to get in, you’ve got to get funding and you’ve got to hit the ground running.


“A lot of online businesses don’t succeed and that’s partly because of this scale business. If you look at the history of Amazon, it’s all about acquisition.”


Walker says he can understand why The Iconic didn’t opt for offshore outsourcing from the start.


“By having it close to home at first, and still making a profit out of a high overhead model, then you can take chunks of it [offshore],” he says.


“They get to build their business model and really understand it.


“Once they really understand it and know it well, they have the confidence and the ability to play in different areas and reduce the cost.”