This strategist thinks short term as his company takes on global and high street rivals.
Packages from The Iconic piling up on the doorsteps of households across Australia is the dream scenario for Patrick Schmidt, who was installed in October last year to drive the next phase of growth for the online fashion business.
It’s something that fashion website Zalando has achieved in Schmidt’s homeland of Germany, where it is top of mind for savvy trend followers and dedicated shoppers, he says. There’s no reason The Iconic can’t carve out the same profile here, he argues, because Australia is an internet retail market that has barely awoken. And Schmidt knows a bit about the topic.
Before taking on the CEO role in 2013, Schmidt was at the helm of the daily deals website Groupon, first in Australia and then in Latin America, where he ran operations in nine countries. But he says he didn’t have to think twice about moving to The Iconic, despite some conjecture the business was going through a tough time last year.
Although traditional Australian retailers complain about competition from online rivals, setting up a business like The Iconic hasn’t been without its challenges. Consumers expect speedy service and deliveries in a geographically dispersed market, and there’s strong competition from international online retailers.
The Iconic was launched in August 2011 and quickly established itself with its core demographic of twentysomething women. But according to media reports in 2013, the business lost A$44.7 million in the 16 months to December 2012.
In May 2013, company accounts showed a net assets deficiency of A$4.6 million, and The Australian Financial Review reported that the business was relying on backers such as Rocket Internet, a German online start-up incubator run by the Samwer brothers. But in July last year The Iconic raised A$28 million in new funding from a range of investors.
Schmidt says his decision to take on the CEO job was pretty simple.
“I basically looked at two things. The investors’ side and the customer side. The investor side was very convincing – so many seasoned investors were convinced this was a very sound business. And to be honest, these investors know a lot more about the model than the journalists. So the coverage didn’t bother me too much.”
What really did excite him, though, was the customer feedback.
“We do weekly and monthly customer satisfaction surveys and I’ve never seen numbers that good. That’s a fundamental asset to the business. To me it was clear this was on a solid base for growth. The Iconic was a company I knew because it was started by Rocket [Internet group] which I knew,” says Schmidt.
“The Iconic has awareness and brand equity and is on the way to being a household name with huge potential.”
And the management team is clearly glad to have him. Co-founder and managing director of The Iconic, Adam Jacobs, says Schmidt’s appointment last year was “a real coup” for the business.
Since his appointment it’s been head down for Schmidt, although he did manage to squeeze in a break for his honeymoon recently.
When it comes to strategy setting in such a fast-moving and young business, the management rule book goes out the window – long-term planning, for example, is not on the agenda.
“A month after I joined we had a meeting with the management team and finalised our strategy for 2014. We don’t think about 2017. There’s so many opportunities for growth we have to prioritise. It’s about the short and medium term but not the long term.”
Even defining what core business sector The Iconic operates in is negotiable.
"The Iconic is on the way to being a household name with huge potential."
“We are partly e-commerce and technology operations as well as distributors, fashion marketers and retailers,” Schmidt points out.
It’s as much a technology company as a fashion one, he says, but even there the focus is on detailed customer research.
Before his stint at Groupon, Schmidt worked in advertising and consulting. Leaving school at 17 he went straight into an entry-level job at an advertising agency in Germany, which proved to be a very handy experience. He eventually went to study at university and ended up at Boston Consulting Group (BCG).
“Having work experience at 17 really shapes you. At BCG I worked all over the world in all industries but was really attracted to the online world. I heard about Groupon very early when it just started to expand internationally.
"Oliver [Samwer, co-founder of Rocket Internet, a director of Groupon and backer of The Iconic] who was there, rang me up and asked if I wanted to go to Australia and start Groupon. At first I thought it was a joke – it was too good to be true.”
Aside from his broad real-world experience, Schmidt credits management bestseller Good to Great by US author Jim Collins as an influence. And like a true e-commerce zealot he sees the business world as fundamentally transformed by the internet.
Sixty per cent of The Iconic’s business comes through mobile
devices. It launched a new iOS application last year and was soon
receiving 10,000 downloads a day | Photo: Penny Lane
“I bought Good to Great four years ago, and take a lot of what it says and I’m trying to apply it. Of course that’s not always possible, but it’s been proven by research. Collins does say that technology doesn’t matter … but new technology and the economy will particularly change these learnings and principles.”
The Iconic’s core segment, and 75 per cent of customers, is women in the 25 to 30 age group. They are generally in their first job, have high discretionary income and care – a lot – about the latest fashion.
“Newness is very important, and they want quality and are not bargain hunters,” Schmidt says.
“That customer is more and more important for us, but we have 65-year-old dads, too, and very young girls.”
And the range of products and brands is on the increase. The Iconic stocks 700 brands, including Australian designers such as Camilla and Marc and Sass & Bide. But it’s not all party frocks by any means, with sports brands such as Nike outperforming the business, Schmidt says.
Although the range of local and international brands has grown rapidly, he admits proliferation can be a double-edged sword.
“If you grow and don’t curate it may have a negative effect on customer experience. But if you lead them through an experience, then having more brands is probably better. You need to know which brands you are wanting and show different products that are relevant.”
Customer demand for fast service is also ratcheting up, and the three-hour delivery service offered in Australia’s big cities of Sydney and Melbourne has been a hallmark of the fashion retailer.
“Customers are just expecting that something arrives the same day or the next day. The bar will be raised by the next generation who shop by mobiles rather than following Mum and Dad around [department store] DJs.”
Sixty per cent of The Iconic’s business comes through mobile devices. It launched a new iOS application last year and was soon receiving 10,000 downloads a day; the website attracts about 3 million visits a month. Technology usage is a key factor in framing the business strategy now, says Schmidt.
“We see traffic growing every day. It really means you start integrating everything you do. When you are on a mobile device you want your order delivered to where you are. We can track where you want it to go.
"Technology is extremely important and will become more – not just a website, it will become much more distributed and Twitter will come into play. We are only at the beginning of how e-commerce works.”
With technology rapidly changing customer expectations of fashion shopping, Schmidt believes Australia’s bricks-and-mortar retailers are not real competitors to The Iconic and have a different offering. Detailed customer feedback sheds plenty of light on what is appealing about the model.
“We are pretty paranoid about our customers and we ask them what they think about us and how we operate. We have a customer service centre in Sydney and are very active on Facebook.”
The Iconic currently employs about 200 people in its offices and 50 to 100 in warehouses in Australia. There are 2500 new products added every month and in November last year it reached a million orders. It’s safe to assume that has increased since, as customer satisfaction is about 90 per cent, Schmidt says. There’s plenty of upside for a well-run e-retailer in this country, he believes.
“In the general scheme of things e-commerce is not big in Australia. It’s around 6 per cent of retail. In Germany and the UK it’s around 11 to 12 per cent. Australia is a sleeping giant. We will not, this year or next year, capture 100 per cent share of the wallet. But you want to make sure you inspire online.
"About 40 to 50 per cent [of online fashion customers] still shop overseas and while that has shrunk a bit, it’s a high percentage and there’s GST pressure which encourages it.”
Indeed, the GST exemption which allows online shoppers to buy overseas products worth up to A$1000 tax-free is a missed opportunity for Australian retailers, he says. Nevertheless, The Iconic is growing rapidly and on track to return a profit, says Schmidt, but probably not in the short term.
“We are a business, we are not a charity and we have a plan for profitability in less than 10 years. We are not concerned about it – we want to make sure we are making progress every month and that’s what we are doing. It’s about growth and having scale to support this, and it will come sooner than expected for a company like this.”
Australia is a 'sleeping giant' in terms of e-commerce, says Schmidt
Photo: Penny Lane
What I’ve learned
- Something I’ve learned is the freedom to innovate. Recently we did a 24-hour hackathon. Employees have time to work on anything they want to as long as it is for the company. There were five teams of eight to 10 people from different departments. The level of innovation was amazing. One idea was taking a photo of anyone wearing clothes with an app, then an algorithm compares the photo to all our clothes in the warehouses and we would then recommend these products to you. It’s difficult technology but we programmed it and it works. We will run hackathons on a regular basis.
- We are very lucky to have lived in a time when we can use the internet. It really fosters entrepreneurship and anyone can start a business and it’s easier and cheaper, and we shouldn’t forget that.
- Australia is really a sleeping giant for e-commerce. It’s three to five years behind comparable countries. Success for me would be a little bit like Zalando – it’s what comes to mind if you are in Germany, aged 18 to 40, and think of fashion. You don’t think of any other e-commerce or bricks-and-mortar player. We’re not even three years old and that feeling of potential is top of mind.
This article is from the September 2014 issue of INTHEBLACK.