How Booktopia ‘in-sources’ everything to remain ahead of the digital innovation curve

Caitlin Fitzsimmons Online editor

How Booktopia ‘in-sources’ everything to remain ahead of the digital innovation curve

Published 21 August 2013 20:34, Updated 21 August 2013 20:58

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Getting the product out to customers within 24-48 hours is critical to success as an online retailers, says CEO of Booktopia Tony Nash. Photo: Louie Douvis

Mid-Market Awards 2013 | Digital Innovation in the Mid-Market: Booktopia

For online retailer Booktopia, bookselling is a numbers game. “We measure everything,” says co-founder and chief executive Tony Nash. “If it is not measurable, we don’t get involved.” It is this data-driven approach that has led to Booktopia winning the digital innovation prize in the 2013 BRW Momentum Awards. The business develops all its software and algorithms in-house for everything from email marketing to what stock to order – or as Nash puts it, “we in-source everything”.The co-founders are well positioned to do that – their background prior to starting Booktopia includes running an internet marketing consultancy, building software for the internet and owning an online recruitment agency.

Currently 10 out of the total headcount of 67 are specialist IT staff. This team develops software using Java J2EE, for the online store, mobile website, sales and customer management systems, warehouse management and logistics systems.

Growth has been funded from cash flow, from when Nash founded it as a $10-a-day side project in 2004 to the $27.2 million in revenue the business booked for the 2013 financial year.

Booktopia’s main competitors include Bookworld, which is owned by Penguin and was launched in August 2012 from the ashes of the collapsed Borders group, and Amazon.

Both Amazon’s Britain and US stores ship to Australia and it is rumoured the retail giant could be opening a local warehouse this November.

Nash is unfazed, saying that he thinks Booktopia would continue to do well, as many customers are looking for an Australian alternative as long as the price is competitive.

Booktopia is currently looking for new premises to allow further expansion. Its current space in Sydney’s Lane Cove West is 4000 square metres and Nash says the business is “busting out of its breeches”. He hopes to secure a lease for 8000 to 10,000 square metres in Homebush, close to the centre of Sydney and the Australia Post distribution centre in Chullora, within the next few months.

“The whole purpose of that is to hold more stock because the key to succeeding online is having the stock in your warehouse,” Nash says. “If you can’t get it to the customer in 24 to 48 hours, you’re losing the game, and to do that, you need the product close to you.”

Nash says speed of delivery is about putting the customer’s needs first and this also applies to other basics of good retail service, such as listing a phone number on the website, not just a contact form, and providing good return and refund policies.

Booktopia has about 4 million unique products on its website but only about 40,000 in its warehouse and Nash’s goal is to increase that to 100,000.

That includes not just books but also DVDs, which now account for $1 million in turnover and are soon to be given its own brand and web presence at Movietopia. Magazines, music, cards and games are also planned as new product lines in future.

The bigger floor space would also allow Booktopia to introduce more automation as it currently lacks space to put in conveyor machines.

Get the algorithms right

Booktopia was able to increase its stock value from $750,000 to $1.6 million without any external investment, just by using an algorithm to determine what to order based on past sales.

“The algorithm was written in my head and I gave it to the IT guys to do,” Nash says. “We’re continuing to tweak it – for example the second year around I had to come up with compression algorithms to ensure that we didn’t order too much in January based on the past 30 days, which of course was Christmas.

“We didn’t get caught out this year, which is great, because last year we ordered a bit too much and it took longer to sell.”

With the new algorithm, Booktopia has achieved a 33-day stock turnaround, ensuring the business sells the books as fast as it needs to pay for them, posing less of a burden on cash.

For its nascent e-book business, Booktopia has developed a whole financial model and developed underlying technology to support it. The business explored off-the-shelf programs but ultimately opted to develop its own e-book platform and e-reader app for iPhones and Androids.

Other examples of Booktopia’s enthusiasm for measurement include in its marketing activities.

The business uses data-driven marketing tools such as running an affiliate sales program, ensuring good search engine optimisation, and email marketing. There are 500,000 people subscribed to receive Booktopia’s marketing emails and the business sends up to 3 million a month.

Emails offering a free shipping code or a warehouse clearance sale might go to the entire database, but some emails go only to a few hundred people.

“We measure even small emails that we might send out to 1000 people targeted to those interested in a particular author or fishing,” Nash says. “How much time did they take to write? Being able to focus on what’s working and drop what’s not working is quite a profitable formula.”

The database is rich in information – Booktopia staff can predict who is expecting a baby in the next year based on the books they have bought, who is into fishing, learning Italian or planning to travel to Bhutan. This helps with marketing but also with introducing new products.

Recently the company started sending emails to people who added items to their online shopping cart but failed to check out. The conversion rate for the shopping cart abandonment emails is around 10 per cent.

The big exception to the zeal for measurement is the company’s content marketing strategy. Nash jokes that he has given a “peculiar and contradictory directive” to the marketing team that they don’t have to sell any books but should break even.

“It does cost money to create all the blogs and Facebooking and tweeting that goes on,” Nash says. “My point is, don’t come across like you’re trying to sell something because it stinks and you can see it a million miles away but if you are continuing to add value and talk about the industry that we’re in, people will gravitate to the site and when it comes to driving sales and traffic we can measure and see that.”

Hundreds of authors around the world have completed Booktopia’s “10 terrifying questions” on its blog. In November this year action-thriller writer Matthew Reilly will be promoting his new book through Booktopia.

“He owns a DeLorean, [the car] out of Back to the Future and he’s going to be driving his DeLorean around to Booktopia, there’s going to be video and he’s going to be signing books,” Nash says. “These things come about not because we have a blog but because we are the front runners when it comes to free, interesting industry commentary.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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