Business

Responding to market shifts

Jamie Jackson, chairman of ozsale.com.au, points to surveys that reveal up to 80% of people who shop online do so looking for great deals.

Hence his comment, “People go online because they expect cheaper prices.” Jackson was speaking to a tech portal in Kuala Lumpur last June, shortly after launching an e-commerce site in KL, www.mysale.my which specialises in flash sales.

Launching an e-commerce business in Malaysia is easy with the main challenge being the setting up of a merchant account with the banks, which has nothing to do with any regulation or bureaucracy. But sites like mysale.my are interesting as they reflect a current trend in the e-commerce world — that of flash sales. Simply put, flash sales  are e-commerce sites that promote a limited time sales and with a limited number of items for sale. Often times, the sites sell branded fashion items, with clothing particularly popular. Branded stores and brand owners like the quiet manner in which their excess but premier inventory is unloaded without damaging their brand image.

How hot is the trend? Well, Gilt Groupe, a US based startup which launched in 2007, just before the US economic crisis, is enjoying explosive growth. Based on this momentum, Gilt Groupe raised US$138 million last May in a new round of financing, valuing the four-year-old company at US$1 billion. Jackson’s company meanwhile, based mainly in Australia and New Zealand, is targeting to hit US$250 million revenue!

What’s the situation in Malaysia though? While no one keeps close eye on the data on this particular segment, one new player in the game is Dealmates.com, a joint venture between MindValley and the Catcha Group, with some capital injection coming from Intel Capital, the venture capital arm of US-based Intel Corp. Dealmates is interesting because it started out as a group buying site and made the transition this year, January to be precise, to a flash sales site. It’s motivation?

Changing market dynamics. According to chief executive officer, Erman Akinci, “consumers were getting tired of group buying value proposition.” This was mainly because many were getting disappointed by poor fulfillment of the deals they thought they were getting, mainly from food outlets. It has been widely reported that customers who take up group buying offers endure

This was a double hit for Dealmates as its conversation rates started falling, as less consumers were taking up the deals it offered. As a result it started offering larger discounts to entice customers to take up its deals and walk into the shops of the merchants. It was under pressure because merchants who had given Dealmates deep discounts did so with the expectations that new customers would walk in their doors. For the merchants, this was an opportunity to convert a new group of people into loyal customers. Because of the larger discounts, Dealmates’ cost of acquisition went up, or as Erman puts it, “was shooting through the roof”.

By this point, Dealmates was spending between RM60,000 to RM70,000 to bring in the merchant deals. “We told ourselves, this is not working, and went back to relook our strategy.” It was around this time, around November of last year, that Dealmates went for a conference to the US that Intel organises yearly to bring together the various companies it has invested in. Talking to and brainstorming with other group buying sites, Erman says he realised the trend of market fatigue was being experienced by other group buying sites in other countries too.

Looking around for ideas it decided to test the market for flash sales which was already proving popular in the more advanced economies. He focused on electronic goods. The results were solid. “About 50% of our revenues were coming from the efforts of 20% of our sales team,” noted Erman. Needing no further encouragement, he quickly moved most of the sales team to going out and acquiring stock from merchants that needed to dispose of excess inventory. Dealmates also moved into other verticals such as healthcare, beauty and fashion.

The financial results have very strong. Erman claims that monthly sales have gone from around RM300,000 at end 2011 to RM1.5 million a month by July 2012, and with much better margins of around 25%.

Having found a model that looks to be working, what next for Erman? “We just need to keep executing and looking for new verticals to go into while keeping our ears close to the market to detect any new shifts in consumer patterns.” Indeed reports coming out of the US show that as more entrepreneurs get into the flash sales segment of e-commerce, the challenges of reduced supply, upwards pricing pressures and even growing deal fatigue are inevitable. How well sites like Dealmates and the Asutralian-owned mysale.my do in the future, will determine who the eventual winners are. Meanwhile, eager buyers looking for great discounts are the early winners.

 Photo credit: Flickr user Snugglesaurus

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