Mercedes Ruehl Reporter

Mercedes writes for The Australian Financial Review and BRW from the Sydney newsroom. She has an interest in technology, politics and travel writing.

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Australia leads the world in online start-ups, but The Iconic shows profitability isn’t easy

Published 01 July 2013 10:51, Updated 08 July 2013 10:39

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Australia leads the world in online start-ups, but The Iconic shows profitability isn’t easy

The Iconic’s managing director Adam Jacobs, front, says the company remains on track. Photo: Michele Mossop

Online retail in Australia is booming but that doesn’t mean that all of the e-tailers that have cropped up in the last couple of years are raking in handsome profits.

Australia now leads the world in terms of the pace of online business start-ups. Internet start-ups increased 200 per cent from 2010 and 2012, four times the pace in the United States and Britain, according to a report in June. It’s also not unusual for many of these start-up businesses to incur big losses, particularly in the first few years of operating.

Sydney-based online fashion site The Iconic is a case in point. Since starting up in 2011, the e-commerce venture has gained a strong foothold in the retail market. Its success has been less about price and more about its service and delivery – such as delivery in three hours for those ordering in Sydney, for example.

But even though it is enjoying aggressive growth, The Iconic has also lost more than $14 million since it started operating. Co-founder Adam Jacobs confirmed on Financial Review Sunday on the weekend that a little under 10 per cent of its 300-strong workforce had been let go.

“Last year we invested heavily in market entry,” Jacobs told Financial Review Sunday. “Our focus was on growth and we experienced hyper-growth and that was great for us.”

The accounts for August 2011 to December 2012 show The Iconic had revenue of $30.6 million but a loss of about $44.7 million, according to other Fairfax Media reports. The majority of that (nearly $30 million) came from sales, marketing and distribution expenses.

Jacobs said the online store was moving out of the aggressive market entry stage and focusing more on profitability.

“Most online retailers won’t turn a profit for three to four years,” he says.

Co-founder out for blood

This appears to be little comfort to one of The Iconic’s German billionaire co-founders, Oliver Samwer, who flew in the week before last, allegedly for crisis talks.

Samwer co-owns a Berlin-based business called Rocket Internet, which invests in online companies, and he seems a tough master to please. Excerpts from emails in 2011 to his management teams for businesses in India, Australia and Asia obtained by Fairfax Media show he hasn’t warmed to the theory that start-ups are often not profitable in their early years.

“The only thing is that the time of the blitzkrieg must be chosen wisely so that each country tells me with blood when it is time. I am ready – anytime!” one said.

“We must be number one latest in the last month of next season. Full month, not a discount sales month. Why? Because only number one can raise unbelievable money at unbelievable valuations. I cannot raise money for number 2, etc, and I have seen it how easy [sic] it is for me in Brazil and how difficult in Russia because our team f----d up.”

In another he wrote: “I am the most aggressive guy on the internet planet. I will die to win and I expect the same from you!”

But, speaking to The Australian Financial Review, Jacobs rejected suggestions that Samwer wanted to ramp up sales and then quickly sell out.

“What you see in that email is their belief in the business model and their willingness to invest in it very quickly to grow market share to get to the leading position in a market,” he says.

“We’re not currently looking for an exit.”

The question now, as with so many other e-commerce start-ups, is if The Iconic can keep up the high rate of sales growth and its spot as Australia’s No. 1 fashion retailer as it consolidates and focuses on profitability.

If not, it could be hard to keep Samwer’s cries for blood at bay.

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