How to lift Australia's online retail game

Product customisation, replication of the social experience of shopping, deep customer analytics, and an organisational culture that supports change are the keys to making Australian online retail globally competitive and a source of products that consumers actually want.

That's the view of Michael Fox, co-founder and CEO at Australian online retailer Shoes of Prey, which was just awarded the 2013 Australian Retailers' Association's Online Retailer of the Year gong.

Formed in 2009 with an initial founding staff of three, Shoes of Prey has since grown to a staff of 45 members spread across Sydney, the UK, Japan, and China. Some three quarters of the company's sales now come from outside of Australia.

Speaking to ZDNet, Fox said that a source of his company's online retail success is in its ability to give consumers choice. The key to delivering this was in creating a powerful customisation engine developed in-house by a team of six software engineers. The engine delivers photo-realistic visualisations of customised products, while still being able of run quickly in a standard web browser without the need for a software download.

"What makes us stand out is the innovation side," Fox told ZDNet. "For a lot of retailers, online is a bit of a new customer acquisition and distribution channel. What we are doing is trying to change the whole industry and change the way women shop for shoes. Rather than pick a standard product off the shelf, they can design and choose exactly what they want."

Along with investment in its supply chain and China-based manufacturing operation to allow for the more than 4 trillion possible permutations of shoes the company claims to offer, Shoes of Prey has also built an extensive social dimension into its online retail experience. With this, consumers are able to see what shoe designs are "trending", and share their own designs via social media platforms Twitter, Facebook, and Pinterest.

"One of the psychological aspects of shopping, particularly for fashion, is that it is great if you can get your peers to confirm that the product you are going to buy is right," Fox said. "Just as women would take their friends shopping to get feedback, we try to replicate that online."

An added bonus of the customisation and social dimensions is that the company is able to bypass the need for internal investment in product development and R&D, because it is able to effectively crowdsource design and development through its customer base.

"We provide the platform, and it is our customers who create the product," Fox said.

Deep in-house-developed analytics systems have also given the company an edge, enabling it to look at individual customer spend and profitability, and also allow it to begin upselling based on the fashion tastes of its clients.

"We get some pretty interesting data based on the shoes they are designing," Fox said. "If they are using lots of red colours, then we can potentially send then an email showing them lots of red shoes and samples of different leathers and materials.

"The ultimate outcome for an e-commerce business is in being able to predict what a customer wants to buy and then present that product to them. To do that, you need a lot of information, but there is a balance to be struck with privacy. But the trend is heading in that direction."

Commenting on the wider state of online retail in Australia, Fox said there are a handful of successful players, such as Catch Of The Day and Kogan. However, more broadly, the market is losing out to innovations among online retail competitors in markets such as the US and UK.

"For companies like Net-A-Porter and Asos, Australia is among their biggest markets, so local retailers are missing out to them," he said. "But what is great to see is companies like Kogan starting to grow their overseas sales.

"This globalisation of retail, which has happened in the last 10 years ... creates threats for local retailers, but it also creates opportunities in that Australian retailers can now sell not only to the 22 million people in Australia, but to billions of people globally. We are an Australian retailer, but three quarters of our sales come from overseas."

Fox attributed the strength of online retail in the US in particular to the catalogue buying culture there that has easily transitioned online. He also attributed the sluggishness of major Australian retailers in their move online to failed and premature efforts to move online during the dotcom boom. In addition, mature, organisational cultures among Australia's bigger retailers also did not lend themselves to online retail.

"It's kind of sad, because the reason traditional retailers — Myers, Harvey Norman, David Jones — succeeded was because they were entrepreneurs and did innovative things," Fox said. "However, their cultures have not kept up with the rate of change and innovation. You can see that in Ruslan Kogan's battle with Harvey Norman."

Despite the company's focus on online, traditional bricks-and-mortar businesses will remain an essential part of the Australian retail landscape, as well as potentially Shoes of Prey's.

In January this year, Shoes of Prey partnered with David Jones to set up a micro shoe shop inside the national retailer's Elizabeth Street, Sydney, store.

Explaining the move, Fox said that for a certain segment of consumers, being able to physically touch and try products is essential, and something that no pure-play online retailer can offer.

The retailer, however, still relies on a wirelessly connected iPad to deliver its full online customisation service.