Netshoes bets on innovation to woo international investors
Netshoes launched its IPO at the NYSE yesterday (12). Image credit: Angelica Mari
The largest sports and lifestyle online retailer in Latin America is driving a technology transformation to cope with the speed of business changes as it launched its initial public offering (IPO) at the New York Stock Exchange (NYSE) yesterday (12).
Netshoes was founded in 2000 and has quickly gone from small high street retailer to Brazil's biggest online startup success story, with investments from several investment funds prior to its IPO and more than 2500 staff in Brazil, Mexico and Argentina, 300 of which in technology alone.
The company's founder Marcio Kumruian describes Netshoes as a technology company and added that this is one of the main drivers for choosing to list it at the NYSE.
"All the technology powerhouses are listed here and we would like the analyst and investor community to be talking about us the same way they talk about Amazon, Asos and other large e-commerce firms," Kumruian told ZDNet.
To make the company more attractive to investors, an increase in technology investment will be inevitable and Kumruian intends to channel at least 60 percent of Netshoes' capex to improvements in that area in the coming years.
According to the chief executive, now is also the right time to address technology issues typical of a fast growing company but also to crank up a gear when it comes to new developments.
"We focus on execution, but you have to have the right timing for transformations - change has to be structural, rather than just an empty shell, " the executive says.
"As a company grows things get more complex, but still, the thing I look for the most is speed and particularly in client-facing innovations. So no IT initiative can go on for longer than three months," he adds.
Kumruian is part of the design team at Netshoes and no customer-facing features go live without his seal of approval: this includes a recently-launched chatbot that reduced customer calls by 60 percent, zero-rated access to its mobile site, and 360-degree product images, a first in Brazilian e-commerce.
A self-confessed geek who used to sell custom desktops and assembled more than 3,000 of them prior to becoming an online mogul, Kumruian has his sights on making the mobile app lighter and easier to use - given the channel represents a third of all sales at Netshoes - and other more advanced experiments within tech.
"We are already quite advanced in terms of technology and Netshoes is already a global case study today. But I am personally thinking of a range of other things that we can do," Kumruian says.
"For example, I am interested in how we can integrate wearable technology into our own product ranges that can be connected to customer profiles and sports activity, so we can suggest exactly the items they need," he adds.
"This is all work in progress, technology moves fast but we are never short of ideas nor the ability to execute them."
Revamping the technology strategy
According to the technology director at Netshoes, André Petenussi, who joined in 2016 to reorganize the company's technology strategy, what Netshoes had been doing so far was a "reflection of the Brazilian market as a whole."
"The technology landscape in Brazil is fairly amateur in terms of having IT as a business generation engine. We had been doing that at Netshoes to a large extent, but we are now taking the approach to the next level," the executive says.
"In high street retail, although it is important to have IT, you can process things manually in case of a systems failure. In e-commerce that can't happen, and all initiatives from revenue stream generation to expansion have to go through technology developments."
In order to handle current and future demands around technology, the last 18 months have seen an acceleration of the technology toolset supporting Netshoes, as well as an organisational change within IT.
"We used to have teams focused on software areas such as ERP modules, the store systems themselves. Now, we are much more feature-oriented and this resulted in a total restructuring of the team," Petenussi says.
"Startups with teams of about 20 people tend to be more focused on software [improvements], but in a team of more than 300 people like ours, you need better planning and an approach that can better utilize people's abilities," he says.
Currently, Netshoes has developers, QA specialists, analytics experts and other professionals working on specific areas of the online operation such as the checkout, its product catalog and the home page.
"We have shifted from a model that is common in IT organisations in Brazil, of people focusing on software. Now we have people focusing on website features and sometimes using multiple software tools," the IT director says.
"By reorganising the team that way and reducing the scope of each cell, we have created multidisciplinary groups of professionals that are much closer to the other business areas," he adds.
"The teams now get detailed insight on sales conversions across every channel - this has created a new culture, we now carry out A/B testing to make decisions based on numbers as opposed to guesswork like most local players do."
According to the IT executive, the decisions came from benchmarking exercises with international peer companies that openly publish information about how they work, with some adaptations.
"You need to have your ear on the ground and follow international trends but we needed to 'tropicalise' that a little, but the great leap forward was around continuous testing to see where the improvements are needed," says Petenussi.
Nowadays, the technology department delivers a range of projects that create a financial result, such as real-time personalization of the web pages, techniques to improve conversion and revenue per visit, as well as increasing the average ticket and the amount of products per basket.
This, according to the executive, was a turning point for Netshoes, as it is now able to leverage on new technology initiatives to create new revenue streams and improve current business through improved online customer experience.
"In the vast majority of Brazilian companies, comercial initiatives are discussed by a particular business area without IT's involvement, then decisions are made and implementations just take longer," Petenussi points out.
Insourcing to gain agility
When it comes to its application estate, Netshoes is now shifting from a previous IT model that consisted of a block mostly made of Oracle systems to a fragmented portfolio of tools and providers.
As a result of the efforts to make the Netshoes IT estate more flexible and responsive to changes, the company had to internally rewrite some of its core features such as the checkout functionality and the product catalog, while remaining aspects of the website will be changed incrementally.
Despite working with a number of large suppliers for commoditised systems such as SAP, Salesforce and Oracle itself, Petenussi is keen to stress that the new Netshoes approach to technology is all about being agnostic in terms of vendors and specific systems and develop core aspects internally.
"We don't have a favourite vendor. When we think that makes sense for them to help us and that it won't impact the need for agility and business result, we will work with vendors. Otherwise, we'll do it ourselves," Petenussi adds.
"We develop what makes a difference to the business internally as it allows us to make quick changes, we create knowledge in house, which in turn drives a better organization of teams and delivers results faster."
At Netshoes, teams have autonomy over which tool to use - this would depend on the areas of application and performance requirements. This means that parts of the firm's IT portfolio could be based on anything from Java, .NET and noSQL to Cassandra, Phyton and Ruby on Rails.
"We use and experiment with a lot of tools and technologies but of course, they has to be adherent to the technology base that we have - no one is going to suggest writing anything in Cobol, for example," the executive says.
Enhancing data analytics
One of Netshoes' key weapons to fend off competition and generate more sales will be to excel in the use of data, something that the company has done over most of its existence but this will have to be fine-tuned.
Here is where the creation of specific cells within the IT function helps, says Petenussi, because there is more time to experiment more viable and relevant options for analytics rather than leaving them in the hands of vendors.
Data analytics, according to the executive, is one of the key projects that the IT team at Netshoes is working on. The idea is to make relevant recommendations according to the likely purchasing cycle of consumers of sporting goods.
"We want to make data relevant in the end of the buying process, as the consumer uses the channel, by finding insights into the most likely time of purchase and the buying cycle," Petenussi says.
"A person who buys a top-of-the-range running shoe is telling us that he or she might well be an athlete. They might buy a new pair in six months, so while we can't offer that same product within a week or a month, we have to be able to understand what other products we can sell them in the meantime rather than expect them to come back only after six months," he explains.
"We already do that data mining well but want to do it even better, to generate actual business results in the precise way we must interact with customers and act on it rather than just presenting slideshows to the company about buying patterns, which is what most Brazilian e-commerce firms do."
The senior team at Netshoes consistently denies that any business enhancements were made ahead of the IPO - such as the changes in the technology strategy - but all executives admit that the NYSE listing will create more responsibilities for IT and a requirement to become more agile in the initiatives to do with website improvements.
"Within the next year, I hope the team will have matured even more in terms of the new ways of working and also become a lot more agile - in the end of the day, this is something every IT function is striving for: deliver more, faster and stay relevant to the business," Petenussi says.
"From a technology point of view, I hope to see increased autonomy of internal teams in areas where we still have some vendors working - and this, coupled with a strong insourcing process, is expected to generate real operational results this year."
Angelica Mari traveled to New York as a guest of Netshoes.