Rocket Internet, the incubator run by Berlin’s Samwer brothers, has picked up hundreds of millions of dollars ($837 million, in fact) in funding this year for its e-commerce startups, with much of that focused on emerging markets, but today comes news of another significant investment for a far-flung part of the developed world. The Iconic, a fashion portal serving Australia and New Zealand with clothing, shoes and accessories, is picking up $26 million (A$28 million) in funding. Adding that to the $46 million (A$50 million) already raised, the site becomes the largest-ever investment in an e-commerce site in the country.
The round was led by Verlinvest, a family-owned investment group from Belgium, along with existing Iconic shareholders and Rocket regulars Kinnevik and Summit Partners.
Adam Jacobs, co-founder and MD of The Iconic, says the investment will be used to build out the site: adding more local as well as international brands, adding more enhancements to the site around user interface and CRM and a long-awaited mobile upgrade. The site is also working to build out what Jacobs refers to as the Iconic’s “fashion community.” This includes the obvious such as social media outreach, but also some offline activities, such as its own printed magazine (retro!) and collaborations for live fashion shows.
Jacobs and Rocket are not releasing any numbers yet on the Iconic’s revenues, average basket size or other financial metrics. But Jacobs does confirm that the site, founded in 2011 and now with 4 million monthly users and 45,000 products from 500 brands, is not yet profitable. This is actually very normal in e-commerce terms, he says.
“Typically online retailers can take many years to turn a profit, with Amazon first turning a profit in their sixth year for example,” he notes. “In contrast, we are seeing strong growth in the Australian market and are targeting a much faster time frame — the customer response to the Iconic brand and experience has been far stronger we would have imagined. So we are now focused on sustainable growth and are tracking well to our long-term goals.”
Those long-term goals, he says, will take the Iconic away from the low-margin sales that people typically associate with online commerce sites that are built more for scale. For one, that’s not possible in a market with a finite amount of consumers in it and no longer term plans to expand outside of Australia and New Zealand.
“When we think about sustainable success in online fashion, we think an EBIT margin of 10% is achievable over the long term,” he says, adding that gross margins in fashion are “naturally larger than, say, Amazon’s margins on products such as electronics.”
For now, the Iconic has a pretty open playing field in front of it: despite Australia and New Zealand being otherwise on par with other developed countries in terms of Internet, PC and smartphone penetration, e-commerce is still relatively nascent.
“We have high Internet penetration and smartphone usage, and high margins on retail fashion, as well as disposable income. But what is underdeveloped in Australia is the e-commerce industry,” says Jacobs. He says that ASOS, the U.K. online retailer, is its biggest competitor.
“ASOS targets young female customers, whereas the Iconic caters to a broader audience across women’s and men’s fashion as well as sports. We stock a higher representation of Australian brands as we know our customers love local designers.” .
Also working in its favor is that while the company’s addressable market is smaller than that of the U.S., it’s a dedicated user group, in a market where there are still relatively few choices for online fashion.
“When we think about scale we know the Australian consumer loves fashion and spends more per capita than almost anywhere else in the world. So while the addressable Australia and New Zealand market is only 30 million people, customers are hungry for great fashion. Additionally fashion e-commerce is growing at approximately 20 percent year-on-year in Australia whilst traditional bricks and mortal retail is flatlining, making this market a very attractive one to be in.”
This also sets up the site perfectly for acquisition by a bigger player looking to crack into fashion in the Australian market — a route familiar for the Samwer brothers, who have sold startups to Groupon, eBay and others looking to acquire for international growth.
It’s the combination of that opportunity, and the Iconic’s success in meeting its targets so far that have attracted Verinvest and others to the company. ￼￼￼”The Iconic management team has done an exceptional job of growing the company during the past year and we are happy to be investing in this great success story,” said Frédéric de Mevius, founder and chairman of Verlinvest, in a statement. “We have been working towards this investment for some months now and are pleased to confirm our participation.”
Like other Rocket Internet colonizations, the Iconic is but one of the startups that the Samwers have established in Australia: these include 21 Diamonds for jewellery; Wimdu (think Airbnb); HelloFresh (think Blue Apron or Plated); and Zanui (online homewares and furniture, à la Fab) — although Jacobs says the Iconic is the biggest of them all right now. It’s here where the company begins to benefit from some economies of scale. The company, like other e-commerce operations, also hopes to stand out in terms of logistics. In its case it offers three-hour delivery in Sydney and free overnight delivery around the rest of Australia, as well as free 100-day returns. It also sublets warehouse space to some of the other Rocket companies for their services.