Justin Hilberg: And that really gave us the global footprint to head into the IPO and create the kind of global E com action sports narrative. As quickly as it all built up, it actually was also a curse. We just couldn't move as quickly and efficiently as we tried to and it started to break. I feel like we're in the healthiest position we've ever been in. Even looking back to those highs of highs of when the share price was flying, we were never this profitable even back then.
[Voiceover]: Welcome to Add to Cart, the podcast that Express delivers all you need to know in the fast moving world of E commerce. Every month, Nathan Bush from 12 High and an E commerce industry expert will share the news, research and insights that you need to know to keep you at the top of your game and of course, keep your customers Adding to Cart.
Nathan Bush: Hello and welcome to Add to Cart. My name is Nathan Bush, host of Add to Cart and director at E commerce talent agency E Suite.
Nathan Bush: Now, it's been a wild few years for today's guest.
Nathan Bush: If there was an analogy, perhaps it's
Nathan Bush: the big waverider who caught the perfect
Nathan Bush: barrel only to disappear into that green tube. Apparently sunk, but then emerge with a few reef cuts.
Nathan Bush: But still on the wave.
Nathan Bush: Can you tell I know nothing about surfing. From being the innovative leaders and the market darlings of the ASX to going through voluntary administration and now back to
Nathan Bush: profitability, Justin Hilberg has led his team at Surf Stitch through it all.
Nathan Bush: Justin is the Managing director of Surf Stitch and shares his views on everything from how discounting is not ideal, but
Nathan Bush: there are ways to do it effectively
Nathan Bush: to how they are helping other direct to consumer retailers get off the ground with their marketplace and why they're moving into homewares and beauty under the Surf Stitch umbrella. Stay tuned right until the end we'll where Justin gives his insight into what it looks like when a business goes through that wild ride of administration and how he kept the team together throughout it all. So thanks to our partner Shopify plus and Signet, here's our conversation with Justin
Nathan Bush: Hilberg from Surf Stitch. Justin Hilberg, welcome to Add to Cart.
Justin Hilberg: Thank you. Good to be here, mate.
Nathan Bush: We're doing this on a Friday afternoon so the cruisy Surf Stitch nature might be even a little cruisier today.
Justin Hilberg: Hey, it always is on a Friday afternoon. We've for a long time had early knockoffs on Friday afternoon which is kind of about that time. So 3:30 is when we all kind of peel off and extend the weekend.
Nathan Bush: Beautiful. Sorry to keep you mate.
Justin Hilberg: No, no problem. I'M normally not one that peels off, so this is standard for me.
Nathan Bush: That's the good thing about culture, isn't it? You get all the perks when you're an employee, but when you're the boss, that's. They probably don't stick as well.
Justin Hilberg: No, not so much.
Nathan Bush: Mate, tell us about your journey with Surf Stitch. I'm sure everyone who's listening has heard of Surf Stitch, but tell us a little bit about your journey and where the business is today from your perspective.
Justin Hilberg: Yeah, sure. So I started with surf stitch in 2014, January 2014. And. And at that time they were majority owned by Billabong and they were pretty eager to split from Billabong. So we were in a process of building out the senior management team and trying to raise capital, purchasing back the stake from Billabong and then leading into an IPO of December of that same year in 2014. So I joined it. A pretty hectic, pivotal period in the. In the business. Capital raise was pretty successful. We raised, I think over over 60 million in a pre IPO raise, purchased back the Surf Stitch portion from Billabong and at the same time we purchased Swell from Billabong too, which was the North American ecom business. And we purchased Surf Dome of Quicksilver out of the uk. And that really gave us a global footprint to head into the IPO and create the kind of global E Com action sports narrative.
Nathan Bush: Yep.
Nathan Bush: And just for people to cast their
Nathan Bush: mind back at that spot, you're the pioneers, like in Australia, you're one of the pioneers of E Comm at that time. I think when you came out of the blocks, caught a lot of people by surprise. Who were your competitors back then?
Justin Hilberg: So we launched in 2008. We were one of the earlier movers. It was pre the Iconic. It wasn't a lot of ecom competition. We looked a lot overseas. So ASOS was a big one. I think at that point they were doing big volume out in this market. It was easily $100 million division for them, the Australian market. And that was back then. So we look to them a lot and used a lot of inspiration of their business model as well as some of the other kind of online players out of the us. So, yeah, we kind of took inspiration from those guys. The Iconic came onto the scene not long after it was a few years after we were there and really burst on with really deep pockets and heavy marketing investment, which we didn't necessarily have at the time. So they were able to come in and grab a bunch of Share pretty early on. So it wasn't long until we looked to them locally as, as pretty serious competitors.
Nathan Bush: Yeah. And given where E commerce is at today in Australia, especially after last year and the COVID boom, casting your mind back to where you were in 2008, does any of this surprise you or do you think we're behind the curve of where we should be or are we ahead of it?
Justin Hilberg: Yeah, I think in some ways we are probably at the pace of the rest of the world. And then in other ways I felt like we're a bit behind. So I think where we were probably a bit behind was on our multi channel omnichannel strategy. So I think globally a lot of the stalwart bricks and mortar chains adopted digital retail a lot faster than what we did here. Mainly, I don't know, I think partially because of some of the earlier disasters with Harvey's and Myers and those kind of guys that just didn't get it right and spooked the rest of the market around some of their, their experiences. But in other markets I feel like those kind of stool what bricks and mortar retailers adopted digital a lot faster than what we did.
Nathan Bush: It's a really good point because even in the US you can see people like Walmart even though they've got Amazon in their backyard, Walmart are really taking it to them and they're doing some cool stuff and awesome job. Yeah. And so they're kind of leading the pack. Whereas here it's been the challenger brands like yourselves, like the Iconic, which has really had to lead the way for everyone to increase or improve their standards.
Justin Hilberg: Yeah. I feel like we're catching up, I think. Yeah. I think some of the more youthful brands out there are doing a really good job. I think Accent Group had a cracking year last year. I think the way they invested in digital was really impressive. I think True alliance has done a good job with their kind of direct to consumer mono branded strategy around their portfolio. I think that's been really strong. And even other brands like Universal have done a good job just kind of leading the way from a, from an omnichannel experience. So yeah, there's definitely guys out there that have done a good job in this market and I think the last 12 months really accelerated everybody along their digital journey, which has been good for the whole, the whole space, I think.
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Nathan Bush: Do you mind if we dive into your e commerce experience?
Justin Hilberg: Yeah, sure.
Nathan Bush: One thing that I did notice is that browsing through the Surf Stitch site is that there is a lot of sale activity and a lot of coupon activity. Which opens up a bunch of questions is firstly how much do you rely on sales? And you know there's this thing at the moment where people are like if you go on sale that means that you haven't got enough brand equity or customer trust, you always have to go on sale. So I'm firstly interested in that. And then I'd love to talk about how you use coupons.
Justin Hilberg: Yeah, so early on we use coupons like right from the early days of Surf Stitch and it is one of those things that once you start and you build up a behavior with your customer base, particularly those early rusted on customers, it is difficult to wean those customers off that behavior. So if we were to start again we probably wouldn't use them as liberally. But we have used them from a really early kind of strategy so we've stuck with it. What we've become better at is using them a lot more intelligently. We don't do a lot of mass site wide coupon codes that kind of mass blasted everywhere. We're quite strategic with it now so we'll pick different audiences that we want to incentivize at different times of the year. And it's quite good if you want to give one segment of your base a certain offer and then another segment a different offer, new customers, an offer, existing customers, an offer. You can message different offers to a lot of different segments and we're much better at that now you don't see us doing a lot of site wide broad stroke activity and it can be quite effective still as a tool for that.
Nathan Bush: Yeah, that makes sense. And because I've noticed you've got different offers in market like as you alluded to is like it might have x percent off board shorts, I'm making it up at the moment. Or spend 100, get a free Roxy pencil case or it might be an affiliate kind of referral code is the idea that none of that from what I've seen is calculated in checkout. You need to apply the code. The coupon code in there is the idea that customers having to pick the coupon code that they're using one stops multiple discounting or multiple layers of discounting happening as well as you don't lose the margin of customers who may have stumbled in and bought anyway.
Justin Hilberg: Yeah, absolutely. And it allows you to be a lot more targeted. So with our gift with purchase program, we're really focusing that on customers that are purchasing full price product. So we calculate within our offer how much margin we're willing to incentivise customers to purchase full price product. And we obviously buy those gifts in bulk and get them at a great rate. Sometimes our vendors donate them to us to push certain products or certain categories. So we calculate all of that up front. But we don't want them to kind of double dip on that. We don't want them to use a first purchase plus a birthday code and use a free gift code because you end up going out of business. So that's where it helps, having that coupon code box where it's sort of one at a time, one per transaction.
Nathan Bush: I once worked in a business that when they first introduced a loyalty program, they had things like the birthday coupon code. I think it was actually a credit. You got something like, you know, $30 credit or whatever, plus they had big annual sales and the rest and you could layer them on. We were able to get it so that one certain combination the retailer actually paid the customer.
Justin Hilberg: Some of them are really obscure combinations and we've been caught before as well where. Yeah, there was a period when I very first started at Surf Stitch. We sold something like 400 surfboards at $15 in 20 minutes. Like it just, it just something blew up where someone figured out a certain stacking of certain codes because we didn't write the code profile correctly and then shared it on a, on a blog somewhere, some, some Stab blog or something like that. And it went a bit viral. But yeah, it went nuts. So we had a lot of disappointed customers that day. But yeah, it happens. I think every retailer goes through that a couple of times until they, they put their processes in place and go, hey, let's not do that again because it's not a great experience.
Nathan Bush: Yeah, it's an expensive lesson, but yeah, a similar one with another client who did a discount code. It was a family and friends offer that just went out via email and it had a coupon code but it made its way onto Ausbargain. And then all of a sudden they had this big influx and it was crazy prices that they just couldn't honor. And there's nothing worse than having to make those phone calls to customers going,
Nathan Bush: I know you got through checkout, I
Nathan Bush: know you got the confirmation emails, but we're not honoring it.
Justin Hilberg: Yeah, yeah. You do the human error back out. Yeah, it's not ideal. And we've, over the years of Surf Stitch, we've done a few whoops emails or sorry, phone calls. And some of it in the early days was endearing to our customers because like, hey, thanks for owning up. Thanks for, thanks for giving us a shout out and wearing it on your chest. But yeah, these days I think customers are less forgiving with those types of things.
Nathan Bush: That's right. Especially when you get as big as you are now.
Justin Hilberg: Yeah, yeah.
Nathan Bush: Can you tell us a little bit about your signup program? So one of the things that I noticed on your website is that you put a lot of focus on incentivizing customers to sign up with their email address. My question to you is how do you put a value? Because at the moment you've got $20 off for an email sign up and then you've also got a referral program which is $25 for you, $25 for a friend. If you successful referral, how do you get to the number of what an email address is worth to you? In monetary terms,
Justin Hilberg: we see it as a customer acquisition cost. So if we're, if we're growing our emailable customers, we've got a higher chance of turning them into converting customers. And once they're on our, once they're on our base, we do get more intelligence over what they're reacting to from an email channel perspective. So we do incentivize customers to sign up. We've done it for a long time and we're currently reviewing whether that's the best use of our, of our dollars because I think the landscape's changed and we obviously put a certain value on new customer signups and new customer acquisition. And we're constantly stress testing ways we can reduce our acquisition costs like every digital retailer, I think, and there's no one answer to it. So we're trying to move to a program that rewards frequency as opposed to just first time purchase because we're not happy about our first time purchase being rewarded more than every other purchase from a fifth or sixth times purchase customer. We actually think it almost needs to go the other way. So how can we increase the reward the more the customer purchases? So again, it's a bit of a legacy thing for us. We've had it from the very early Days of Surf Stitch and some of those things, they're hard to walk away from because you can see the results and you're like, oh, but if we walk away from that, will it go to 0?
Nathan Bush: And.
Justin Hilberg: But often you don't know. Yeah.
Nathan Bush: You don't want to take the needle out of your arm.
Justin Hilberg: No. And often you don't know until you try it. Right. So we're building a bit more of a robust loyalty program in the background that will aim to incentivize the first purchase, but also subsequent purchases after that at a higher rate. So we really want to encourage purchase frequency in our go forward program.
Nathan Bush: How are you finding the process of coming up with the offer for the loyalty program? Because that's a really hard thing to do because there's so much data and so many options.
Justin Hilberg: Yeah, it's tricky. We want to keep it really simple. We don't want to make the program complex, we want to make it easy to understand. We originally started off talking points and earning points for different behaviors and transactions. But our most recent thought is just making it dollars to make it super easy to understand. And unlocking a certain dollar credit, which is just cash into the customer's account based on their spend and then incentivizing their purchase frequency with other benefits over time. So having a certain dollar going to their store credit per dollar spend on Surf Stitch with some minimum thresholds and then offering free shipping, free returns, express shipping, that kind of stuff as a become more frequent purchases. So rewarding more of the loyalty aspect of it. And we've done, we've done the modeling on that and I think if we know how many customers purchase once, how many customers purchase twice and so on. So if we just sort of, we did some worst case scenarios and some best case scenarios based on how many dollars we would put into people's account and whether they would redeem those dollars over time and if it would incentivize additional purchases at different cohorts. And it was done at our average order value, whether it would be a high payoff or a low payoff. And I think we've got to a model now where even on a base case it makes sense. So there's pretty low risk. Technology is getting cheaper too in that space. So we're ready to pull the trigger. I reckon in the next couple of months we'll be live and then for full FY22 it'll be a, a big clean year kind of heading into peak trade for us. So looking forward to it.
Nathan Bush: Yeah, that's nice. Timing, isn't it, to be able to have that clean cut hopefully into the new financial year. You mentioned in there about potentially. And I don't expect you to give it away rolling returns into some sort of program. I noticed that you've got free returns and it's, you know, from me following surf stitches, one of the things that has always stood out and I think you guys really led the way around allowing customers to return items that didn't fit or they didn't like, just for change of mind. It's always been free. How does that work for you now? Is that still a sustainable model?
Justin Hilberg: Yeah, we run a pretty lean return rate now. I think there's a number of reasons which build into that. We try and do as good a job as possible with our product content so we really clear photography. You can zoom in. The product content's simple, easy to understand. We tend to sell brands that are household names. So normally if you're buying a billabong T shirt or some rip curl swimmers, you've probably got a version in your cupboard that you know what size you are. We've got a relatively low free shipping threshold, so we're not kind of encouraging people to just increase their basket size to get free shipping. We found in the early years we were doing that, we had free shipping over $100 back in the day. And we found like people were just going, okay, I'll get two sizes of that one dress and then get my free shipping. And I know I've got free return, so I'll just return the one that doesn't work. So we found if we dropped that free shipping threshold, then customers weren't, they were more confident to go, I'll try the 8 or I'll try the 10 or I'll try the 32. And then we had less return rates on the back of that. But yeah, we would sit just under 10% returns, which is pretty good for a fashion business. Fashion apparel business.
Nathan Bush: And really?
Justin Hilberg: Yeah, yeah, definitely low. Compared to our peers, we run a pretty high percentage of men's in our business and they return very low. Partially due to laziness. Yes. I think the other part is they're like, oh, it fits close enough so that'll work. But yeah, we run higher rates on the women's business and some categories run higher than that, obviously. But what we've managed to do over time is just slightly increase the friction. There's a real fine balancing act between how much friction is acceptable and how much friction is a pain in the ass and doesn't mean you'll go back. So we used to put free shipping labels in every order so that it was so easy where you're almost encouraging customers to return stuff. So we stopped doing some of that. We removed all the paper. You now have to log on, put your order details in there and log your reason, get an approval code and then print out a form to stick on. So we just added a few extra steps. It gives us more intelligence, saves paper and wastage and means you've just got to work that little bit harder to do the return.
Nathan Bush: Yeah, that's nice. I think a lot of people naturally freak out around free returns, especially for change of mind. But if we put ourselves in the customer's perspective, no one wants to bugger around with returning items. Whether it's. Even if it's people picking it up from your house rather than going to
Justin Hilberg: the post office, it's still a hassle
Nathan Bush: and no one really wants to do it if they don't have to.
Justin Hilberg: Exactly. And you want to get it right. And I think if you're on the fence with ordering something, sometimes a really good returns process just takes that risk out of it for the customer. So it often is the difference between a customer ordering something then and there or saying, you know what, I'm going to go into store and check that out or I'm going to do a bit more research. So I definitely. If you can't underestimate the value of a really strong returns policy but also a good process. And we've got work to do on our returns process as well. We're actually building out a custom portal in our platform so that customers can make that returns process a lot easier from their side too.
Nathan Bush: Nice.
Nathan Bush: And do all your returns come into
Nathan Bush: one warehouse and get processed one.
Justin Hilberg: Yeah, yeah, they do. Even our marketplace vendors, it all comes back to us. We'd prefer them to deal with us. We can deal with them through customer service. We process them really quickly and efficiently. Means customers got the money back in their account really quickly and they can get out spending again.
Nathan Bush: Yeah. Nice, nice. You mentioned in there before that one of the benefits that you have is that you do carry a lot of really well known brands like Billabong, Nike, Patagonia. Like there's a lot of brands in there that people recognize. And you've also developed a lot of your own brands over.
Justin Hilberg: We have over the years.
Nathan Bush: How has that relationship gone as you've introduced and I'm assuming your own brands have taken a little bit more share as you go. How's that impacted your relationship with those established brands?
Justin Hilberg: Yeah, it's been fine. I think it's a little bit different for us because we've always been growing and we've always had a more is more philosophy. I think with E Comm businesses you're not really bound by shelf space or you've got a four way at the front or a table at the front and every brand gets two slots. It's a bit different for us. We've never really had that approach to merchandising, so we have a really customer centric approach. So if we think it makes sense to the customer to sit in the assortment, we'll find the OTB to put behind it. So brands never really saw a decline in their OTB based on the fact our own brands were growing because we never really built our brands to go head to head with any one particular brand. We typically built them to fill gaps in the market. So it was either price point gaps or one area that we really wanted to build out was a core program. So we've got a lot of basics that sit in our own brands at decent margin. We can put on two for programs and multi buys and things like that that we weren't necessarily getting offered from our brands. So that's where those brands originated. So our biggest brand is Swell, which we acquired from Billabong like I mentioned before, back in 2014, 2015. So we built that into a brand and it's now our biggest across the platform. It operates in sort of men's, women's kids as well as a bunch of accessories. And it's just really good, honest price point brand that's super accessible for the everyday beachgoer. And then we've got Dipactis, which is that kind of outdoors men's focus, a lot more technical brand. It's got a really good DNA attached to it. They've got a bunch of other smaller brands, are a lot more nation targeted that are sort of category specific. But it is a, it's a feature now in the retail landscape that having a strong private label business is important just to drive those gross margins that you're not necessarily getting from the third party vendors.
Nathan Bush: Yeah, absolutely. And what I've noticed with you guys is that in the old days own brand would be let's take all the colors off the box and do it in black and white and make it look a bit dodgy. You've put a lot of effort and a lot of content and marketing behind brands like Swell so that they stand on their own two Feet behind or beside the established brands as well.
Justin Hilberg: Yeah, absolutely. Yeah, that was always important for us. We wanted to treat them as standalone brands and earn their space on the site in their own right. So, yeah, we put a lot of effort into the design and the production. They all stack up from a quality perspective with some of the best brands in the business and they get a front row seat to all of our campaign and production. So, yeah, super important for us. We're keen to grow it as well. We think we could double it in the next sort of three to five years as a percentage of our business. So we're definitely keen to invest.
Nathan Bush: And do you offer those private labels on marketplaces outside of the Surf Stitch platforms?
Justin Hilberg: We do to your traditional marketplaces. So where we offer Surf Stitch products in general, like trade Me, ebay, Amazon, we're there with those brands. Also, we've had discussions with some other marketplaces as well and we definitely wouldn't rule it out, but we haven't pulled the trigger there as yet.
Nathan Bush: Yeah, nice. And I understand from what I read, I think there's an article this week that you are expanding your product range into new categories to try and fight the seasonality of summer.
Justin Hilberg: Yeah, yeah, we've been trying to do this for a while. We get pigeonholed a little bit as a, as a surf retailer and we still get a lot of our customers that come to us once a year for their, for their summer wardrobe and then we don't see them again until next summer.
Nathan Bush: Might be something in the name.
Justin Hilberg: We've thought many times about changing it, but it's like you get too deep on something and there's no looking back. Yeah, so we, yeah, so we're, we really see ourselves as coastal lifestyle, which I guess can be summer centric as well. But we're, we're keen to get. Offer customers a 247 kind of assortment. They can come back to us multiple times a year and we feel like we can do a good job with that. So yeah, we're launching new categories like beauty and wellness home. Coastal home will be on the, on the agenda soon to be to be released workwear. But a few of our endemic brands that are keen to get into workwear. It's cool. Yeah. And that's a, it's a bit of a growing industry. A lot of, a lot of our customers moving into more kind of outdoor occupations and are needing that kind of rugged apparel and a lot of the traditional brands in that space really cut it from a fit look and feel perspective. So fxd actually did a great job there. So they're under the Globe stable fxd and they're doing a great job talking to that consumer. So there's a bunch of other brands that are keen to jump in there too. So Volcom's bringing out a range, Rusty's bringing out a range. So we're keen to kind of blow out that workwear side of our assortment too. So we know that customer comes to us to buy their bodies, wetsuits and swimwear. So they can also get the same experience by purchasing their workwear as well.
Nathan Bush: That's cool. Have you spoken to Ed at Trademark before?
Justin Hilberg: No.
Nathan Bush: They're doing some cool stuff with workwear around, linking it to blokes, mental illness and basically their whole premise is that workwear is boring. Let's make it interesting.
Justin Hilberg: Yeah, cool.
Nathan Bush: But yeah, doing some cool stuff. When you said around categories like beauty and home, that's obviously a long way away from what's on the side at the moment. Is it going to be kind of a separate entity or a separate channel or is it going to fold into the existing experience?
Justin Hilberg: Yeah, we've got it as separate categories at the moment on site. We want to keep it really native with the shopping experience. And when we're not going to be doing lipstick tutorials and foundation kind of content, it's very much a coastal, outdoor relevant assortment of sort of beauty and wellness. So a lot more around skincare as opposed to makeup. Yeah, so we're starting to build that out now. We've got a couple of good partners, we've got a lot more that's coming and all of these are a part of our marketplace proposition that we've got on site. So it gives us a lot more flexibility with testing new categories without the inventory risk. So, yeah, we're quite happy to kind of jump into a category, figure out what's getting traction, what customers like, what customers don't like, and then we can peel it back and figure out the right assortment to offer to the customer.
Nathan Bush: That's awesome. And I can imagine that your merchandisers must just be frothing at the moment around all the opportunities around things like bundling and upselling and cross selling when you've got all these different price points and total non competing product.
Justin Hilberg: Yeah, there's a really interesting piece of data work that we're doing right now around if customers purchase swimwear or towels, what else should we kind of put in front of them along the journey and recommendations and you also may like and different content slots around the journey and we're doing a lot of, a lot of cool testing around that because you've got such a broad variety of product mix that's coming onto the site. Yeah, the learnings are immense. It takes a long time just to get your head through everything and it's absolutely an important part of the business.
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Nathan Bush: You mentioned there around the marketplace on the site.
Justin Hilberg: How does that work from a customer point of view? They wouldn't know the difference really until they get into. Deeper into the funnel where we are pretty clear about the shipping methods. So some product ships directly from our vendor partners and the bulk of it still comes from our warehouse on the Gold Coast. Yeah, we've had marketplace type modeling for quite a while, but late last year we partnered with Marketplacer and we really ramped it up. So that allowed us to jump into homewares and beauty wellness and really rapidly onboard a lot of new brands and present a lot of new products and new product categories to the customer. So we would have jumped 30 to 40% in products on offer to our customer in the space of three to four months without even investing in inventory. So it's given us a good opportunity to really test a broad assortment of product categories and individual products and just let the customer tell us what's working, what's not working, what's relevant, what's not. Yeah, so that's been a good partnership so far.
Nathan Bush: So you still get all the customer data and do all the customer service for those items that are listed on your site?
Justin Hilberg: Yeah, absolutely. So from a customer's perspective, it feels like a very native surf stitch experience and that was important for us from the start so that it didn't look like a weird bolt on. And I was a little bit critical of the Maya market, the way that was set up, because it didn't really feel like Maya. It felt a bit more like a traditional marketplace experience. So we wanted it to feel very surf stitch so the customer had trust from day one. So yeah, we back it up with our service. All the returns come back through us, all the delivery notifications and tracking and everything like that comes from us. So they get a very surf search experience. They just get two parcels or three parcels.
Nathan Bush: That's awesome. So get everything that you've built up over all those years as being the leaders with a bit more range.
Justin Hilberg: And we've got all the data, we keep the customer data. None of that goes elsewhere. So they can have confidence that none of their information is getting shared anywhere else.
Nathan Bush: Makes sense. So you're on the Salesforce Commerce Cloud platform, right?
Justin Hilberg: Yeah.
Nathan Bush: And then Marketplace is a separate platform. Is that a native integration between the two?
Justin Hilberg: They're working on that, yeah. So Salesforce and Marketplace are working on a dedicated integration there. We do it slightly differently because Marketplace is actually an end to end solution. So we just use their backend, which really helps us onboard brands and sanitize product data really easily. And then we pipe it through our ERP so that when everything pushes through to our front end with Commerce Cloud, it's all the same. It all looks the same. All of our content team, they process Marketplace products just like they process wholesale products. So we didn't have to do a lot of change management internally to spin that up. And that was important for us. And all of our reporting as well comes out of our ERP and based on our front end. So we didn't want to have to kind of duplicate reporting for a separate site or a separate inventory feed that was coming from Marketplace.
Nathan Bush: Yeah, that makes total sense, especially when you value customer data, to keep all that customer data in one place. And the last question on the Marketplace before we move on is from a vendor perspective, in uploading product is a vendor's catalog, is that just connecting to Marketplace and they choose what to release into Surf Stitch?
Justin Hilberg: Yeah, it depends on the vendor. If in an ideal scenario, say the vendors on Shopify, which a lot of them are these days, there's a direct link from Shopify into Marketplacer. So they don't actually have to do a lot of manual product importing. It links in, grabs all of the product data and they basically do a selection process to say we want this to go on Surf Stitch or we don't want this to go on Surf Stitch. They can select what price it goes in at, so they can mark it down whenever they want. They can select what promos they want to be in or not want to be in. They can even put inventory thresholds on there. So they might only want to sell 20 of their board shorts to Surf Stitch and keep 80 for their wholesale customers. They can control that as well. So it gives them a lot more control around how they partner with us. So, yeah, they're definitely in the driver's seat.
Nathan Bush: Nice. So if we've got people listening to this who have brands and products that they go, I'd love to see this go on Surf Stitch. From your point of view, what are the qualifiers or what makes a product pass through the gates to appear on Surf Stitch?
Justin Hilberg: It's got to be relevant. Like it can't, it can't look like a really forced product placement to our customers because they can spot that from a mile away. They're quite savvy. So it really needs to be in line with our core proposition, which is Coastal Lifestyle. So anything that fits within that Coastal Lifestyle umbrella, and it's quite broad once you start to unpack Coastal Lifestyle, but anything that fits within that we will absolutely entertain. And if it's around any of our growth categories, we'll be really hungry to onboard those. We've got over 2 million names in our database. We get a lot of traffic. We are really passionate about premium content and putting brands on a pedestal, particularly new brands. And we'll use all of our digital channels to introduce those new brands to our pretty large active base. So there's a lot of things to gain, I think, from brands. And originally when we were going out to the market, talking about us being a marketplace, there were some dubious brands, particularly brands that were really focused on going direct to consumer themselves and really owning that channel. We think we can be another channel as well. So the brands still have all of the ownership, 100% ownership over the pricing, the placement, what assortment Surfsage gets, But they get the luxury of having their brand up against all these other global brands in a really premium environment. And if it doesn't work, there's no stress. It's easy to easy to switch it off, pull it down. There's no long term commitments or anything like that that we need to put in place. So it's a good way to test the market with no massive commitments.
Nathan Bush: If we take it back to the old days of retail where you had to go through the buyers and the merchandisers, it's a pretty simple process now, isn't it?
Justin Hilberg: Well, it is, yeah. And if you're already digital, like a lot of new brands these days are going, let's just go direct to the customer, which I think is a great model and definitely a model of the future. Why can't we be a channel for that. We can give you so many more eyeballs without the risk. Yeah, of course.
Nathan Bush: Now you are based on the Gold coast and recently moved into a new headquarters. It makes a lot of sense to be on the Gold coast with your coastal lifestyle. How do you find being on the Gold coast in terms of pros and cons of running an E commerce business from there?
Justin Hilberg: We love it. We've been here a while and there's a lot of pros. It's very much in line with our DNA as a brand. Our brand purpose is to inspire our customers to live like it's the weekend. So there's no better place than to embody that than on the Gold Coast. I think, I think there's some benefits too. We've had really good employee retention over the years. Yeah, we have. I think there's probably a couple of periods there where it's gone the other way, but on the whole we've had really good employee retention. I think if you're, if you're a decent sized business that looks after your people and you're based on the Gold coast, there's not that many other options for crew to go. So I think that that plays into your favor. There is a bit of Gold coast tax where if you can work a couple of blocks from the beach, you kind of have to add that onto your salary because it's definitely a perk of the, of the role, of the role and of the, of the company. But yeah, there are some negatives too, particularly in the, in the digital space. Some of the digital hubs are like magnets for talent. So Sydney and Melbourne in particular, even Brisbane is emerging as a, as a strong digital hub. We've lost some good people along the way that are really ambitious to, to grow and expand their careers and there's just, there's no chance of retaining some of those guys if you're, if you're on the coast. So that's definitely been one of the downfalls and then attracting talent. So occasionally we've had really good opportunities pop up in the past for senior experienced talent and we've found good people. We just haven't been able to entice them to leave some of those big markets. But I feel like that's changing, particularly changing over the last 12 months.
Nathan Bush: Yeah, definitely we're seeing a lot of that as well. Is that whether it's Sunshine coast, whether it's Toowoomba, whether it's Gold coast, it's a lot easier to get people to have conversations around relocating in the last six months. I think when people realize that this is actually just a way of life and we're going to get, you know, the big hubs aren't necessarily going to be the only way of progressing your career for sure.
Justin Hilberg: And not just relocating, sort of working flexibly. There was a period where I worked in Sydney a couple of years ago and I was down there once a fortnight for a couple of days a week and that, that worked back then and I think there's some level of normality to that now. Even the other way around, with less planes in the air, a lot of people are working remotely, 100% over Zoom like we are today. Yeah.
Nathan Bush: As a managing director, how do you feel about remote work?
Justin Hilberg: Yeah, it's a tricky one. I think it's the new norm, not 100% the new norm that would be very challenging. But as an example, we were working from home for a couple of months last year right when we were moving office and when we came back into the new office it was in a new location not that far away. We went from Burley to Broadbeach, so an extra half an hour north on the Gold Coast Highway. There was a few of our employees that said, you know what? We would prefer the flexibility. We'd like to been really good for my family and work life balance and we'd like to do one to two days of work a week from home. So we trialled that and it's been really good, really successful. The employees have been happier when they are here. They dig in and I feel like they work harder. So you've got on site workforce that's super engaged. I feel like when they're home they work harder. So when, when they're at home they're kind of earning it and, and so you, you've kind of got that, that dual kind of benefit of the office works harder at home, works harder and overall I think the workforce is more productive, which isn't what I expected going into it, I have to admit, but I think it is the way of life. I think we've, we've done a bit of recruitment recently. We've been doing interviews this week interviewing a lot of young people. It's been really interesting. Some of the questions they ask us and one of the first questions is what's your flexibility policy? Which is interesting. The other one interestingly is what's your stance on your environmental sustainability and social responsibility? Where do you guys stand on that and what's your policies? So there's, we felt like we were getting interviewed on a couple of instances, but that's the next generation, that's what they value. So it's definitely a way of life going forward.
Nathan Bush: Now I understand too that you are looking beyond just your own business and your own marketplace and you're helping other e commerce brands with everything from content all the way through to fulfillment. How's that going to work?
Justin Hilberg: Yeah, we, we really tried to diversify the business model and in the past 12 months we've really tried to hone in on what it is that Surfsage does well. And over the last 12 years we've spent a lot of time, money, effort, refining our backend processes. So we've got our own warehouse, our proprietary systems, we've got a unique picking app that we've developed and owned and refined over many years and we're now in a position where we can bundle that up and offer it to other partners. So over the last 12 months we've been doing that for one of our partner brands and we're now ready to offer it to other third party brands. So as part of that service we offer product photography, customer service, any product content that's required, all of the receiving, picking, packing, deliveries that accustomed to the high quality that Surf Stitch gives, we can now offer that to other partners. Returns, processing, which is a pain in everyone's ass. No3PL does that well, we do it pretty good. Still not easy, but we do it better than most. So we can help get other businesses off the ground with a really high standard of e comm service at a pretty affordable rate and do it better than most other 3pls on the market. So we're ready to go with that and we're out in market now. We've shared it with some of our closest partners, but will be ready to go out broader than that.
Nathan Bush: That's a pretty big piggyback, especially for businesses first starting out to be able to get your 12 years of innovation and process all at once.
Justin Hilberg: Yeah, and it's something that we struggled with early on and we would love the opportunity to give others the leg up and help kickstart them.
Nathan Bush: There was some Tough Times in 2017, 2018 where you went into voluntary administration
Nathan Bush: and, and then come back out of that.
Nathan Bush: And I saw recently you said that it was 300 to 400% increases in profitability in the last few years, which is fantastic to see personally. What was the biggest lesson that you got from leading a team through a time like that?
Justin Hilberg: Oh, there was a few, yeah. So prior, prior to going into administration. We were on fire as a, as a business in a good way. Like we were kind of darlings of the market, couldn't really do anything wrong. We're raising a bunch of capital. I think we raised 250 million and did six acquisitions in 12 months. Like we were moving and moving pretty quickly.
Nathan Bush: People were speaking about you like people are speaking about afterpay. Like obviously not on the global scale, but you were the excitement machine on the asx.
Justin Hilberg: On the asx, yeah. We launched at a dollar, we got to what, over three bucks, three bucks 15 I think in a couple of years and performing really well. People were keen to invest and we were able, it felt like we were able to raise capital whenever we wanted. At that stage people just believed in the story and we all did as well. We were all really passionate and riding the wave and it was such an exciting business to be a part of back then. I bounced over to the us, was running or helping run the swell business over there that we needed to do a lot of integration. I spent time in the UK and surf Dome business understanding that. And we were working on this big global project to stitch all of the businesses together and have one global platform, one global brand. It was really exciting. But yeah, as quickly as it all built up, it actually was also a curse. Like we didn't realize it at the time, but we were trying to do a lot of, and we had a lot of people and the business was quite big and it was global and we just couldn't move as quickly and efficiently as we tried to. And it started to break and there were pressure points along the way. And our CEO was really passionate about hitting certain milestones, as were everyone in the business. But I think we didn't put enough emphasis on just executing the strategy, slowing down, doing things properly, thinking things through, stress testing some of our thought processes. We just, we're just sprinting at everything. And while that sounds fun and it was fun, it had its issues.
Nathan Bush: Retail's still a dirty business. Right. You've still got to do all the basics. Right. And if you miss the basics, then you're screwed.
Justin Hilberg: Absolutely. And it wasn't like we were brand new startups anymore. Like the swell business was actually the oldest business in the group. It launched in 99. So it wasn't like you were working with startups that were getting 100% growth a year anymore. We're all starting to hit that maturity curve and growth was getting tougher year on year. Comps were getting harder and our plans hadn't Changed. They were still really high growth profile models. So yeah, the pressure crack started to show through that period. The CEO left pretty abruptly and he had a philosophy that the Australian market didn't really understand e commerce businesses and felt like we weren't really getting valued. Like if we were on the US market. He felt like if we were over there either privately held or publicly listed over there in New York, we would have been valued much higher than what we were out here based on our numbers. He's probably right. So he was keen to delist here and relist over there. So that that whole piece of the puzzle just didn't work out well. So he resigned, left abruptly because he was conflicted trying to execute on that plan. The board at the time weren't really aware of the plan, so it just imploded a little bit. Everyone in that kind of realm, being directors of companies, going to ask covering mode. Like everyone probably would not wanting to be personally liable for, for things you're not 100% across. So yeah, it just started to sort of spiral. We backed out of a lot of contracts, we backed out of all sorts of things. We revised our full year guidance. Yeah, the share price started to tumble and once it starts to tumble like that, it was hard to, hard to recover. And the biggest issue with that whole process was we raised $50 million in like three months before the CEO resigned. And we raised it at $2 a share, so raised that at $2 a share and then the share price quickly dropped to 30 cents. So we lost close to half a billion dollars in five months off the market cap. Yeah, it was a big, a big fall and a really tricky time to be kind of leaving one of the biggest businesses. But after that happened, the class actions came out of the woodwork and that's what really put us under pressure. So we probably could have recovered from replacing the CEO, replacing the board and getting back on track. But with the share price tumbling, the class actions mounting, we had multiple litigations going, brand new CEO came in, brand new board came in. Takes them a little bit of time to wrap their head around everything. And then fighting the class actions was a full time job. So they didn't really spend a lot of time on figuring out the business. And we were all just, it was kind of every man for themselves from an individual region perspective. And it didn't take too long after that before the administrators got called in because we just couldn't effectively. It wasn't that we were running out of, out of money or we're insolvent or anything like that. We actually had a really healthy bank balance. It was that we just couldn't fight the litigation plus run the business at the same time. So we needed the administrators to come in and. And help us navigate that period.
Nathan Bush: And I can imagine that takes such
Nathan Bush: a toll on your culture, where you've gone from being the darlings, but also just a culture of just innovation and creativity and changing the way that retail's done to all of a sudden having to fight fires and that air of uncertainty and probably I'm putting words in your mouth, but maybe a little bit of panic around the theme. Was there a moment that you had as a leader that you went. There's a really big lesson here for me in terms of getting your people through that moment?
Justin Hilberg: Yeah, yeah, there was a few, and I didn't realise what they were until I had some time to reflect on it, kind of after some of the dust had settled. But I think it was really important that we communicated as openly and honestly as possible. So I made a point each week of standing up in front of the whole team saying, this is what I know. Here's the latest. Don't worry about what you're reading in the papers or what you're listening to on your morning commute, because we were kind of everywhere in the press at that stage. Like, this is it. Like, you can trust me, I'm being honest, trying to get us through this process. I need everybody in this kind of forum to help educate all of our partners, because our partners were on the phone every day too, whether it was tech partners, vendor partners, because technically, the Surf Stitch Australia business, which is the business I was running, wasn't in administration, it was the Surf Stitch group that was in administration. So it's a technicality, but to most people, even reporters, they just ride Surf Stitch, which looks like it's us. So we. We weren't bound by the technical constraints of being in administration as Surf Stitch Proprietary Limited because it kind of sat at the group level. So, yeah, that was a technicality that I felt like I was on repeat with all of our vendor partners, but we had to really shore up all of our trading terms and financial obligations with all of our partners, because everyone assumed the worst, because there's not a lot of businesses that come out of administration in a successful position. So everyone was in damage control. So, yeah, it was a. It was a really busy, hectic period of me being almost overly optimistic and overly positive around where I thought the future would be for the business. And I just had to influence and convince and bring the whole team along to my way of thinking. But it was all done through complete openness and transparency and whatever I knew everybody else knew, which can be difficult as well. But it was just that relentless communication.
Nathan Bush: Yeah, yeah, that's a really great lesson and you've done an incredible job to bring. Bring it back to where it is today. And definitely a leader not only in the E commerce space, but in retail in Australia. And as a side note, I'd be a very horrible fairy tale writer because we started with all the good stuff and then we've ended on the, on the, on the bad note, when normally we should start with the problem and then come out the other side.
Justin Hilberg: But we're gone a bit backwards.
Nathan Bush: But that's all right.
Justin Hilberg: We could talk forever.
Nathan Bush: I know we could. What is next?
Justin Hilberg: We've talked a little bit about what's
Nathan Bush: next for yourself and Surf Stitch, but what's got you really excited?
Justin Hilberg: Yeah, well, I mean, I'm really enjoying being back in Surf Stitch. Like I said, I stepped out for a period and worked at the private equity group. I've been back in the surfsage chair for just over 12 months now. We've had a really good year. It hasn't been an easy year, but we've done an excellent job of getting complete visibility over the total cost of doing business. We've restructured our margin profile. We've really honed in on our brand proposition. I feel like we've got super exciting things ahead for Surf Stitch, not just as a brand, but as a platform in coastal lifestyle. So we're only just getting started as surfstitch. The team's really engaged. We've had a massive turnaround in profitability in operating cash. Investors are happy with where we are. Our vendors have never been happier. We're bringing on new vendors. So I feel like we're in the healthiest position we've ever been in. Even looking back to those highs of highs of when the share price was flying, we were never this profitable even back then. So we're sitting in a really good position. That's a sustainable long term position, which I couldn't have said that ever in the history of surfstage. So I'm really keen to lock in and allow the business to reach its potential and give the team below me some airspace to execute on what they believe the business should be as well. So yeah, I think next couple of years really exciting, not just for us, but for E Comm in general.
Nathan Bush: Absolutely. No, that's brilliant. I think you've got a lot of fun ahead of you with, whether it's loyalty or whether it's marketplace or whether it's content, which we didn't even get to touch on all your plays and content, but feels like the fun's going to come back to Surf Stitch pretty quickly and pretty fast.
Justin Hilberg: For sure. Yeah. And there's a real groundswell that is tangible of this. Let's be hyper local. Let's support guys that are local retail businesses on the ground. We're one of them. We're happy to support other local retail businesses as well. Through our platform, we're doing really good partnerships with local kind of sideline businesses like Mr. Consistent. We developed that. That cocktail with those guys. They're just based at Burley.
Nathan Bush: I love the shaker kits. We had them on New Year's. Awesome.
Justin Hilberg: So good. Such a great. A great concept. So we developed an exclusive cocktail with them called the Stitch up, which is a blue. A blue cocktail mix and gave it to our customers through Peak. But they're loving it. It's now sold in bars kind of around the Gold Coast. Everyone's kind of frothing on that as a concept. And I just love the concept of two local businesses genuinely getting benefit out of working with one another. And I think that's a real trend. Probably a post Covid trend, but definitely one that should stay. Burley Brewing is our official beer sponsor, staff morale sponsor. They keep the office energy high, they keep us hydrated and they love to partner with us on campaign shoots and different events that we do. So that's another just local, genuine local partnership that they get value out of. We get value out of. So I'm really keen to see how many more of those we can do as well.
Nathan Bush: That's brilliant.
Nathan Bush: Now, if people want to get in
Nathan Bush: touch with you or the team, whether they're hyperlocal or they've got something that they think is going to change your business, what's the best way for them to get in touch?
Justin Hilberg: Yeah, reach out to me directly through LinkedIn or you can hit me on jhilberghurfsitch.com I'm pretty approachable, accessible and I can point you in the right direction because I've got a lot of experts in my team that will answer your questions better than me.
Nathan Bush: Mate, thank you. You've answered today's questions brilliantly. I've loved our chat and we could keep going, but we'll call there because Friday afternoon and I know the rest of your office is going time for you to go home. Go home as well.
Justin Hilberg: Cool mate, thanks. Great than Justin.
Nathan Bush: There was so much in there and a massive thank you to Justin for being so open on everything from how to calculate customer acquisition costs to getting your team through a crisis of that magnitude. One part of the conversation which I loved and I narrowed in on a little bit is the massive opportunity for direct to consumer brands, especially those we're trying to avoid. The traditional retail distribution model is the use of marketplace strategy Surf Stitch along with Maya and Bike Exchange. They use technology called Marketplacer. While it's not the only marketplace technology available, they're an Australian platform. They just raised $20 million in investment and are looking to expand into the US. It's a really exciting space. It could be worth a look if you can connect into their M seller technology to be able to offer your products through other online retail channels but still maintain a degree of control. It's just another option for selling. Thanks again to Justin for giving us a look into how it works for both retailers and distributors. To finish up, I have three resources for you. Firstly, if you're a first time listener of Add to Cart and you want to stay up to date with new foam episodes, head over to addtocart.com and you can sign up for our weekly newsletter. We'll let you know every time a new episode drops as well as giving you my three takeaways from each episode and a link to the transcripts so you can know that this is an episode that you want to dive straight into. Secondly, if you want a weekly roundup of the best e commerce case studies, tools and research, sign up to the Hi5 Friday newsletter which is delivered to inboxes at 8am every Friday morning. I read all the e commerce news and send you the bits that I think you can take action from. Sign up at 12 high 12 h I g h.com au hi 5 and the last thing if you are looking to explore your next e commerce opportunity, head over to E Suite. We are a dedicated e commerce talent agency connecting the best e commerce talent with the fastest growing brands. Check it out. Sign up to the email and get in touch with me if you want to discuss your next move. Until next time, thanks for listening and keep those customers adding to cart.
