Booktopia: The next chapter
From a business that began on $10 a day to hitting $130 million in the last financial year, this Australian success story is hitting the accelerator, with moves towards private investment, licensing their own books and a new focus on academia. Here, founder Tony Nash discusses what’s on the horizon for Booktopia.
How has the past financial year been for Booktopia?
The interesting question I always get asked is whether Amazon has made an impact on us and I always say, ‘Yes it has’ and I try to be as grave as possible. Basically we’ve gone from $80 million in revenue when they announced [their arrival] to $130 million in the last financial year, so it’s a significant increase. With that growth, it gives us a lot of confidence that what we’re doing is right. Amazon isn’t focusing on books, they’re thinking about other things. Books is where they came from and it’s 5 per cent of their revenue now, so it’s quite small and they prefer to use the marketplace for someone else to sell their books, then they take their 20-odd per cent commission. They make more money doing that. That marketplace is definitely one of their profit centres.
So from our perspective, we just continue to focus on good Australian content. There are a lot of great Australian authors producing books and the publishers are still very vibrant. It’s a very resilient industry. And I found that out when the GFC hit in 2008, because even though Australia wasn’t significantly impacted, when things got tougher, customers bought books to educate themselves, rather than escaping and buying books about travel. Where one category may start to drop, another will take over.
Academia has been big for us – it’s a very big, growing market for us. Less people go to their campus bookshop now. When they’re in class, they’ll buy books online rather than stand in a 400-metre queue. That whole model is changing.
In the last couple of years, we became a book distributor. Rather than being a retailer buying books from publishers and distributors, we’re now being appointed in Australia as representatives for the publishers, so bookshops and businesses are buying from us and we’re supplying to the market. That’s a hugely successful growing area.
What are you focused on in the year ahead?
We’re focused more on profitability this year from a financial perspective. As you get bigger, as you go through the $100 million-mark, your suppliers, the banks – they all want to know that you’re profitable and sustainable. By having over 30 per cent growth year-on-year for over a decade, in FY09, we were $9 million in revenue. In FY19, it’s $130 million. That means that we can’t necessarily go purely for growth like we have in the past. We need to taper that slightly so we can deliver profit, so that’s what we’ve done.
We’ve had a good few years of profit and now people are starting to feel more comfortable and they can see that we are in it for the long-term. When you’re profitable, you’re sustainable.
Booktopia also recently went for external investment again through the crowdfunding platform, Equitise. What was that process like?
In 2016, we attempted to IPO and that was when Amazon announced they were coming to Australia. That was the first round.
We did the crowdfunding process this year, which was great. If everyone who was talking to us, said they were in and had actually committed to the funds, we would have gotten the minimum of $3 million. But by launching and embarking on that journey, a lot of larger growth funds approached us and said, ‘Hold on a sec, we’d like to talk to you about investing $20-$30 million. Let’s see how we can get from $130 million to $300 million faster’. That’s a conversation we want to really explore to its completion, just to see if we can partner up with someone who gets what we’re doing, can see the bigger picture and help us get there faster by providing the financials.
This is the truth of it. We don’t actually need that money, we will be a $300 million company – it’d just take us longer than if we do it with somebody else.
Are getting close to finding someone to fund that investment?
Closer, yeah. We have engaged a finance director who has experience in banking, the capital markets, debt and other areas of finance and he will be exploring all matters of financing and capital raising for us.
How do you think you’ll use the investment?
We’re shipping 30,000 individuals books per day but to get to $300 million, we’ll be doing 60,000 books per day. We want to invest in the automation to match the demands of our customers.
We’re also increasing our stock profile. Although we’ve now got 150,000 titles in stock, we’re increasing it to 200,000. I’m more interested in having more of the ones that people are demanding – nothing hurts us more than not having enough stock and waiting for an order. I always want to have things in stock, I’m just tweaking the algorithms to make sure that we don’t bottom out to zero, waiting for the next shipment to arrive. So some of the funds will be used to bulk up where we know we’ve got the demand.
What did you learn during the crowdfunding process?
Crowdfunding is new and not everyone understands it. You’re actually talking about capital-raise crowdfunding which is different to crowdfunding. You’ve got to understand, it was a capital-raise through an Offer Information Statement, which had to be approved by ASIC.
An OIS is like a mini IPO prospectus without doing an IPO. The fact that we then placed that capital-raising OIS document on a crowdfunding platform to raise the money was an option that became available to us. In the past, an OIS would have been circulated to potential investors by an adviser. It was a way of scaling the exposure of our capital raise to our customers and investors through a platform that also does crowdfunding.
People need to understand it’s two parts. People think it’s a crowdfunding exercise, but it’s not – it was a capital-raise using a crowdfunding platform to capture the interest and for people to lodge their intent. That’s something I’m much more familiar with now.
Customers don’t really care about your valuation. They love your company and they’re not as concerned about the value. They’re excited about you as a company and want to get involved, whereas the more sophisticated investors want to understand, “If I put in $10,000, how is that going to become $20,000 or $30,000 and how am I going to get money out of it?” So there’s a distinction between the two in terms of the passionate customers and those people that go, “That’s a good investment.”
Would you have done anything differently?
Not necessarily, no. We were happy with how we went about it. Having a lower minimum wouldn’t have been of any value to us or the group of investors. Let’s say we set a minimum of $1 million, it wouldn’t have been enough for us to do much when you’re as big as us now. We wouldn’t have had another 800 investors on board – that would have been too small for us to take advantage of.
But do you believe it’s the right kind of platform for the right kind of business?
Yes, at the right level. We’re pretty big now. It only got legislated for us to use that kind of system at the beginning of last year, so perhaps if it was around several years ago, where people had more opportunity to grow with the business, it may have been perfect for them and us. The fact that we’re so mature now, we’re not in a position to give them massive multiples of capital growth. It’d still be significant growth, but not to the level it could have been if we’d done it several years ago.
The timing has to be right. Capital raising through a crowdfunding platform is perfect for pre-profit businesses. You have proven the concept and you are post-revenue. You are up and running!
What do you think a modern bookstore needs to offer customers these days?
That is a great and timely question because I just came back from the annual Booksellers Association Conference. I was talking to the booksellers, who are now our customers through our distribution business. What I’ve always thought and what I can see works hasn’t changed in several thousand years – if you’re a subject matter expert and build a good relationship and rapport with your customers as they come in and out of your business, you’ll have them for life and they’d rather go to you to buy something than online. The key to being a good bookstore is to know your product, buy well so you know what people want in your specific area, then your customers will keep coming back to you. Who wants to waste time reading a book over 15-20 hours that is just so-so? Good bookstores will always thrive and prosper because they’re adding value to their customers.
When I first [launched] Booktopia in 2004, I spent three days at [now-defunct bookstore] Borders over eight hours. Not one person came up to me and asked to help me. You’ve got to be able to engage with your customers, you need little programs to keep them coming back. It’s relevant to bookshops and everyone.
When I was in London, for the London Book Fair, there was a bookshop I wanted to check out. The two millennials behind the counter were looking at their phones, not even looking up.
And when I went to Phuket (we go on holidays every few years), there was a big difference between previous years and the last year we went. Usually, when you’re walking through the markets, there are people going, ‘T-shirts! Bags! T-shirts!’ This time, we went through and I said to my wife, “We’re walking through and no-one is harassing us!” Why? Because they’re all sitting in their little stalls on their phones.
It is so important that if you’re running a retail business, you need to lock up your phones in a safe for the day and be out on the floor, engaging with people, fixing stock, organising things.
What is the book retail landscape like right now?
People talk about retail and how it’s a negative market at the moment. It’s in the mainstream media. That’s a huge mistake. If you think that things are tough and times are hard, you’re missing out on opportunities. I never think that way. To me, there’s always opportunity even when times get tougher. As companies drop out and you’re there at the end when things get better, you’re in a stronger position. It’s a mindset that I don’t subscribe to.
Retail is never good or bad – there’s always retail. It’s about focusing on the cash, how I can satisfy my customers. What have I gotta do to work that bit harder to maintain where we were before? It can influence your day-to-day if the rest of the world is saying it’s gloom and doom. Having change and being in flux is absolutely part of how business works, but focus on working as hard as you can and making your business prosperous. It’s an important mindset.
What would you say are some of the greatest challenges for Booktopia?
When you’re an organically grown business and you started it off on $10 a day, you’re never going to have enough cash because you’re always using it to reinvest and hire. Managing cash has always been the toughest path for us – making sure there’s enough cash at the end of the month to pay for everything.
What do you think keeps bookstore owners up at night nowadays? I assume the discount culture is a concern for quite a few.
I know one of the senior guys at Chemist Warehouse and he said that the idea of being the cheapest is a 1c spiral to the bottom. We never want to be the cheapest. We’re happy to be in the ballpark, but if you have the books in stock and you can get it to the customer quickly, you don’t have to be the cheapest. You just need a good system and be very efficient, so you’re not known as being the cheapest, but offering incredible service. That’s super important.
I spoke to a bookshop recently that doesn’t discount at all and they have people coming in left, right and centre. Why? Because the ladies that run it know their stuff and there’s a good vibe in there, so people want to go in.
They also don’t hold titles that they can’t hand-on-heart endorse. They’re not businesspeople, so their finance section’s not great and romance isn’t either, because they don’t read romance. That’s a mistake. Sometimes you need to be open-minded and be aware of what else is going on so you can capture every sale possible and not be as ruthless around stock holding.
A lot of pureplay businesses are now offering offline events or pop-ups. Can you see Booktopia exploring that kind of territory?
No. What I can tell you is that I believe we can get from $130 million to $500 million in online book sales in Australia out of a $2 billion market. The more you start to try other things, you may not be able to have all the time and resources to put the required effort to see them through. It’s easier for me to get to $300 million being an online bookstore in Australia, simply by focusing on doing that well, rather than thinking about how to get to $300 million by doing some pop-ups.
The main thing for us is click-and-collect and how our customers can more conveniently pick up a book, rather than dealing with Australia Post. We already have click-and-collect, but we want to do it more as the market matures and customer work out what they want over the next decade. I think customers will start to find their groove and know what they prefer, like going up to a locker at 11pm with no traffic. They can just park across the road and grab it – it’s more convenient than lining up at the post office or going elsewhere.
We have also just launched a book club, which means we are going to be licensing and printing our own editions of some of the biggest books of the year, so our customers will get access to some significantly discounted prices. I expect it to be a big part of our business.
The book club will be new releases that we select that we want to make available and they will be only available with a login. They’re not available to the general public.
They’re titles that we sell few copies of because most people go to Big W or discount chains to pick them up. We’re very good at that independent kind of book. But the kind that gets dropped by the pallet-load into discount stores… we can’t discount enough to be part of the market. Having our own editions means we can compete somewhat with that and make it work.
Can you tell me about some of the philanthropic work that Booktopia does in the community?
As you can imagine, book readers tend to be intelligent, passionate thinkers and community members – that’s the assumption we make. Not all of them are that way inclined, but a lot of them are, so a program around giving back has always been important for us. We’ve been involved in festivals and conferences, industry awards, literacy programs, library fundraising events.
We like the idea of using the money that customers spend with us [on projects] and people knowing that we’re putting it back into the Australian literacy world, be it to authors or the recognition of them, or to kids who are looking to read. We’ve donated over $800,000 worth of books and cash to literacy projects around Australia in the last decade. That will continue to grow and we’ll do more.
When Booktopia won the People’s Choice Award at the Telstra Business Awards, you spoke of the work you’re doing with the first Islamic Writers Festival. Can you tell me about that?
We’ve been sponsoring the Sydney Jewish Writers Festival for a number of years as it’s our family heritage. But we’re situated in Lidcombe in western Sydney, which is close to Auburn and has a big Muslim community, so we have a lot of Muslim customers and Islamic schools that buy from us.
One day, I was in Auburn and saw an Islamic bookshop. I went in, introduced myself to them and suggested that maybe we could be involved in an Islamic Writers Festival. They gave me the number for the association that was thinking about doing a festival and they asked if Booktopia could be the founding sponsor. I said, ‘Let’s talk about it and see if it’s something we can do.’
I spoke to the director of the Jewish Writers Festival to see if they could somehow help or mentor them to get their festival up. So the crew from the Islamic Writers Festival and the Jewish Writers Festival were over there, attending sessions and watching and observing, so they’re getting ready for it.
How has e-commerce changed since you first launched Booktopia?
Bandwidth. When I launched it, we were still on dial-up modems. Broadband was coming in and having that bandwidth and a better graphical experience was super important. Payment methods have all changed too, like with Afterpay. Delivery options are changing.
For us of course, Amazon arriving in Australia has set the tone now, but the world’s not ending like people originally thought. Before they arrived, I went around the world, and I thought, ‘Who’s doing well in an Amazon-mature environment?’ And everywhere I looked, there were businesses focused on one vertical and doing it really well.
That’s when I realised we had to do books and do it well, not branching out and doing something completely different. It’s about doing that one thing and doing it really well.
Then you can compete with anyone. [Amazon] will never be able to have the real estate on their phone to be able to offer everything and still make it look like you’re completely focused on books. You can’t. Amazon’s thing is everything and good luck to them, but when you’re a retailer and you want to do well, just do one thing and do it bloody well.