Young, rich and social: Is this the future of retail?

Showpo_marketing_advertising_spendYou may have noticed a shift in the type of content appearing on Facebook and Instagram over the years. In between funny anecdotes shared by friends, eye-roll inducing political rants from relatives and all those puppy pics, you’re probably seeing a lot more ads for businesses you’ve never heard of before.

Many of these businesses offer a few niche products, sell online only and advertise almost exclusively through social media. But don’t let that fool you. Though they may not be widely known, the businesses are often doing millions of dollars in revenue a year.

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Take HiSmile, for instance. Started by millennials Nik Mirkovic and Alex Tomic in 2014, the Gold Coast-based teeth whitening company is a global phenomenon on the cusp of achieving $40 million in annual revenue.

But if you’re not part of HiSmile’s target audience, you’ve probably never seen their colourful ads and celebrity endorsements on social media, much less heard of the brand. In fact, their ability to efficiently reach the right customers is one reason they’ve been so successful in such a short time.

You might ask what’s so different about retailers like HiSmile. After all, it’s not uncommon for major Australian companies like Myer and Woolworths to use social media today. Since Facebook first started allowing ads on its newsfeed in 2012, followed by Instagram in 2016, the platforms have become an essential part of the overall marketing mix, thanks to consumers’ increased use of mobile devices, the rise of influencer marketing and retailers’ growing reliance on data.

However, businesses no longer need large customer databases or to even organically build a following to drive sales through social media ads. They can target people they never knew existed using algorithms developed by Facebook and Instagram. To be fair, the social media giant has offered this capability for a few years already. It’s just that it has recently begun to reach critical mass.

“Even five years ago, if you didn’t have followers on your Facebook Page, you wouldn’t have been able to connect with potential customers. There’s been significant change over the last few years to allow businesses to target audiences they didn’t even know existed,” Laura Qureshi, co-founder of DO Commerce, tells IRW.

Qureshi points to an ecommerce company she is currently working with that is relying heavily on Facebook and Instagram advertising to build its audience at launch.

“Never before have I seen people build a business from the ground up, without having a single Facebook fan or follower, or customer in their database, and be able to generate revenue immediately,” she says.

This shift is making it possible for relatively small businesses to punch well above their weight when it comes to generating revenue. 

“You don’t need to buy a customer list like in the old days. The world is your list, because Facebook allows you to target any group under the sun. All you have to have is an understanding of your target market,” says HiSmile’s head of marketing Justin Gaggino.

 He attributes 100 per cent of HiSmile’s website traffic and transactions to its social media presence, which involves working with around 3,000 influencers at any given time, as well as using every ad format on Facebook and Instagram.

“I think we’re across everything in terms of our advertising. We believe in testing anything and everything. We are shipping globally and have a large audience. Different formats work for different markets,” Gaggino says.

Multimillion dollar businesses you’ve never heard of

Showpo is another multimillion-dollar online business that has grown largely through social media. Launched by Jane Lu in 2010, the women’s fashion brand sells apparel and accessories and is omnipresent on Facebook and Instagram.

“We find that Facebook in particular is a great platform for us, but Instagram is as well. We’re quite aggressive, we use pretty much all of the available formats. It’s a combination of stuff that’s more engaging and fun and some stuff that’s more ‘show me the money’, which is more product-driven,” Showpo’s chief marketing officer, Mark Baartse tells IRW.

Citing the difficulty of accurately attributing sales to a specific activity, Baartse estimates that around half of Showpo’s sales are the direct result of a post or ad on social media.

Dean Rushton, director of marketing at Cycology, an online retailer selling casual and technical cycling apparel, attributes around 70 per cent of monthly sales to social media.

“The growth of the business has been off the back of Facebook. Social media has been a really critical component to our business. Eighty per cent of new-to-site customers come from social media platforms,” Rushton tells IRW.

Though he declined to provide exact sales figures, Rushton says the five-year-old business is generating in the single-digit millions in revenue, and doubling year-on-year.

One thing all these retailers have in common is that they remain relatively unknown outside their target market.

“Kids in their parents’ garage or mums who start a business on ‘mat’ leave are targeting customers in the same way Amazon is. They can grow to quite significant sized businesses, but it’s only their target customers that have seen or heard of them. But it’s because they’re so efficient at [targeting the right audience],” says Kate Box, Facebook’s head of retail in Australia, adding that it’s largely due to social media being mostly viewed on mobile devices.

“Because mobile is such a personal device and you consume content in a one-to-one way, it doesn’t always drive awareness in the same way [as traditional media],” she tells IRW.

A double-edged sword

But Qureshi cautions that social media has also given rise to untrustworthy operators, who could end up tarnishing consumer trust for everyone.

“You’ll see ads on Instagram that say customers only need to pay shipping to get a free watch. But they’re misleading customers. The shipping is often inflated and higher than you would pay if you were transacting with a reputable ecommerce store, and it takes 28-30 days to arrive,” she says.

“If you generally are selling what you say you’re selling and delivering when you say you’re going to, [social media] is a beautiful thing for anyone wanting to sell online. It’s the people who think they can make a quick buck and aren’t transparent about their sourcing and delivery that are risky. It’s really a double-edged sword,” she says.

And Baartse adds there are downsides to relying too heavily on social media to grow your business.

“I think the danger for retailers is that Facebook ends up owning all their data, which – given that ecommerce is very much about data – puts them in a position where they’re completely dependent on Facebook. It’s a risky business strategy. You’re at Facebook’s whims and need to be cognisant of that,” he says.

“Facebook is very good at ingesting data, but poor at giving data back. They know all about your customers, but if you want to find out who exactly has liked your [business] page and integrate it with your system, you can’t.”

 

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