TECH DEALS: Online retail frenzy

Woolworths foray into the daily deals space could pay dividends, while Amazon looks to Australia to strengthen its retail presence.

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.

Woolworths, Myer, David Jones

The local online retail space is shaping up as a key battleground in 2012 and with Woolworths now joining in the daily deals fun, and talk that US heavyweight may be in the mood to set up shop down under, expect plenty of activity in the sector.

There are compelling reasons behind the rush by retailers, big and small, to dive into the world of online retail. Firstly, consumers have answered the e-commerce siren call in droves and secondly the federal government has shown no inclination to budge on the issue of lowering GST on offshore purchases under $1000. While bricks and mortar retailers have huffed and puffed this is one house that is not coming down anytime soon and it’s no surprise that the likes of Myer and Harvey Norman have launched their own offshore websites – and BiG BUYS. 

Interestingly, Doorbusters’ soft launch has been done under the auspices of Woolworth’s new multi-channel retail director Penny Winn, who recently returned to the retailer after a three year stint at Myer.  Winn was the mastermind behind the launch of and her departure in September caused a bit of stir at the time. With Winn now spearheading Doorbusters you get an idea of just why Woolworths was so pleased to have her back in the fold.    

Woolworths head of online deals Nigel Hancock has told The Australian Financial Review that Doorbusters only sells products the retailer has on hand in its distribution centre for next–day shipping instead of selling offers or promises of offer.  In other words, Doorbusters isn’t your average run of the mill daily deals site.

According to Forrester senior analyst Steven Noble, differentiation is going to be an important factor for retailers given that consumer interest in daily deals may start to wane in 2012.

“We expect 2012 to show continued attempts to grow the supply of deals coupled with a moderate decline in consumer demand for deals as some of the gloss comes off the space,” Noble says.

“The companies that will do best in this environment are the ones that are both well resourced and well differentiated.”

Woolworths hits the mark on both counts, which is good news because it’s unlikely that the 70 or so deals outfits out there are going to sail through 2012 unscathed. The domestic daily deals sector is ripe for consolidation and generic deals sites, with smaller resources, are going to be snapped up.

So is Woolworths’ Doorbusters likely to prompt listed retailers like Myer and David Jones to look into the daily deals space?  It might, but the likes of Myer and DJs are going to have a very different strategy.  Daily Deals is not every retailer’s cup of tea and department stores have to be mindful that a rush to daily deals does not hurt their brand. However, Myer and DJs could still play a role as the sector consolidates. 

According to Noble, one trend to keep an eye on is acqui-hire where marginal deals sites are acquired and shut down, with their customer databases, where possible, and talent absorbed.  Nabbing the talent could be a crucial driver because it will allow traditional retailers to get their hands on a more web savvy staff, experienced in the online space, to lead their multi channel strategies.  

Amazon in Australia?

Talk that US giant may be keen to strengthen its presence in Australia will add extra impetus for the local retailers. Boasting annual sales of $US34 billion, Amazon is already a household name for many Australian consumers and if the analysts at Morgan Stanley are right about the company setting up a local website then it could have a serious impact on the local scene. Amazon is already looking for a data centre for its web services business in Australia, and is likely to announce a Sydney launch next month.

According to Forrester’s Noble, a local website would be the next logical step given how important having a warehouse and distribution centre, called ‘fulfilment centres’ by Amazon, in this part of the world will be for Amazon. There is no doubt that Amazon is interested in stepping up its physical presence globally. The world’s largest internet retailer has announced plans to open a major fulfilment centre in India and we will have to wait and see if Australia is part of Amazon’s grand plan.  As far as consumers are concerned, a local face for Amazon would be good news because a local warehouse would cut shipping costs and mean they get their books even quicker. Another plus, according to Noble, could be that Amazon will have to forge closer relations with local publishers.

Telstra’s submarine cable deal

In other local news, Telstra has become the first carrier to sign up to and buy one of four fibre pairs on the Australia Singapore Submarine Cable (ASSC-1) between Perth and Singapore, which is scheduled to be completed by late next year. The cable is being developed by ASSC-1 Communications Group, a private local submarine cable developer, and the company said late last week that Telstra has not only agreed to purchase one of the four fibre pairs from the ASSC-1 cable, but will also provide landing party services in Perth.

Melbourne-based ASSC-1 is owned by JPC International and Pacific Submarine Cable and the company has joined forces with Huawei Marine Networks, which will supply and install the ASSC-1 system. The four fibre system will span a distance of 4,600 kilometres with an initial design capacity of 6.4 terabits per second (TBps), to be delivered through 40 gigabits per second (GBps) technology and comprise of three express fibre pairs between Perth and Singapore, and one omnibus fibre pair between Perth, Jakarta and Singapore.

The ASSC-1 is going head to head with Leighton Communications Australia-Singapore Cable, which was announced last May and is also expected to start commercial operations next year. Signing up Telstra International is a major coup for ASSC-1 and while Leighton does have supply agreements in place with regards to the Australia-Singapore cable it is now facing a confident rival.   

Optus gets a new COO

Staying in the telco space, Optus has welcomed a former adversary to its ranks with former Hutchison Telecoms Australia CEO Kevin Russell coming in as the telco’s new chief operating officer and possibly the heir apparent to Optus boss Paul O’Sullivan. One of Russell’s major accomplishments during his five year CEO tenure at Hutchinson Telecoms Australia was the rollout of the 3G network and with Optus to start rolling out its fourth generation (4G) mobile services this year Russell’s experience will be invaluable.

 As for taking over from O’Sullivan, while it’s too early to say anything with surety Russell would not have joined Optus as COO, a position that has been brought back from the cold by the telco, unless there was a greater prize in store. There has been a fair bit of speculation with regards to how long O’Sullivan will stay on top at Optus and the appointment of Russell will further fuel the talk. However, O’Sullivan is probably going to stick around until the NBN negotiations are done and dusted and think about his next move, which could involve taking on a bigger role in Optus owner SingTel’s global network.

RIM still in Samsung’s sights

Finally in overseas news, the anti-piracy brouhaha, thanks to SOPA, may have been the talk of the town last week but there is plenty of intrigue on the deals front as well with Research In Motion (RIM) looking increasingly like a target.

The Blackberry maker is in choppy waters at the moment so it’s not surprising that takeover speculation is coming from every corner. The biggest name touted is Samsung Electronics, which has so far denied any interest, but is undoubtedly keeping a close eye on the phone maker. Samsung is not alone here, with the likes of LG Electronics Inc, HTC and ZTE all interested in RIM. While an outright acquisition may not be on the cards, a licensing deal for RIM’s software platform is a real possibility.

With the Google Motorola deal almost in place the other Android players – HTC, Samsung, LG – are on the lookout for a contingency plan and a differentiating factor that could give them the edge to take on Apple and to some extent Microsoft. RIM’s QNX could be one of the alternatives and given the reach it would provide into the corporate space, the Blackberry maker could be a handy buy for Samsung, if it’s brave enough to spend the cash.

Jerry Yang bids adieu to Yahoo

 The other interesting news was the departure of Jerry Yang from Yahoo and there is talk the move could be precursor to a wider board shakeup at the ailing internet pioneer.  With Yang gone, Yahoo chairman Roy Bostock will be a lightning rod for shareholder discontent, so more changes could be afoot. Shareholder anger no doubt played a major role in Yang’s exit and just what happens now at a board level may be decided by how much support it gives to Yahoo’s new CEO, former PayPal executive Scott Thomson.  According to Bloomberg, Thomson now has a freer rein to unwind the company’s holdings in Alibaba Group Holding and Yahoo Japan, as well as pursue the sale of a minority stake to private-equity firms. The end of Yang at Yahoo has certainly ushered in fresh hope as far as the company’s shareholders are concerned, let’s see if the optimism now delivers any real results.



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