Marching online, here come the Salvos

28/07/2015
With revenue of just over $100 million a year from its 215 shops, Salvos Stores is a significant retailer. But for Chief Operating Officer Frank Staebe, the future is online, so he turned to our MBA students to help him capture some of the 20 per cent annual rise in online retail sales in Australia.
 
 
“Like every other retailer, we feel that the future won't just be in normal 'bricks and mortar' retailing,” Frank says. “That will remain an important arm, but we feel a growing online presence is a key factor, going forward.”

The Salvation Army currently earns about $200,000 a year from its Salvos Store operation on eBay, but Frank is hoping for $1 million in online revenue over the coming years. To help the charity get there, he asked MBA students Ashley Alfs and Li Zhang to examine some options, broadly identified in its strategy plan.

 

Online books

Ashley looked at setting up an online bookstore, an idea the Brotherhood of St Laurence charity has shown can work, while Li considered the broader challenge of extracting more value online from the myriad of other donated products it sells through its stores.

“The first thing I did was work out that there was actually more value in their books than they were getting,” Ashley says. “The prices they were selling their books for in-store was was much lower than what was being commanded for the same books online.”

Ashley says she found that the key to a successful online bookstore was an effective platform that provides an enjoyable user experience.

“People get frustrated if they can't search the catalogue, or if a site takes you places and you can’t get back to where you were, or you just get random books. Basically, it's all in the design and development of the site upfront. Once you have that, there's really not a lot of infrastructure required behind it, so you don't need big computers and a lot of hardware to support the system.”

Ashley identified a range of pricing options for implementing an online platform, website and warehousing, but the minimum investment was still significant, especially for a charity.

“I think they had some sticker shock from the numbers. It was upwards of $100,000 for the project management, warehousing and all the assets to get this up and running.”

 

Price sensitive

She says the challenge with books is that they are very much, a commodity and extremely price sensitive.

“If you over price your books, even by 50 cents, you miss out on a sale from the next person who has the book online. You have to be very in touch with the latest price and even invest in another person or analytical tool to make sure you're competitive.”

For Li, the challenge was to identify ways to extract maximum value online from the huge variety of goods that the public donates to Salvos Stores. She says one difficult issue that the charity faces is encouraging store managers to give up attractive items for an online sale.

 

Getting onboard

“The managers don’t always want to send products to the eBay store, when they could sell it in their shops,” Li says. “My solution was to suggest decentralising, to involve all the managers in the online business, so they could take pictures and update the online information themselves.”

Li also suggested the Salvos focus on selling particularly valuable items online rather than a disparate range of clothing and household items, which can confuse customers.

“I found that the market for antiques and collectibles is likely to expand over the next few years as the economy recovers and people have more disposable income and place more value on antiques. If they focus on antiques and collectibles, they might attract more repeat and loyal customers.”

 

Fruitful start

Ashley and Li completed their feasibility studies as part of their MBA program, which offers students the opportunity to work on real projects for businesses and not-for-profit organisations. They were the first MBS students that the Salvation Army has taken on to help improve its business performance, but, if Frank has his way, they won’t be the last.

“It's been fantastic, and I hope the relationship continues,” he says. “We have a whole in-tray of challenges and project ideas, and would love for a lot of them to be worked through in this way.”

He says Ashley’s work on the online bookstore, in particular, has provided a clear pathway to a highly feasible online opportunity that is being seriously considered by senior management.

“She has provided us with a great opportunity to decide exactly what we want to do with the proposal and consider how best to turn it into something functional.”

 
Ashley Alfs and Li Zhang - MBA interns at The Salvation Army