The Party People in Drummoyne, NSW Australia
Guest: Dean Salakas
Topics: The Party People, retail
Transcript:
Chris Ressa 0:01
This is retail retold the story of how that story ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.
Welcome to retail retold everyone. Today I am joined by Dean psilakis Dean is the owner of the party people in Australia. I’m excited for him to join the show. Welcome, Dean.
Dean Salakas 0:31
Chris, how you doing?
Ressa 0:32
I’m doing great, man. So Dean, tell us a little bit about who you are and what you do. Yeah, so
Salakas 0:39
as you mentioned, I’m the owner of the party people actually, my title goes as chief party do your in Australia. And the party people is a party supplies retailer much like your party city, over there in the US. And yeah, I mean, we do balloons, decorations, costumes, party supplies the whole bit. And we’ve got a bricks and mortar store, which is Australia’s largest store. And we we pick and pack from that store. So it’s quite a large store. And I’ve been to quite a few of your party cities over there. It’s on the larger end of of a Party City. And yeah, we we do everything for a party.
Ressa 1:20
Or the party is different in Australia.
Salakas 1:22
They are a little different. I would say. Look, I’m still trying to work out the differences because I haven’t been to that many parties over there in the US my wife’s American. So I’m, I’ve been over there beaten out a bit of fun over there. But yeah, look, we have, you know, some noticeable differences, I guess, around Halloween, where Halloween in Australia is very much about scary costumes, you know, people dress up as devils, which is, you know, things like that we’re in America, it’s a bit of a free for all, all sorts of costumes coming out. And for us, that’s a bit weird for you guys. You think what we’re doing between sets, you know, that’s how it is. But then, you know, all year round, we’re having costume parties are quite quite super common, like most parties involved costumes or themes and dress up. So funny for us the everyday, you know, dressing up as all sorts of characters. He’s worn all year round thing. And you know, it’s very hard to it’s very rare you go to a party, that there isn’t a theme and a costume attached to it. That’s probably a slight difference to it. But yeah, otherwise, we’re very similar
Ressa 2:22
to any other supplies that you sell that you probably wouldn’t find in a Party City.
Salakas 2:29
Or Party City. I mean, we do buy from party cities Supply here in Australia. So we have that. But I would say, Look, I’d say we go a bit. I mean, my business goes a bit deeper in range, you know, M skin stores, probably stock, I think around. Look, if I was to guess 10 to 15,000 skews, we stuck around 25,000. So nearly double the SKU range. So there’s quite a lot of depth in our range and unique stuff. I mean, obviously, we’re in Australia, we sell a lot of Australian stuff. A lot more than American stuff. I mean, we do have a fourth of July category, we sell a lot of that stuff as well. So yeah, it’s quite a little bit different in that as well.
Ressa 3:09
Makes sense. Makes sense. Okay, we’re gonna get more into the business in a little bit. Let’s move into the section we call clear the air where we get to learn a little bit more about D. I’ve got three questions for you. Are you ready, Dean? Shoe? All right. Question one. When is the last time you tried something for the first time?
Salakas 3:29
The last job look, I mean, we’ve been an innovator in retail for quite a while. And I mean, the thing we’re traveling at the moment is a magic mirror that people can try on costumes without getting undressed. You know, you stand in front of the mirror. And it’s augmented reality, it’s I think a few people would have seen it in fashion, where you stand in front of the mirror and you wave your hand and you try on different things. They’re trying it with costumes. I tried it for the first thing. This time not long ago, I loved it. I thought let’s give this a go. We’re trolling that in store at the moment.
Ressa 3:59
So if I walk into your store, I can use an augmented reality mirror and try a costume.
Salakas 4:05
That’s right, Jake, could be Batman, right? It’s pretty fun. Actually, I think kids just love playing with it, to be honest. But
Ressa 4:10
that’s incredible. Are you seeing results from it? Do you think this is something you’re gonna stick with?
Salakas 4:16
Look, we’re still trawling and look at works quite well, we’d COVID Because people are a little bit sort of, you know, not wanting to try costumes on anything. So it’s working quite well like that. I’m still trying to work out the return on it and cost. I mean, the technology is pretty good. It has you know, it has you know, as you jump up and down, it bounces and you know, as you move it moves with you and the material moves. So it’s quite quite complicated technology. But yeah, so we’re still working through it and whether the commercials are there, but certainly look people are loving it. Enjoy playing with it.
Ressa 4:49
I love that. I love the innovation. That’s great. I hadn’t thought about it for costumes. Obviously you hear a lot about it in fashion. So very cool. Okay, that’s question one question two. You What is one skill you don’t possess? But wish you did. But
Salakas 5:06
I would say like, I’m not, I’m not very good at managing people. You know, I mean, my business partner does that. That’s his job in the business, he manages the team. My job is to do marketing and finance and things like that. And, you know, I just wish I mean, look, I’ve managed people don’t get me wrong, but it’s just not a skill that is my superpower, you know? How big is the staff? Running about 40 stuff?
Ressa 5:36
Got it? All right. Question three. What is one thing most people agree with, but you do not
Salakas 5:44
ecommerce, and where ecommerce is going is a debate I’m always having with fellow retailers. You know, people are saying, oh, you know, online, it’s gonna keep getting bigger and bigger and bigger. And my argument is, I think, you know, I can’t see what is going to change in the next five or 10 or 20 years that’s gonna accelerate ecommerce growth, I feel like we’re getting to a saturation point. Some people just want to shop in store. And I think that’s going to be like that forever. And that’s, that’s my view. I mean, as an ecommerce pioneer, it shocks people when I when I say that, because we were the first party store online in Australia, and I launched that, that that ecommerce store, but I just feel like, you know, if things like 4g and 5g aren’t having any major impact on the stats that we see which they aren’t, then you know, the next big thing is going to have incremental impact rather than exponential impact. So I think we’re getting to a saturation point of I mean, I think at the moment, excluding COVID, because I don’t know what the facts are around COVID. But pre COVID, I think Australia was sitting around 11% of total retail being online. I think the US from memory, I think it was around 15% or something. So I mean, I think there’s this big misconception that online is like 90% of the pie when it’s actually a smaller component of pie and bricks and mortar is, has the lion’s share. And I think, look, we’ll see it grow. But I think we’re getting to a saturation point. And I think it’s leveling off. And I get that I have that argument with a lot of people. A lot of people disagree with me.
Ressa 7:12
And I love where you went with that, that we’ve reached a saturation point. I have this argument all the time with people. So I love that was your answer. You said something interesting. You You don’t see an accelerant that could make it grow exponentially. You see accelerant that potentially could make it grow incrementally, which I think is interesting. So I want to stay on this, even though this is a little off topic, I want to stay on
Salakas 7:40
this and passionate about it, go for it. Sam, let’s drill down.
Ressa 7:43
So some people would say speed of delivery, could be the accelerant. If people can get it in a couple hours. That’s going to be something that will increase the growth of E commerce. Yeah. What would you say to that?
Salakas 8:00
Look, again, I still disagree. I mean, the fact that we’ve gone from, you know, like, I think of when I started because I mean, I’ve been through the journey, right? We launched online, we had click and collect from the beginning. So we launched online in 99. And, you know, we had regular delivery to start with, and no one had anything other than that. We added Express now, you would argue that that’s a pretty big jump from regular to add, express. And then we added same day, which again will first in in not not first in retail, but first in party at least add those things. And you’d argue them major leaps in addition to an online to go from, you know, having it same day to three hour to two hour to one hour, talking incremental differences there. And I just don’t feel like if we didn’t get made and like over the last 20 years in Australia, we’ve seen it go from zero to 11%. We’ve seen growth in the last five to seven years, averaging 1%. So these major innovations we’ve seen around delivery in Australia going the same day in same day becoming mainstream and even things like like I said, 4g and 5g coming along and people saying, oh, faster, internet’s gonna blow things out of the water. Those things haven’t had major impact. They’ve had a 1% impact the I can’t see, you know, delivery, you know, with drones if drones start getting up and becoming mainstream. And you know, I don’t know if you’ve watched the comedy thing with Ronnie Chen. You know what, I want it now. You before you even think of it, it arrives. If it gets to that point, I still don’t think we’re going to see major shifts in ecommerce growth compared to bricks and mortar. I think there is still you know, fundamentals around human behavior that they want to go out and pick the people. Not everyone’s the same, right? You’re gonna have a lot of people that I just feel like ordering groceries online is just the best thing ever, and you’re gonna want to do it no matter what. And you’re gonna have other people that just want to go and pick their own fruit from the, from the supermarket. So I think you’re gonna have still have that that percentage of the population that is different to the rest and is going to want to do things differently. So I think, yeah, I don’t see delivery, major delivery of innovations accelerating, I see they’ll add something, there’ll be people going well, I can now do it to be more convenient. But I don’t see it. If adding Express from having regular post and adding same day didn’t have major impacts, then how could you know, going from three hour to one hour,
Ressa 10:41
that’s my view, spot on a, there’s two other things that I would point out to this one. I always talked about the cost, eventually, the people are going to have to pay for this. And not everyone can afford these quick delivery. And to one of the things I said people talk about the rise of online and COVID. And I said, I often say, Okay, let’s let’s whatever the number is in a place where people learn aloud, quote, unquote, I’m using air quotes to go out of their house and shop. Still today, ecommerce is only 20 25% depending on which math you read in the US of total retail sales. And they weren’t even allowed to go out and shop. And that’s all they wanted to do was go out and shop. So I don’t think there could be a bigger accelerant than that, where the shower close. And you know,
Salakas 11:38
and I would argue that maybe even COVID has pushed us to that, that that point of saturation, because like you said, people have been forced to order online. Right now in Australia, a retail is closed. Even a lot of essential retail is also closed, limited to supermarkets. And there’s a very few very few retailers that are allowed to be open at the moment. So, you know, everyone can order online, whether you’re tech savvy or not tech savvy, you’ve been forced to order online at the moment in the current environment. So I feel like everyone knows what online shopping is. Now it’s not like it’s some novelty. And people who aren’t using it just aren’t ever going to use it or people like I mean, I’m a ecommerce, digital native, but I don’t do 100% of my shopping online, there are certain things I go and shop for I’ve got, you know, got a hobby, I love my fishing ongoing, you know, I still want to go and look at the fishing rod that I’m going to buy. I don’t want to buy it online. I mean, I might showroom, sometimes I might go in and have a look and buy it online. But I still buy, you know, if I go in the store, and the salesperson gives me a really good advice, and I’m there and I want it now. I just I’ll just take it now, you know, just almost while they’re on there, they’ve given me a good deal. You know, so I think, you know, I think I think we might have seen COVID was just like people asked me, you know, do we think COVID will push us right ahead in terms of ecommerce. Look, maybe right now, but I think it’ll, it’ll, it’ll settle down. And maybe we’re just that saturation point. And I think that’s the way it’s gonna be. And I think that saturation point, by the way, is less than 50%. But the bricks and mortar is always going to be keen in retail.
Ressa 13:25
I hear you. Me too. Well, that was awesome. Thank you so much for sharing that what a great perspective from an actual retailer and an actual ecommerce owner who was first to the party, pun intended in 1999 with E commerce. So thank you for that. Okay. I want to move on to the story. So I know it’s in Australia, where is the party people location in Australia?
Salakas 13:51
So yeah, so the, we’ve got a great story. I mean, my mom started the business 30 years ago, she was a clown 35 years ago, and the clown she was the play on she did parties and with the kids parties and did that. And then she decided to open up a little kid’s party venue where kids could come and have the party there, which you know, 35 years ago, they didn’t exist actually. You know, as you know, now, they’re pretty big business. I think the US has some pretty cool ones as well. And, you know, she, the venue, McDonald’s at the time, I think it was in the 80s brought out their party venues, you know, you could have parties at McDonald’s. And that wasn’t good for business. So she had a bit of retail. And that was going gangbusters. That was going great. So she converted the whole business, the whole venue into a retail store and started doing party supplies and selling stuff for parties instead of hosting them. And it became a party store and then we grew from there and we’re located in New South Wales drove our stores in drummoyne, New South Wales Australia. And we you know, as As a teenager, I, my mum had this idea of launching an online business in 1998. So she gave it to me and said, he goes on to get his out. And the I mean, as a high school kid, I launched an online store, which was pretty fun. And, you know, kind of grew from there. Because we were early in the space and fun time. I mean, for a kid, you know, there was just so much opportunity. And it was great. I mean, I could come up with ideas, and I’m like, Oh, why don’t we add, we can add, you know, express shipping, we can, we can do it this way. And we can, you know, all these ideas were flowing. And, you know, my parents backed me to do the development that was needed to get these things off the ground. And, you know, it’s pretty cool. We started seeing the results. I mean, in the beginning, it was one order a month, and we were excited every time that one came in. But then, you know, started to grow, you know, getting one a week and multiple a day. And you know, it was quite quite a cool journey. Yeah.
Ressa 15:57
So the store is it in the same location that it was when your mom started this clown party event business?
Salakas 16:05
Now look, we’ve gone through quite a bit of a transformation over the last 30 or last 10 years since I became CEO. We, we expanded the site, the site moved. When my mom first started, it outgrew the site. So she moved that. And then I, when we took over we, we bought the we bought the neighbor’s business, it was a secondhand fringe business, we had to buy the whole business so we could get the space because we just didn’t want to move. We bought his business so we could get his lease. And, you know, we bought some outside storage. And we just kept expanding on the site. And in that we outgrew that. So we moved into what now is Australia’s largest party store. In Sydney, it’s just on the fringe of the city in Sydney.
Ressa 16:51
Okay, so let’s back up. So a bunch of things here, we’ll get to both the Commerce and the physical. So as it was expanding, you had to purchase the adjacent business, and you didn’t want to get into that business. But that was a way for you to get to their lease. That’s fascinating. So what was their business?
Salakas 17:14
Now? They’re sick? I think they’ll stick in hand fridges and secondhand like appliances.
Ressa 17:18
Okay, so how big was their space?
Salakas 17:23
Oh, I know, in square meters, what was it in square meters in square meters, I think it was about 400 square meters.
Ressa 17:29
Okay, so it’s 400 square meters. So you,
Salakas 17:34
you’ve doubled our space. Basically,
Ressa 17:37
it doubled your space. And for those who don’t know, 400 square meters is about 4300 square feet. So you went from like, 4000 square feet to about 8000 square feet. And you bought this business? How long did it take you to convince the owner of that business to buy his business?
Salakas 18:01
Not long, actually. I mean, we had the the landlord was also unhappy with that, that tenant because he was at his bills. And you know, when we offered him some money and said, Look, you know, you had some trouble with the landlord, we offered to pay out that and, you know, the landlord was happy because he was gonna get his money. And he was worried about not getting any at all. And, and the guy, you know, obviously, the business wasn’t a great business. So money helped him exit that. And you know, it’s just a win win for everyone in that in that scenario.
Ressa 18:32
Excellent. So you buy this guy’s business, now you’re about an extra 400 square meters? And then when did you decide that? You know, we need to be even bigger.
Salakas 18:45
It came out of necessity. I mean, that that that journey was painful. I’ll be honest. It was, you know, as we took on the next full lease, because we just were running out of space and capacity. And we were growing at triple digit growth, through that, that early phase of us taking over because when my brother and I took over, we were you know, we were, we were doing, you know, like I said, we were doing triple digit growth, we took out when we took over we we really launched the business in terms of accelerating because my parents weren’t really as ambitious as we were, you know, that we’re just happy to have a job. Where as we took it over with a mission to make it massive and really dominate online, and we really accelerated that. And that’s, you know, we weren’t we weren’t smashing it. I mean, we were Google AdWords in Australia, I suppose customer actually is one of the first people to launch on AdWords.
Ressa 19:37
So what time period are we in right now when you expand it into the space next door?
Salakas 19:42
Well, 2003 is when we launched on AdWords, but 2007 also 2008 2009 roughly around that period, is when we expand the next door.
Ressa 19:51
Wow. And that that’s when you start to have triple growth. What guy what what do you think was the accelerant date from your parents? Some complacency to you deciding, I want to pull this thing up.
Salakas 20:06
Yeah, we could we could have, you could have, you might have just turned this, this chat into a four hour chat. But that was actually like we came up with a formula to scale essentially. So we came up with a formula that said, you know, this is what we can afford to spend on marketing. And every time we spend that $1, we get $1.50. Back. And what we did was when we came up with that formula, we removed all budgets on all our marketing. So we had, we didn’t have any budget, it just had to meet that criteria of, if you spend X, you get why they like things with AdWords as one exists. And AdWords is just Google ads is one example. But you know, with that, you know, my parents had budgets on it, we were not take the budgets of the cost per clicks and the conversion rate, meet a formula that we’re happy with. So that’s how, you know, I mean, the easiest way to put this was we were spending $1 Getting $1 $1.50 profit back that or we’re spending $1. But the net effect of that transaction was 50 cents profit every time we spent $1. So we were like, well, how can we spend as many dollars as we can? Because every dollar we spend is profitable. So we just came up with that formula and unleashed it and it didn’t work were you buying I mean, we had 3 million keywords at the time, it’s a little more Wow. masticator now but everywhere word that is related to party, we bought it I mean longtail keywords, and as people might know longtail sort of performance better. So you know, we were everything from you know, I don’t know, Halloween party supply, Sydney is more longtail keyword, were or candy, Halloween candy supply Sydney or something like that was a bit more sort of longtail. But all the way up to the top to the word party suppliers, which is the most competitive keyword in our business, competing all the way up to the top.
Ressa 22:03
We’re going to get back to that. Let’s so in about 2008 2009, you expanded? When did you get this new store? That’s the largest party support store in Australia.
Salakas 22:16
That was in 2011. I mean, at that point, we were at, you know, we were just bursting. I mean, like I was kind of an aside there, we as we were growing, you know, we, we added off, and then we added, you know, we needed more computers. So we added more computers, we needed more stations, so we added more stations, we added more space, we just kept adding on. And it got to a point where it’s just too much. And by the time we moved into doesn’t live, we were running a 24 hour shift, running three shifts eight hours, thinking pretty much this the site didn’t close the will that, you know, we’re just thinking all day long. That’s around Halloween time anyway, through summer, we weren’t, you know, running a 24 hour shift. We just physically couldn’t put any more people stations, anything into that old site that we had to move. And so we we we moved the operation in 2011. And yeah, I mean, plenty of capacity as
Ressa 23:08
your new location. Did you buy it or lease it leased? And is it in a shopping center? Or is it freestanding?
Salakas 23:16
Freestanding? I might send you a photo after this. But um, yeah, it’s a free standing store that’s just out, out out on its own on a on a major road in Australia, shopping is a little different in large format to the US. In the US, you know, you guys are I know, I know. quite commonly you know that the large format retailers are in, you know, sort of a topping precede if you want to call it that. I don’t know what you call them. But you know, there’s a bunch of large formats all together. In Australia, it’s more like there’s a main road and the large format just next to the main road. So it’s a little
Ressa 23:52
different. How did you choose this specific location? Yeah, look, it
Salakas 24:00
was an interesting decision. I mean, we we we were looking at quite a few locations. I mean, we were pretty limited because there’s not a lot of space around it was over 1000 square meters, which is what we were after. Again, another the, the regulations for that. But we, we, you know, we had a couple of options. We basically just went around city’s main roads, because we know we wanted to be on a busy in a busy area, looked at a bunch of locations, and then just started narrowing them down. I mean, we were in a bit of a hurry. So we just, you know, to be honest, this location in the end was by far the best choice but we were choosing between two sites. And the difference between them was this landlord was prepared to give us, you know, 30 years worth of options on the site, that we’re able to get a lease that guaranteed us 30 years tenure, and the other one was the opposite. You know, we could get maximum at us, and they wanted a demolition clause, which allows them to knock it down at any time, and rebuild and kick us out. So, you know, that was the difference. In the end, there were a lot more positives that came out of the site, but we just had an assessed and we let you know, I mean, we got lucky, we didn’t learn the hard way. When we, you know, in hindsight, we made the right decision. But you know, we, there was a bunch of things. I mean, we moved into an area that is basically the center of Halloween in Australia, which we didn’t know about. And Australia’s the street that does Halloween, the biggest in the country is literally two blocks away from our store. The road, we’re on the path to the other road that we were looking at, I mean, the traffic is 10 times easier. Again, we didn’t really know that that corner of the city that Well, both of them, so we weren’t really that aware. But, you know, turns out we made the right decision. So we got a little bit lucky as well.
Ressa 25:56
Excellent. Going back a little bit. Google AdWords is like the first in online marketing that like really blew up, then in comes all this other social media marketing. I’m assuming being your digitally native, you do a lot of social media marketing. Yep. Yeah, we do a lot of social media stuff. Yeah. And so what type of things? Are you doing social media marketing wise?
Salakas 26:21
Look, at the moment, it’s a little different. I mean, at the moment, we’re because of COVID, we’re doing a lot because people can’t travel more than five kilometers here in Australia, under current restrictions, so we’re doing a lot more local area stuff. So you know, jumping into the local community groups, posting stuff in there, engaging with local community groups, stuff like that, it’s probably a little bit more niche and entrepreneurial type stuff we’re doing now, rather than sort of big campaigns that RE marketing out there. It’s more getting down and getting very personal with people. And, you know, I mean, we did a program a couple of weeks ago, where we asked people to tag a friend that they, you know, because we’ve been in lockdown for I don’t know how long. And we just said, Look, you know, people are probably feeling a bit down tag, a friend that deserves a smiley face bouquet, and we’ll send you a bunch of balloons. And that campaign blew up, it was just crazy the amount of people that just started tagging their friends, so that we would send them a bouquet. And so we’ve been running variations on that style of marketing. But you know, that was just something we bought, isn’t it? Let’s test this out and just blew up and became, you know, now we’re just finding out how many other ways we can do similar things like that at
Ressa 27:32
the moment. What was the talent? After you did that? Did you gain new customers?
Salakas 27:39
Look, we gain new customers, the cool thing about the exercise is that it paid off. Like I mean, the cost of a bouquet twice is not that much. The number of people that commented said the marketing was great, but on top of that, it generated sales immediately from the post. So we generated more profit from the post than was intended. I mean, the initial thing was, let’s just do a feel good thing for the community and give back. But it ended up being a real profitable marketing initiative. So you know, by accident. So you know, we did things after that, like people, you know, there was a lot of homeschooling going on here. So we did homeschooling packs. And we did a whole bunch of just giveaways. And we just, were just doing giveaways, and jumping onto local community groups and saying, you know, tag friends, and we do think deserves this or deserves that. And it was just a great, great thing, we could replicate in a number of different ways.
Ressa 28:33
Excellent. Really cool. Thank you for sharing. I want to move on, you’re in both ecommerce and physical, what percentage of your sales are in the store versus online? Well, look, if
Salakas 28:46
it does fluctuate, I would say at the moment probably 75%, online 25% in store,
Ressa 28:54
okay, and then in a non COVID time.
Salakas 28:57
That’s in non COVID That’s okay. Now, right now, it’s, it’s probably like 9010, because the stores closed the stores doing virtually nothing.
Ressa 29:08
And 75% are done online. Why is the store so critical in your opinion?
Salakas 29:17
Look, we’re doing we’re market leaders online. So we’re obviously covering the whole of Australia, and what we’re doing there. The store itself standalone is also a very profitable business. So we’re actually looking at opening up more stores. Because that that model is and the store model is more profitable than the online model. You know, with online, you scale and you know, you are competing with every other party store in the whole country. So things are very competitive in that respect. As far as bricks and mortar goes, you know, you do have a local area that you can carve out and you can do that really well. What we’ve seen with destroyed stories we’ve seen competitors disappear, require at some distance from the store over the years, so, you know, we basically carved out a space where, you know, we’ve been able to out compete many of the smaller competitors that were in the area, and they’re slowly over the years disappeared.
Ressa 30:16
Interesting. You just said something, though, that is so remarkable that I think is what most people wouldn’t think, which is, the store model is more profitable than the ecommerce model. Yeah. And what are the drivers of that? Is it the shipping? Is it the customer acquisition cost? What are the drivers of that?
Salakas 30:37
It’s kind of all of the above, I guess, like with a with a with an online store you’ve got, you’ve got to pick the order for the customer, you’ve got to messages to them, instead of talking to them, which is slower communication, you know, orders or inboxes. So they get moved around. So there’s just a lot more admin and labor and labor costs in Australia. Believe W I mean, our minimum wage at the moment, I think, is $27, or something like that. In Australia. Labor is expensive here compared to there. So it’s a little different. And that’s what you might see a bit different in retail, I noticed when I go to the US, I’m like, Oh my God, how they got so many people running around, keeping their stores looking beautiful. We can’t afford that. You know, but there’s a difference in labor. So there’s quite a difference in in, in the model in terms of retail here in Australia versus in the US. But yeah, definitely, labor is the big driver. So yeah, it’s expensive to service online customers, we’ve got to pick their orders. You know, there’s expectations of all those costs not being passed on, you know, you absorb freight costs. I mean, we don’t offer free freight, we offer 95 nationwide delivery as our cheap option. And even in that respect, like from a shipping cost, we were subsidizing that. We are shipping cost is more than that. And you know, you’re absorbing those costs with a bricks and mortar store. You know, the customer comes in, they browse, I mean, you do help the customer, but it’s not, you know, they’re sort of waiting on them hand and foot. So they, you know, they go and grab their own stuff. I mean, the average customer goes and grabs their own stuff goes to the checkout, you scan it out, and off they go. And that’s the labor cost, the labor is a major component. The real estate issue is that the real estate is really our marketing costs to some degree. I mean, we do a lot of marketing. But you know, people know we’re here because we’re in a physical site. So people drive past they see us they know where we are, that is part of the marketing you but like you said, with digital, you’ve got to buy every customer or most customers, if you want to grow, you’ve got to buy those customers, and you’ve got to try to buy them profitably. Which means when it comes to that formula I mentioned earlier, you’re really squeezing your net profit at the end of the day to try to get volume, you know, you’re trying to trade off that volume versus profit. Oh, yeah, we’re in the business of making money. We’re not in the business of scale. For scale, I chase profit. I don’t chase.
Ressa 33:06
Amen. I hear you. One point that you made, I think that people wouldn’t think is the labor piece, because people think of store employees. The other thing that you mentioned before, when you were talking about you have to buy the customer online. I also imagine that that formula has probably changed. It was a lot more profitable Google AdWords in 2003 than it is today. Is that true?
Salakas 33:31
Yeah. I’ll tell you something that people freak out when I tell him that when we launched on Google launched in Australia in 2003, and we became their first customer in August. And I was doing a university project, which is a whole nother story. And that’s how I came across Google launching in Australia. And as part of the thesis of my final year. And at that time, we paid one cent per click that every customer cost me one cent. It’s just, you know, the thing of that today, people just be like, That’s just ridiculous. But that’s how it was when it started. I mean, Google is a competitive place, you’re bidding against other people. That’s the model. So when I launched, there was no competition. There was no one to beat against. I was the only when I when I put in an ad for one cent, I was the only one that appeared for that keyword. That was how it went when it started. What’s your cost today? Oh, shoot. I mean, it varies. And like you said, that formula was very simple back then I had one formula for all my ads. Now almost, we break it down by category group at that formula. I mean, the formula is the same, but the inputs and outputs are different for every category for every keyword. We’ve got a very granular that formula, we use it. So you know, varies, I mean, on a very highly competitive keyword. I mean, to be honest, now can cost whatever you want to pay. I mean, you pay $10 Right. We’ve got we’ve got competitors competing on party supplies that are paying from what we can see for $5 customer and we won’t go past 50 He sent because we know that’s the profitable mark. But you know, we do notice, I mean, Google has taken away some stats and data that we used to be able to get a, we used to be able to see that we were appearing in the top five results, probably averaging position three and four on, say, party supplies. But we were appearing 98% of the time. They were at, you know, this was a few years ago, when that had that data, we were seeing, you know, 10 or 15 competitors that would appear above us every time they appeared. But they only paid 5% of the time. So what that told us was we were running a sustainable model, that meant that that keyword was profitable for us. And appearing in position three and four was what was profitable appearing in the top two, just Yeah, I mean, we didn’t care about position was all about profit. But what I’m saying there is that, you know, our position ended up at three and whether if our position was three, or it was 10, whatever that position was, that was profitable. And that’s what we would go with, and if it meant sacrificing volume. We were happy to give, give that business away.
Ressa 35:57
Unbelievable, what sage advice, and what an incredible look at, you know, going from 1999 Starting ecommerce today, and the stores still more profitable. Well, thank you for that. unbelievable story. Let’s pivot a minute. Talk a couple minutes. Running a business and coach during the COVID time period in Australia has been what seems to be different than the US. Talk to us about that. You mentioned some things earlier that I kind of glossed over. You can’t go more than five kilometers from where you live. And still today. And it’s September for those who are listening September 2021. In Australia, many stores are still closed.
Salakas 36:52
Yep, yep. Look, two things I would say helped us through COVID that were sort of brewing pre COVID that we were able to lean on that helped us through COVID. One was, we’re a very innovative business, we’ve been pioneering a lot of different things, like I mentioned smart mirrors, and we’ve done scan and go and we’ve done a lot of tech pioneering in the last 10 years. So we’re very, we’re very innovation focused. So we are constantly pivoting. So the team was used to pivoting for starters, and you’re used to putting up with my crap. And in terms of, you know, constantly new toys to play with. And secondly, I guess, planning and the fact that we’re an events business, we you know, Halloween is an event, but we have going on, we have over 100 of those events. I mean, we have even nothing called Elvis day that we plan for. So to give you an idea, there’s you know, Elvis day, Easter St. Patrick’s Day, October 1, we plan for events. So when it came to COVID, we were able to use some of those skills and put them to the test. And even at tested us. I mean, when we when COVID first hit two years ago, in March, we were an ERP, we were able to pivot really quickly. And we won a lot of awards for these actually over the last 12 months, 18 months where we were our business was there 95%? And and what are you know, me being the finance guy in the business, I said to my business partner as to the fact that you can’t have parties and parties are illegal, what the hell are the 5% buying? And so our staff went and asked that question to every customer that checked out. And what we’ve what, jumping forward, what that resulted in within a couple of weeks was a complete reengineer of our website to focus on things people could do from home that we could serve as rather than focusing on parties. And, you know, we went from being down 95% to gradually getting up to par and then ended up finishing the year in a COVID year beating the prior year. That was not COVID
Ressa 39:01
And I just got chills. That’s amazing. Yes. And
Salakas 39:04
that was it was just purely focusing on helping people in isolation. I mean, people were stuck at home. We were you know, so we had a category called Coronavirus survival on our website that was on the main page and people could go there and they could get things to do at home it was baking products. It was products that we already stocked it was all part of our normal range there was there was one category that was a new category but most products in there was stuff we already had. So it was games, it was toys, it was things you could do from home arts and crafts, um schooling stuff, products we already stocked that could help people with those things. You know, with balloon bouquets and doing balloons, we had a happy ISO birthday bouquet and you know, things like that we just had a bit of fun with it and that that paid off big time for us. And that really kicked us off through that first phase of the gifts of the pandemic in 2020. Which was, you know, so that that was that was I couldn’t believe we got that result at the end of the Yeah, it was just, I mean, all shocked. We were shocked. And, you know, the team got a real pat on the back, because they really pushed through a tough time in that that phase. Yeah, that’s you want to touch on that first. But you know, then the second part is about planning, which is what we’ve learned in the second phase of the
Ressa 40:15
quality. Yeah, so two things. One, was there ever a time in the last 18 months where you were allowed to open? Where have you guys been closed the entire time?
Salakas 40:22
Now we’ve been, we were, we were open through the first phase of the pandemic. albeit not many people coming in, it was it was a weed. I mean, the government here in Australia basically said people can’t shop in specialty retail shops, but they didn’t force us to close. So it was a bit strange. But we were open and some people were still coming in. A lot of people were still buying online or clicking collect, or whatever that was masks required. Moscow required in the last. I don’t know what it’s been now three months or two months, we’ve been closed. But otherwise, we’d been open. Okay. But people have been told they can’t shop with us, which is just, you know, I mean, we’re engaged the government’s and all that stuff. But it was just a strange time where governments basically said, you can only leave home to shop for groceries and hardware and not party supplies. But we’re not going to shut down party stores,
Ressa 41:14
when you were open for, you know, three, three months, like, from when you got close to reopen? And then the time you got closed again, how did how did? How were sales?
Salakas 41:26
Obviously, your store sales, definitely when the stores was forced to close? That’s when sales have fallen through the floor. So we’re down around 50%. But I mean, we’re still doing 50%. And that’s the store only not the online, though the store is doing, you know, phone orders and balloon deliveries and things like that. What
Ressa 41:44
about when it was open? Through the COVID? Where people was it as normal?
Salakas 41:50
I would say not. Not really no, it was still down a bit. Because you know, people were having, it was strange, actually, what what we saw was that when the government lifted restrictions, so when we were on, you know, parties were completely illegal to then be they lifted restrictions late last few to say you can have when you people in your home, we exploded at that point.
Ressa 42:11
That’s what I was getting into. But yeah, that sounds good. You had to be higher sales than even pre COVID.
Salakas 42:18
Yeah, I mean, one of the factors, I mean, is also that people couldn’t party at a pub or a club or go to a restaurant. So the only way people could party was at home. And you know, we really capitalized on that, which is where that second part of what I was going to talk about comes in around planning and contingencies really helped us out.
Ressa 42:36
So we’re gonna go there. There’s just one thing because it was one of the most profound things that I’ve heard anyone say through COVID, which was, you said web sales are down 95%. Because doesn’t matter where you sell ecommerce or in a store? It’s illegal to party so people can’t buy anything. But your question was was what are the people buying the 5% buying? And you realize they were buying these things like arts and crafts and things and so you went all in on that stuff? Coronavirus, survival kit genius. These are great. It that’s just a great insight. I love the question, what a innovative simple question to ask that clearly led to a lot of great results. So kudos to you. So that was the first piece you went all in on that 5% category. The second piece is planning talk us through that.
Salakas 43:30
Yeah, so like as a business as an event, obviously, we do a lot of planning, we have Halloween, which we plan in January, we have the start, which we plan again, nine to 12 months in advance. And there are about the boy about 30 high level steps in getting to an event, you know from marketing, merchandising, emails, trading hours, you know, there’s a whole bunch of things to running a business around events, and planning is the key. And we learned that in the early days, you know, you asked about the business transitioning from a small store to a big store. I mean, we went in that first two years, we actually had to shut the online business at one point, because we couldn’t cope with volume because we weren’t paid for it. And that, you know, that was a lesson that we learned the hard way and a big failure because we lost hundreds of 1000s of dollars that year. And you know, we’d like to, we just we just had to plan better and be more sophisticated at planning. And that’s paid off now in COVID times because you know, when it came to lock downs and changing restrictions, and in Australia, I mean, I’m not sure what it’s been like over the year, but every week it was felt like that the government had changed its mind on how things were going to work. And businesses were struggling for us it was pull out what we normally do and just do it in a bit of a different way. And again, we got lucky that that we had those things as as disciplines. So you know, for example, when we got locked down you know, we had a contingency plan for getting locked down. We had that ready to go. So as soon as the government said right We’re shutting you down retail, even though we didn’t think it was going to happen, because I hadn’t. Up to that point. When they turn around, say, We’re shutting you down, we thought we had a plan that we weed that out. And by the way, the government didn’t give us much notice, they pretty much said, You’re shutting down tomorrow. And they did it on a weekend. So, you know, I think on Sunday, we got the news that you’re going to be shut down tomorrow, you know, we were able to whip out a plan, put a whole bunch of things in place. And by the next day, we were ready to operate as a closed retail store. And that meant certain people were ready to work from home, they had the tasks that they could do from home, there was the communication channels in place to operate the store, the systems and procedures for leaking collect, or clothes store, you know, everything was ready to go. And that was, again, very key, because what we heard across our industry was, you know, people got taken by surprise by the lockdown. They weren’t ready for it, they didn’t have, you know, they they couldn’t operate because they didn’t know, you know, you weren’t even allowed to get back in the store, you know, if you didn’t have it system set up, they’ll work from home and remote working, which we had already in place because of that contingency. You couldn’t get into your business to fix those IT issues to get your business working in a remote manner. So you know, we were ready to go. And I think that was very key in that we had to come up with all these contingencies for all these possibilities. So we’ve come up with contingencies for reopening now, as an example, and how that’s gonna work. And what are the government restrictions going to be when we open and how is I mean, we’re going to open we’re now you know, the time of this, that with you, it’s the 21st of September, we’re heading into October where our clothes store, and we’re opening for Halloween in roughly two weeks, the government’s gonna open us up now, our history told us from last year that it’s going to be massive. And Halloween is always messy for us. But that requires a huge amount of planning, which we’re still finalizing some of the details at the moment. But you know, the idea is, we’ve been planning to open that for weeks and coming up with contingency plans on how we might open so that when the government says, Hey, you’re opening in a couple of weeks like they have now, you know, we’ve already halfway there in terms of what needs to be done. And I think that’s important is to have plans and contingencies for when things might change and trying to predict that.
Ressa 47:26
I’m a, I’m an avid sports fan. And I wrestled in college. And like many sports, there’s cycles where you’re training hard, and then you’re not training. And in collegiate sports, there’s probably even a period where you’re doing no training. And I had a friend who was like, in like wrestling shape at the top of it like the peak, but in baseline wrestling shape, like all year round, and he never like, did what everyone else did, which was they got in peak shape, and they got out of shape, peak shape, and then got out of shape. He was always in like the baseline strong wrestling shape. And one time I asked him and he said something profound to me, which was, if you’re always ready, then you never have to get ready. And that’s what your planning scenario basically told me, right? If you’re always ready, when something unexpected happens, you don’t have to get ready for it. You are ready for it. And so thanks for sharing. That was great. Okay, it’s been a long time. Want to bring us to the final part of the show. It’s called retail wisdom. I’ve got three fun questions for you. Are you ready? Let’s do it. All right, question one. What extinct retailer Do you wish would come back from the dead?
Salakas 48:51
I think music stores I mean, I used to love going to music stores. You know, but they just don’t exist anymore. And you know, it was it was cool. I used to be a DJ and bought my DJ equipment from the music store even and, you know, you can’t go to them anymore. So
Ressa 49:08
true. You’re an innovative retailer. Maybe you can bring back the music store.
Salakas 49:14
You never know. You never know.
Ressa 49:17
Okay, question two. What’s the last item over $20 You purchased in a store?
Salakas 49:23
Last item over $20 was a fishing rod. And it was a long way over 20 years.
Ressa 49:31
Understood. Okay. Final question. I think I know the answer. But if you and I Dean were shopping at Target and no target where you are where I miss a little bit different. If you and I were shopping at Target and I lost you what I what I find doing?
Salakas 49:50
I mean in Australia we have fishing in our target so yeah, I find the fishing out if that’s my hobby. Excellent for you for me.
Ressa 49:58
Well, listen team. This has been terrific. You’ve been a fantastic guest, given everybody some unbelievable insights. Thank you so much. Good luck over the next few weeks as Halloween opens, you’re gonna crush it I’m sure.
Salakas 50:12
Thanks, Chris. I really appreciate it.
Ressa 50:16
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