New Redbubble CEO, Martin Hosking, talks to Stockhead about challenges and opportunities ahead. Picture Getty
Bumpy road just ahead, but long-term trends intact for online retailers like Redbubble
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- The current environment presents near-term challenges for online retail stocks
- But those with strong unit economics could survive and thrive
- Stockhead reached out to Redbubble co-founder and newly appointed CEO, Martin Hosking
Inflation headwinds and recession fears have failed to stop the incredible growth of the retail e-commerce sector in Australia.
According to a new report from Australia Post, 82% or 9.4 million Australian households shopped online in 2022, spending $63.8 billion, accounting for almost a fifth of all retail sales.
Aussies are also shopping online more often, with 37% shopping fortnightly compared to 20% pre-Covid. One million more households are now shopping online compared with 2019.
“Australians’ love affair with online shopping has not waned, even with restrictions removed,” said Australia Post executive, Gary Starr.
“The growth trend in online was steady prior to Covid but spiked during restrictions, now it’s showing a return to normal trend growth.
“By 2033, we expect around one in three retail dollars will be spent online,” Starr said.
Short-term challenges? Sure
In the US, the growth story is pretty similar.
According to Morgan Stanley, US e-commerce could reach 31% of sales by 2026, up from 23% now, as brick-and-mortar stores close and consumers prioritise convenience.
There are factors that point to continual growth for e-commerce, including better digital payments and fulfilment capabilities that allow faster deliveries.
But as consumers began piling back to physical stores again, the question on every investor’s mind is:
Was the Covid bump in online retail stocks a one-off phenomenon, or can e-commerce growth continue?
The co-founder and newly appointed CEO of Redbubble (ASX:RBL), Martin Hosking, conceded there are short-term challenges facing online retailers in this current environment.
“It’s not only the macro environment in terms of the interest rates and where the consumers are,” Hosking told Stockhead.
“It’s also that as we’ve moved out of Covid, the consumer dollars have gone flying from online into more traditional retail.”
Hosking, however, doubts that anybody has a really good idea about where the consumer is going to be over the next year or so.
“I’m not going to be brave enough to make a prediction. I think all tech companies and all consumer retail companies need to be cautious in this environment,” he said.
Jumping on Artificial Intelligence
Hosking is not only the co-founder of Redbubble, he is also a former CEO of the company and the biggest shareholder at 14.5%.
He replaced Michael Ilczynski, who was headhunted from Seek a couple of years ago and has just resigned to pursue an “opportunity in a non-competitive space”.
Hosking said a lot has changed since he resigned as the CEO of Redbubble back in 2018.
“AI (artificial intelligence) wasn’t a thing back then, the social media landscape has changed and Google has changed. So I’m treating this very much as a new role, and I think I’ve got an awful lot to learn,” he said.
In the last half, Redbubble reported an EBITDA loss of $23 million, compared to a profit of $8 million in 1H FY22. The Marketplace Revenue (MPR) was $289.3 million, in line with last year.
Apparel sales in the US remained relatively resilient through the company’s Teepublic marketplace, but this was offset by a weaker performance in Redbubble’s core categories such as Wall Art and Homewares.
The half also saw Redbubble beginning the testing of AI technology to understand how it could enhance the marketplace’s content quality.
“We see AI as a really good tool for both marketplaces (Redbubble and Teepublic), which helps us to understand our content better,” explained Hosking.
“The artists do use AI to help with their creation of art, and that helps us to understand what the artists are doing and rank results for our customers. So that’s really what we’re exploring.”
Time for another look at Redbubble?
After reducing its workforce by 14% amidst other cost cutting measures, Redbubble says it’s seeking to return the company to cashflow positivity by the end of 2023.
“Our unit economics are strong, and so it’s really a question of making sure that our cost base is aligned with our revenue,” said Hosking.
The company as a group is by far and away the largest marketplace for independent artists, but it does have competitions such as US-based Zazzle and a German-founded company called Spreadshirt.
At the peak of Covid in 2021, the RBL share price reached as high as $7.04 but Hosking is adamant that he’s not in the business of predicting future share prices.
“It’s a game which I think I will only ever lose, so the only thing I can control is our business performance economics,”he said.
“The advantage we have as a company is we’ve got a business that operates and covers different segments.”
He added that Redbubble could be a good investment right now for investors who are seeking a company with good unit economics and a strong management.
“We’ve also got a dominant position in a global marketplace, and I believe it’s a good time to really have a serious look at us as an investment opportunity.”
Redbubble share price today:
Other pure online retailers on the ASX
Kogan sells leading brands on its website across a wide range of categories including consumer electronics, appliances, homewares, hardware, and toys.
The company also owns and operates a suite of exclusive private label brands.
The marketplace has recently been endorsed by Morningstar, which believes that Kogan’s share price of less than $4 right now is highly undervalued and should be closer to $10.70.
Morningstar says that Kogan has successfully sold its excess inventories and may be better positioned than some to stave off competition from larger competitors like Amazon, thanks to its recent expansion to deliver bulky goods to Brisbane, Perth, and Adelaide.
Booktopia is an online-only book retailer that sells physical books, eBooks, magazines, stationery and gift certificates and services through its 27,500 sq metre headquarters and distribution centres in Sydney.
The company has recently implemented several initiatives that are expected to deliver approximately $12-15 million of annualised improvements to its earnings, to be primarily realised in FY24 and beyond.
The company’s ticker was recently removed from the S&P ASX All Ordinaries as part of the quarterly rebalancing.
Seek is a market leader in online employment marketplaces operating across Australia, Asia Pacific and Latin America.
In the last half, Seek reported a 21% increase in revenue to $626.7m, with reported NPAT of $135m.
For the full year, Seek has guided the market to a revenue of around $1.26bn and NPAT of approximately $250m.
Temple & Webster is Australia’s leading online retailer of furniture and homewares with a drop-shipping model, whereby products are sent directly to customers by suppliers.
The company has been targeting the millennials segment, which it said is becoming the largest generation and the first digital natives to enter core furniture and homewares buying years.
The company also says it’s set to benefit from work-from-home culture, which is now embedded into the work lives of many Australians, creating a new market within the $18b+ furniture and homewares industry.
Cettire is a global online retailer, offering a large selection of in-demand personal luxury goods via its website, cettire.com.
The company has access to an extensive catalogue of more than 2,500 luxury brands and more than 400,000 products of clothing, shoes, bags, and accessories.
Cettire has recently expanded into new geographies including China and has extended to new adjacent verticals including the Beauty category.
The company has also recently announced near-term investment priorities, which include customer acquisition, technology investment, and building organisational capability.
NOW READ: It’s Morningstar’s report on the ASX retail sector in 2023 and the winners are… Kogan and Domino’s?
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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