Two of Australia’s iconic retailers came together and aligned their missions under one mantra in August 2016: ‘Be the best, make it happen, one team.’
Those two retailers were Australian Geographic and the Co-op, with the latter effectively buying the former out for an undisclosed sum. Today, both franchises are led by Thorsten Wichtendahl, who is CEO of the combined AG Co-op group.
Prior to the acquisition, Thorsten was CEO of the Co-op, a role he took on some eight months earlier. Australian Geographic and the Co-op share some similarities, with the main one being that they both sell products designed to aid people’s learning.
Founded 28 years ago, Australian Geographic is very much a hobbyist store designed to support lifelong learning – it sells binoculars, telescopes, globes, coding kits, robotics, brewing kits and other products that you might not find in a typical toy shop.
There are 65 Australian Geographic stores across Australia. Meanwhile, the 61-year-old Co-op has been around more than twice as long and sells university textbooks and other student essentials at 36 campuses around Australia.
Thorsten, a certified accountant with an MBA from the University of Technology Sydney, manages a workforce of 400 people. The headquarters of AG Co-op, as the business now refers to itself, is located in Surry Hills, Sydney.
Most staff are based at the stores so there are only about 30 people at the company’s headquarters. “Everyone in the business works across both brands, including our store team members,” says Thorsten. “They might work one day in one store and the next day in another.”
Bringing the two companies together has been one of Thorsten’s main challenges since the acquisition. “They used to be very different. We brought them together and now it’s very much one company. We use the same language. We use the same selling techniques. We have the same company mantra.”
Combining the company cultures has been one of the greatest successes since the acquisition, according to Thorsten. “We are completely aligned, and consumers won’t be able to tell if a team member had previously worked at the Co-op or at Australian Geographic. We have fully integrated the two brands. While the product difference is clear, the culture and all the systems and processes behind it are very much the same.”
“We are completely aligned, and consumers won’t be able to tell if a team member had previously worked at the Co-op or at Australian Geographic.”
Going digital
Thorsten is focused on driving online sales for Australian Geographic and the Co-op. “That is the biggest focus for us; or has been over the past 12 months. I expect it to continue for years to come, because retail is changing, consumer behaviour is changing. Every consumer has different paths to purchasing for different occasions.”
Consumers are making the same number of purchases overall but many people are choosing to make some of them online these days and go to the web to research purchases that they then want to buy in a physical shop, says Thorsten.
Digital sales currently represent about 20% of all sales across the two businesses but the aim is to drive this figure up to 25% by Christmas 2019. “Purchases are increasingly beginning with, or influenced by, online searches, which predominantly occur on mobile,” he notes.
There are no plans to abandon bricks-and-mortar stores, but Thorsten sees a lot of room for online growth. “We see ourselves as a multichannel retailer.”
He sees many of his customers as what he calls ‘ROBO-dynamic’ because they research online and buy offline or research offline and then buy online. “It’s very much revolutionising retail as we know it.”
At the end of the day, Thorsten just wants to offer Australian Geographic and Co-op products wherever his customers want to shop. “If that means in our store or online, we need to be there with the best service and the best user experience possible,” he says.
Australian Geographic and the Co-op are relying on their websites for digital sales because, as Thorsten observes, people don’t want an app on their phone for every retailer they buy from. That said, their websites are optimised for mobile to help people make purchases on their smartphones.
“We have another project going to enhance the user experience and create those synergies between the online world – such as promotional tiles on our website – and the instore visual experience, such as our windows and the digital screens we use instore,” says Thorsten. “Behind every window and counter, we have digital screens, so we work hard to align those messages and the user experience on both.”
Overcoming struggles
Universities and their students are using physical textbooks less and less as ebooks and other online platforms become increasingly prevalent. The Co-op was struggling to stay afloat, and Thorsten says the writing had been on the wall for a while.
Prior to the Australian Geographic acquisition, the Co-op had suffered nine years of losses as textbook sales declined. “Despite having been the dominant player in campus retail, there was just no long-term future for the business,” he comments.
When Thorsten first started at the Co-op, the company was making 90% of its sales from textbooks. That’s now down to 40%. “We have completely diversified from that and we see textbooks like the milk in the supermarket. It’s at the back of the store. We make our money from university apparel – hoodies and T-shirts – as well as convenience products and lots of other goods that students buy while on campus.”
Money talks
AG Co-op had a revenue of A$155 million in 2018, with A$55 million coming from Australian Geographic and A$100 million from the Co-op. The group is aiming for a total of A$160 million this year.
Since Thorsten took over, profit has risen from A$600,000 to A$1.2 million, then to A$2.5 million, despite it being a relatively flat environment. The aim is to double group profit again in 2019. Most of that growth is expected to come from boosting online sales at Australian Geographic.
“The key achievement since bringing the two brands together is doubling our profit for three years in a row,” says Thorsten. “By stabilising the core, and utilising Australian Geographic as the growth platform, we have been able to create positive growth.”
“The key achievement since bringing the two brands together is doubling our profit for three years in a row.”
Most of the growth is coming from online sales, not stores, which might see a 4% uptick if the group is lucky. “The strong growth obviously comes from online, where we grew by 36% last year, which is very pleasing.”
Thorsten is meticulous when it comes to looking at the cost of doing business. “With everything we do, we measure the return on investment and only do things that add to the bottom line,” he says. “We are not chasing top-line dollars just for the sake of it and we are keen to increase our profitability more than anything.”
Appealing to head and heart
Amazon has been killing off retailers around the world as the multibillion-dollar corporation continues its global expansion, offering simple and reasonably priced products to the masses.
But Thorsten doesn’t consider Amazon a big threat. “We run our own race,” he says. “No doubt they will take market share but that’s fine.” Amazon is a one-stop shop, according to Thorsten, while Australian Geographic’s remit is to ‘Feed Curious Minds’ and the Co-op is there to help people get ‘Uni Life Sorted’.
He adds: “It’s all about how customers engage with our brand on an emotional level, and how we can further foster brand allegiance. We are a niche player that offers distinct products.”
“It’s all about how customers engage with our brand on an emotional level.”
Thorsten says he is continuing to develop strategies that appeal to both the head and the heart of his existing customers. “We spend a lot of time, money and effort on segmenting our customer base for more targeted email campaigns to different cohorts, as well as targeting them differently through social media and following up for online reviews – all those kinds of things. It’s all about our digital-first strategy and the interplay between the two channels.”
Stability of Bricks-and-mortar
AG Co-op is continuing to right-size its store network. This might mean downsizing at an existing site, relocating to a different location, or exiting an underperforming store. He notes that the physical retail world is very stable compared with the online world.
AG Co-op stores might experience three to 4% growth in any given year but online sales are growing by much more than that, and that’s what gets Thorsten out of bed in the morning.
He says there are currently no major plans to shut or open stores but admits that there could be a couple of changes over the next 12 months. “With all our products, we first think about how we can sell them online,” says Thorsten.
“In the past, certainly our buying team, our marketing team and many head office team members were thinking, ‘How can we sell products instore? How do we train our team members to sell a telescope instore?’ Nowadays it’s all about ‘How do we make the product stand out in an online environment so that consumers will buy it from our website?’ And find all the information – the digital content with product reviews, video content, buying guides, review sites – to help consumers make their choice and choose from us online as well.”
To maximise the potential of the websites, Thorsten is relying on his digital team and an army of external web developers. “We rely heavily on external partners and specialist companies, as well as offshore teams.”
While online is the future for Thorsten, physical stores will remain a vital piece of the puzzle. “It’s not just digital because otherwise we would become just another Amazon,” he says.
“We see our store teams continuing to be critical in this new digital-first world. Because the way we see it is that the human need to inquire, to talk, to socialise, to be inspired, to hold a product in their hands, is still at the heart of retail. And this is unlikely to change anytime soon.”
“Despite the amount of online traffic to the likes of Amazon, eBay and other pure-play online retailers, the conversion of any inquiries or browsing into sales is only 2 to 4% for online. Whereas in physical specialty retail stores like ours, it’s 24–28%. That’s why we invest in both the digital and the physical world.”
Another area that Thorsten is working to improve is the last mile delivery, and he’s keen to make that process more seamless. Similarly, click and collect is another “big growth area”.
If you want to order something from the Australian Geographic or Co-op websites in the morning, you can go an hour later and pick it up on your lunch break and it will be waiting for you at the counter. “It’s not very sexy but it’s an operational improvement,” says Thorsten.
Expansion and Acquisition
While Co-op is the dominant player in campus retail, Australian Geographic stocks products that consumers can’t typically find in a David Jones, Myer, Kmart or Target store.
There are no plans to open any Australian Geographic or Co-op stores outside Australia, but Thorsten is keen to acquire a third brand “that would fit the portfolio”.
“We are looking for another specialty brand that will align with this thinking, where we can just add our expertise and our back-office functionalities,” he says, adding this would include HR, IT and finance, as well as regional managers across the country.
“There are lots of functions that can be leveraged by just adding another brand to the portfolio and having this combined offering where it’s one company but multiple brand names on the door.”
Leadership
With 400 staff on his books, being the best leader possible is of vital importance to Thorsten, as is the company’s mantra.
Explaining the mantra, he says: “‘Be the Best’ means we want to be the best at what we do and to do the best job we possibly can. ‘Make it Happen’ is about removing roadblocks; empowering our teams to do the right thing, just run with it and take ownership and responsibility for the actions they take every day. ‘One Team’ is very much about being across both brands to work collaboratively, but it’s also that there are no silos.”
AG Co-op sees itself in some senses as a 60-year-old start-up, Thorsten says, pointing out that the business tries to be as agile as possible. In the head office, there are no internal walls, and everyone works together as a team. “That’s very much the leadership style I encourage.”
He admits that the high-performance culture at AG Co-op may not be for everyone. But those who work hard and get results that positively impact the bottom line are significantly rewarded.
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