Made in Canada #3: Beyond the Rack

An Overview of a Thriving Canadian Online Retail Giant: Beyond The Rack

It can seem almost impossible to open a newspaper or visit a Canadian business news site these days without being bombarded with the pessimistic mantra that Canadian businesses (and entrepreneurs) are risk-averse, conservative and doomed to play second-fiddle to our southern neighbour in the innovation orchestra of the online world. 

Here at Dx3, however, we don’t buy into that kind of thinking. That’s why we recently unveiled our “Made in Canada” series. Each week on the Dx3 Digest, we highlight a Canadian visionary who took a chance, dreamt big and is now stepping boldly into the global marketplace.

About Beyond the Rack

You can’t have a serious conversation about online retail in Canada, let alone Canadian entrepreneurial triumphs, without mentioning Beyond the Rack at some point. It’s one of those rare examples of a homegrown success that threw away the rule book, took a big risk on a new concept and won big from doing so. It is for these reasons that the company (and its founder) are the focus of this week’s “Made in Canada”.

Based on an idea that some early critics swore could never work, Beyond The Rack has emerged as one of the country’s fastest growing businesses despite only launching three short years ago. The company’s business model is that of a private online sample sale fashion site. Users sign up to join, recieve an invite, and then get access to brief sales of highly discounted brand name clothing. It may sound like a more familiar concept these days, but back in 2009 the idea struck many potential investors as risky, completely unproven and financial suicide. Oh how wrong they were.

Origins:

The untested nature of the business model proved to be a major obstacle for Beyond The Rack’s founder (Yona Shtern) in these early days. Without any precedent to go off of, investors were initially cagey and hesitant to get on board for what seemed like completely new territory. Nevertheless, after several months of shopping the concept to VC’s around the globe, Yona (and his business partner Robert Gold) had assembled enough funding to launch what would become a major giant in the online fashion retail space.

Today, the future of the company is anything but dim. According to Canadian Business “Beyond the Rack’s sales hit $6 million in its first year, $50 million in its second and $100 million in its third. For 2012, sales are expected to double.” Those are the kind of numbers that would make anyone stand up and take notice.

Beyond the Rack is a members-only retailer. Customers have to sign up in order to gain access to the site’s sales.

Challenges:

Getting Beyond the Rack off the ground was no mean feat for Yona and Robert, and their initial progress was beset by two major obstacles: obtaining funding and handling shipping logistics.
In an interview with Canadian Business earlier this year,  Yona Shtern spoke of the greuling process of raising capital for his idea. “We educated ourselves and started networking like crazy,” he recalls in the piece, citing countless meetings and rejections as the obstacles they had to overcome to get investors on board. “It’s a force of will,” Shtern goes on to state in the piece, “and if you’re committed to not giving up, points will start to connect for you and you’ll find the right person…Six months, every day, fulltime— that’s what it takes.”It’s valuable insight for other aspiring entrepreneurs who might be discouraged from a few early setbacks. Fortunately, however, Yona eventually found investors who were familiar with the concept of online shopping clubs and who had experience investing in them. As a result he eventually managed to raise the one million dollars he estimated was needed to get Beyond the Rack going.

As of 2012, the company has now raised over 50 million dollars in funding.

Even after this initial difficulty, however, Yona and Beyond the Rack had other major obstacles to overcome. Perhaps the biggest of these was, as is so often the case with online retailers, the dreaded question of shipping and logistics. As the company grew exponentially and its legend spread, tackling the hundreds of thousands of orders became a tremendously daunting process. Orchestrating shipping across the country (and even into the United States) required tremendous organization and coordination. This was almost a disaster for early Beyond the Rack. “We started too late in the game when it came to logistics” Yona told me over the phone, “It was a nearly fatal flaw that almost caused us to lose our shirts.”

It’s the kind of story so many Canadian online retailers know all too well.

By doing the bulk of their shipping logistics at their own facility (using Canada Post software), Beyond the Rack is able to cut their shipping costs significantly.

Advice For Canadian Entrepreneurs:

Against both these major obstacles, Beyond the Rack (and its founders) prevailed. As a result, these experiences have left Yona with some critical advice for other Canadian entrepreneurs looking to follow a similar path in their own ventures.

When it comes to raising capital, Yona told Canadian Business that the key is resilience, a solid business plan and determination to withstand rejection. “More people will tell you more reasons why you’ll fail than people who will be supportive,” he said in his Canadian Business interview. “You need to be resilient. Anyone who’s done sales knows it takes nine nos to get a yes. In our business, it takes 49 nos to get a yes. But we still don’t give up.”

For the question of shipping, however, I spoke with Yona directly to get his input on how Canadian online retailers can make ends meet while also getting their products to the people who want them.

“At the end of the day logistics is biggest expense after cost of goods. You’ve got weight, overage charges, zones and all kinds of considerations to take into account. So you’ve got to stratify your shipping charges based on what people buy and where they buy it from. Then, as the business scales, the way to win is to automate as much of that process as possible.”

According to Yona, however, waiting too long to do so can be very dangerous.

“It’s critical to automate logistics as soon as possible. We started too late but once we made the move it saved us thousands of dollars. It was our single best investment.”

This can seem like a prospect that is easier said than done, so in order to undertake the process Beyond The Rack teamed up with Canada Post in its early days. By pre-sorting orders at their own facility using Canada Post’s software, Yona told me, Beyond the Rack is able to cut their logistics costs considerably simply by doing the trickiest organization steps in house. Useful tricks like that can mean saving millions in shipping overhead costs — savings like that matter for margins as slim as in eCommerce.

The Road Ahead:

Beyond the Rack’s meteoric rise is a study in entreprenurial innovation in success. With 1597% growth in the past two years and over 80 million dollars in revenue in 2011 alone, the company Yona founded has definitevely stepped out of the “startup” phase of its lifespan.

Even more promising is the fact that Beyond the Rack is a global retailer rather than simply a national one. Whereas we all too often hear about the “US invasion” of big American chains when it comes to Canadian retail, Beyond the Rack is bucking the trend by doing the exact opposite. In fact of last year’s 80 million in revenue over 30 was in exports — an uncommonly large figure for a fashion retailer in Canada.

This rapidly growing international presence and the fact that the company has created well over 300 jobs in just 3 years is why Beyond the Rack is such an exciting company to follow. Stay tuned to their story — it’s only just beginning.

 

Stay tuned to the Dx3 Digest for our ongoing “Made in Canada” series:

1. Made in Canada, #1: ShirtPunch.com

2. Made in Canada, #2: Well.ca 

3. Made in Canada, #3: Beyond the Rack 

4. Made in Canada, #4: Archon Systems

5. Made in Canada, #5: Casale Media

6. Made in Canada, #6: SHOP.CA

7. Made in Canada, #7: Demac Media

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About Jordan Markowski

Jordan is the Content & Community Manager for Dx3 Canada and AndroidTO, as well as the Editor of the Dx3 Digest. He can be reached at Jordan@Dx3Canada.com for any comments, questions or story suggestions.

» View all posts by Jordan Markowski