It’s a warm July afternoon, and about 50 Shoes.com employees are picnicking in Vancouver’s Stanley Park, just a few blocks from head office. Everybody is dressed in rock band merchandise. CEO Roger Hardy is in a simple black T-shirt bearing the distinctive logo of the Doors. Founder and chief revenue officer Sean Clark is in a Metallica baseball shirt. It’s all to underline the theme for the company’s third quarter: rock and roll.
“The essence is that a rock and roll band creates beautiful music together,” Clark explains. The members may all play different instruments, but what’s important is how they sound as a group—not unlike the staff at a company.
These themed celebrations, which follow a financial and strategic update, happen every quarter, not just in Vancouver but also at Shoes.com’s U.S. outpost in Seattle and its warehouses in Ohio and Mississauga, Ont. They’re not a new idea—they represent one of the “Rockefeller habits” codified by management guru Verne Harnish. They were also an institution at Coastal Contacts, where Hardy and Clark worked not too long ago.
In fact, a lot of the things that have contributed to Shoes.com’s astonishing growth—sales grew 7,403% from 2013 to 2015, which places the firm in the top position in the 2016 STARTUP 50 ranking of Canada’s Top New Growth Companies—have been recycled from that earlier venture: senior personnel, key expertise in e-commerce and, well, the money. Where Coastal Contacts (known as Clearly since its 2014 acquisition by French eyewear multinational Essilor) sells contact lenses and eyeglasses over the Internet, Shoes.com sells footwear.
Both types of products, Hardy explains, are actually ill-suited to be sold in bricks and mortar stores. Each comes in so many brands, sizes and styles that no one outlet can ever hope to have what every customer wants in stock. By selling online, his team can offer an enormous catalogue and, with the help of artificial intelligence (Shoes.com has invested in an AI engine from the same company that developed Siri for Apple), the task of finding exactly the look and fit customers want should get easier. Merchandise returns, currently running around 20% company-wide, should dwindle to almost nothing among repeat customers.
Hardy makes it sound easy, which it definitely is not. Not only is Shoes.com up against a US$30-billion industry in traditional shoe retail, but it’s also in competition online with U.S. category leader Zappos.com, as well as a little outfit called Amazon.com.
In fact, it was a press release from Zappos in 2011 that provided the impetus for what would become Shoes.com. The pioneering footwear e-tailer announced it was pulling out of the Canadian market; it simply couldn’t provide the level of service north of the border that its American customers had come to expect. Clark, a one-time Coastal Contacts intern who was then helping set up its operation in Australia, emailed the release to Hardy, Coastal’s founder and then CEO.
MORE COASTAL IN AUSTRALIA: An Eyewear Entrepreneur’s Vision for Expansion »
“There is a dominant online footwear player in every advanced economy,” Clark pointed out to his boss: Zappos in the U.S., Zalando in Germany, Styletread in Australia. Clark knew somebody was going to do it in Canada and thought, Why not us? Hardy had his hands full at the time with Coastal Contacts, but he was so intrigued he granted Clark an honourable discharge and agreed to become a seed investor in the venture.
The sole initial focus of the company, called ShoeMe.ca, was Canada, where just 2% of shoe purchases were made online at the time (compared with 15% in the U.S.). Clark got a website going—“My experience at Coastal meant I knew what it was like to build, maintain and run a cutting-edge e-commerce site,” he says—and leased a modest warehouse in Mississauga, Ont., to enable quick cross-country shipping. And for the first two years, the eight-person team at ShoeMe enjoyed the kind of exponential sales growth you might expect when starting from nothing and selling to enthusiastic early adopters.
The challenge to maintaining the momentum at higher volumes, Clark foresaw, was offering the kind of selection—including exclusive lines—that would attract shoppers away from traditional stores. That proved a hard nut to crack. Then, in the spring of 2014, Coastal Contacts received an unsolicited, higher-than-expected takeover bid from Essilor of $450 million cash, leaving Hardy and the board with no choice but to recommend the offer to public shareholders. The deal was done, and by the summer, Hardy was out with a huge payday that he funnelled into a private investment company, Hardy Capital. That’s when Clark invited his old boss to come over to ShoeMe as CEO.
After thinking about it for a few months, Hardy agreed—injecting new money from Hardy Capital into ShoeMe in the process—and eagerly took on the merchandise challenge. His idea was to form a partnership with an American shoe seller. After talking to a few, he settled on an outfit in nearby Seattle, OnlineShoes.com, which carried more than 200 brands unavailable in Canada and, as fate would have it, had a founder who was ready to retire. ShoeMe ended up buying the operation outright.
The goal at the time was simply to make more selection available on ShoeMe, Hardy says; no further acquisitions were planned. But then he learned that another online vendor he had approached, Shoes.com, might also become available. It was owned by Brown Shoe Co., a publicly traded fashion brand from St. Louis now known as Caleres. Its digital sales arm had been struggling, dragging down Brown Shoe’s overall growth.
“I realized there was a bigger opportunity than the one we were executing,” Hardy says. Instead of focusing on the Canadian market, the business could build a presence on both sides of the border, with each operation having access to a consolidated inventory of 500 shoe brands and the best domain name in the category: shoes.com.