Australia’s online book retailer, Booktopia Group (ASX: BKG), has announced it will enter voluntary administration.
McGrathNicol Restructuring has appointed Keith Crawford, Matthew Caddy, and Damien Pasfield as administrators of the group and its subsidiaries.
“The administrators are undertaking an urgent assessment of Booktopia’s business while options for its sale and/or recapitalization are explored,” states the firm. The shares of Booktopia Group Limited will remain suspended from trading during the process.
Where did it go wrong for Booktopia?
In 2022, the underlying EBITDA dropped rapidly by more than 50%, from $13.6 million the previous year to only $6.2 million. The last full year’s financial results presented to investors showed all red lights.
For the first time since the Booktopia Group listened on the Australian Securities Exchange (ASX) in December 2020, the number of books ordered by customers dropped (19.6%) in 2023.
In its half-year market update in February 2024, Booktopia reported a 21% revenue decline to $86.3 million. The e-commerce giant attributed this to “soft trading conditions” but also blamed disruptions caused by the transition to a new Customer Fulfilment Centre (CFC).
Revolving door of senior executives
In 2022, co-founder and CEO Tony Nash was ousted following an internal review of the company. The board wanted a “fresh start on a well-laid foundation.” He received a $375,000 golden handshake payment.
In May this year, Booktopia’s CFO, Fiona Levens, resigned. Her influence on the e-commerce company was significant. She’d been there since the company’s birth 11 years ago, and the post had been left vacant ever since.
CEO David Nenke stepped down last month, just one year into his role. At the same time, the company reportedly considered making at least 50 roles redundant.
What led to the significant drop in sales?
Its direct competitor, Amazon Australia, has been selling books online at a competitive price for years. In some instances, the delivery is free, and the collection is either the same day or the next day.
Could Amazon have pushed Booktopia out of the market? E-commerce expert and Zoom2u Technologies (ASX: Z2U) founder and CEO Steve Orenstein believes Amazon played a significant role.
“I think it’s been disrupted due to Amazon coming into the market. Is there still room for this business? Definitely! But they will have to make sure that they control costs. [Booktopia] will also have to improve the overall customer experience.”
Booktopia vs Amazon
While Amazon is not competing with Booktopia, it’s a tremendous competitor for the local online bookstore. For the last few years, it’s been grappling with a decline in customer orders and revenue.
Amazon has become the top marketplace option for Australians, selling books online. When Jeff Bezos founded Amazon in 1994, he first started with a small online bookstore.
Books can withstand the postal system’s malicious handling of packages, and are easier to store in a warehouse.
Booktopia’s e-commerce strategy
Booktopia was founded ten years ago, on February 4, 2014. It was founded by Tony Nash, Steve Traurig, and Simon Nash, a trio from Sydney, Australia.
Their logistics model worked like this: They shipped from their CFC in Enfield, Sydney, to any part of Australia and New Zealand. The 27,500 sq meters facility is the size of about 33 football fields.
However, its latest financial report flagged this facility as a contributing factor to the 21% revenue drop during the first half of 2023.
Since being listed on the ASX, Booktopia has sold over 24 million copies to customers online.
However, competing with Amazon’s platform, delivery resources, and access to a broader customer range is tough.
Amazon ranking top marketplace in Australia
In February, Amazon finally ranked Australia’s top marketplace. This was a historic moment, as eBay had held tight to that position for years. According to research by Pattern, Amazon has an average of 75.2 million monthly site visits.
In the international retailer’s latest full-year financial reporting cycle for 2023, revenue jumped to $170 billion due to a massive push from online shopping.
Ordering from Booktopia vs Australia
A newly released report by DHL has found that 41% of online shoppers abandon their carts if the delivery fee is “too expensive.”
Trying to order the latest blockbuster thriller book, Eruption, by Michale Crichton today would cost a customer $31.75 on the Booktopia website. However, this excludes the delivery fee.
Turning to the delivery promise, there is no indication if the order will arrive same-day or next-day.
This deal, compared to Amazon’s offering of the exact same book, saves the customer $5.50 on the item alone.
Not only is the book cheaper on Amazon, but it’s also free on delivery, and it promises to arrive at your door the next day.
Booktopia’s next step
Many companies have gone into voluntary administration to resolve their future.
Here’s what’s likely to happen over the next few days: The voluntary administrator will take full control of the company. This way, directors or third-party firms can find a way to save the business.
Two processes could follow now.
- Sell the business or
- Recapitalize it.
The administrator is expected to meet with creditors later this month. The options are either liquidation or offering creditors a portion of their money back. The latter is the Deed of Company Arrangement (DOCA) process.
According to Hamilton Murphy, a firm that specializes in business recovery, the aim of administering a company’s affairs is to “obtain a better return (payment) to creditors than if the company had been immediately wound up (closed down).” This process is called DOCA.
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Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
