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Published 21 August 2013 21:37, Updated 26 November 2013 18:35
‘I’ve made plenty of flights to the US’ . . . Vanessa Garrard, co-founder of E3 Style, has just made a deal with Warner Brothers. Photo: Glenn Hunt
The journey from minnow to mid-market for Brisbane company E3 Style has moved as fast as most of the branded electronics accessories it provides to retailers.
At the start of 2006, Vanessa Garrard was an employee of Brisbane wholesaler Crest Electronics, but she could see a better way than its traditional “buy in bulk from the factory and store it” approach.
The company she then co-founded with colleague Jill Mulder and associate Richard Chen, E3 Style, has grown at an average annual clip of 40 per cent, turning over $28.4 million in 2012-13 thanks to a model which eliminates wholesalers altogether.
E3 works directly with retailers as an outsourced product-development arm. Its roots are in youth electronics accessories – if you bought your child a cheap iPod dock or action camera from Kmart or Big W recently, chances are it was produced by E3. However, more recently the company has branched out into broad electronics, toys, ladies’ fashion and stationery.
“Most importers/suppliers buy products they ‘think’ will work, warehouse stock and then sell to retailers, whether it is the right range or not,” the company claims in its entry to the BRW GE Mid-Market Awards.
“They have to sell the stock so they will sell it even if it isn’t the right product. E3 refuses to do that and instead develops products that are right for the market, and sell them directly to retailers from the factory.”
How could any company – especially a small-to-middling outfit like E3 – be so cocky as to assume it knows what’s “right” for the market?
“We’ve got a kids’ committee that tries all our youth products first,” Garrard explains.
We’ve got a kids’ committee that tries all our youth products first.
“We used to work with retailers and try and find products for them under their own private labels. But we’ve discovered the value we bring is listening to consumers, designing the products they want, and often branding it ourselves too.”
E3-produced brands include Gadget Geek, MiGear and Gear2Go.
In the case of the kids’ committee, E3’s listening involves visiting 1100 school children around Brisbane and holding interactive sessions with toys and accessories that are in the development phase.
“We watch them use it, the way they interact. We pay attention to how they pick things out so we can finesse our packaging,” Garrard says.
In return for this unashamedly commercial endeavour, E3 provides the participating schools with products to auction for their fetes, and produces flyers for their fundraising events.
E3 Style has begun to face the conundrums common to many mid-market companies when a new phase of growth beckons.
Jill Mulder was bought out of the business in 2010 and then the ambitious Garrard bought out Chen in March this year.
Chen had headed operations and liaised directly with E3’s network of 40-odd factories in China, Thailand, Korea and the US, while Garrard handled sales, marketing and strategy.
Buying out her business partner has allowed her to put E3 on a more “entrepreneurial” footing, Garrard says.
“I’m looking for new categories that have gone unchallenged, where we can bring our creativity and shake them up,” she says.
“That’s why we’ve got into stationery. It’s dominated by the same couple of players who deliver the same sort of product each year, and they haven’t needed to invest in innovation.”
The model honed in youth electronics will be further diversified now that E3 has just secured JB Hi-Fi as a client – Garrard claims it is developing 60 different products for the retailer, with some such as “colour-blocked” headphones (“similar to what Smiggle do”) already available.
Garrard switched banks from HSBC to Commonwealth Bank of Australia as part of the deal to buy out Chen.
“They’re brilliant and it’s hard to say that about a bank; we’ve worked with four over the years,” she says.
“It gives you more confidence to chase opportunities, knowing you could raise a little bit of debt to do it, rather than umming and aahing about whether you should even ask.”
A 40 per cent annual revenue growth rate such as E3 has enjoyed is tough to maintain, but mother-of-four Garrard seems determined to try.
“One reason that it’s good to be the sole owner at this point is that if I need investment partners for this next growth phase, I can get them and dilute my stake down from 100 per cent,” she says.
“I didn’t want to dilute it down from 50 per cent, when I’m coming up with all the ideas and strategy.”
Almost all of the eight million products Garrard says E3 has sold over the last six years have been to Australians.
E3 holds 19 licences to produce products bearing creative copyrights in Australia and New Zealand, including the four properties which Garrard says are the top four for merchandise globally – Barbie, Batman, Superman and Star Wars.
E3’s approach finally got global recognition this month, when it secured the global consumer electronics licence for Warner Brothers characters, allowing it to sell products such as action cameras, iPod docks or tablet covers bearing the likenesses of Superman, Batman, Scooby Doo, Cat Woman and Supergirl.
The win followed an arduous six-month process convincing Warner Brothers executives in several territories to change licensees, Garrard says.
“I’ve made plenty of flights to the US and there’s been plenty of executives coming the other way to see us,” she says. The three-year deal, which covers kids’ products and retro ranges for adults, involves paying Warner Brothers a $1 million guarantee up front, and ongoing royalties.
Garrard said the guarantee, which the business is able to pay with cash, and the royalty rates were industry standards, but she would not disclose the latter. She expected the global deal to be generating $50 million in annual revenue after two years.
“But that’s off the back of our significant investment in tooling and product development, it’s not revenue that anyone could have just gone in and generated,” she says.
The business has just expanded its Hong Kong office to oversee the increase in orders it will be placing with factories in China.
E3 Style has been a mainstay of BRW’s Fast Starters and Fast 100 lists, and may remain so if the 2012-13 turnover of $28.4 million is followed by the $62 million the company is forecasting for 2013-14.
Garrard says a benefit of the Warner Brothers deal is the exposure E3 Style will gain with major retailers such as Walmart in the United States, Tesco in the United Kingdom and Carrefour in France.