Expansys’ AIM is true

I am still quite puzzled by the interest from you, a bemused Roger Butterworth tells me as we settle into our interview, in a high office overlooking the distribution centre of fast-growing online device and accessories retailer Expansys.

The managing director of the business nestled in Manchesters industrial Trafford Park, Butterworth is the sort of boss that makes his own coffee, answers his own door and his own phone, so its easy to understand his curiosity at any form of media attention.

But to the unbiased observer its quite clear why a reporter would want to talk to the man who led a company with sales of £1 million in August 2000, but at the end of last year, counted orders worth £54 million.

The companys £25 million price tag also received a healthy £5 million boost just one day after entering Londons AIM stock market on April 11.

More than a month after the venture, share prices are travelling steadily. Further business acquisitions are on the horizon, but Butterworth says its too soon to conclude whether the floatation was the right move.

We floated as a placing, so we raised about £10 million and that went really well. We had more people who wanted shares than we had shares to sell, he recalls.

So its been successful from a financial point of view. Time will tell whether or not its the right thing for the business, but I think it is.

Founded in 1999 by Manchesters Matt Kydd, who remains the companys technical director, Expansys calls itself the largest specialist retailer of wireless technology in Europe and North America. Butterworth heads up 45 staff at the Manchester logistics centre, a team of 20 at the distribution site in Basingstoke, making the numbers 170 worldwide. The business deals largely in SIM-free handsets to corporate customers, the likes of whom include Dicksons, Dell, HSBC and the Metropolitan Police. Major dealers as well as consumers also make up a large number of Expansys sales, making it effectively both a retailer and a distributor.

While listing on the stock market could be considered risky business, Expansys heads figured it was the best way to live up to the companys own name.

Other options, Butterworth adds, would see him leave a project with mounds of potential go unfinished.

We looked at selling the business as a whole, but, to be honest with you, that seemed like a bit of a cop-out after running it for seven years, he says.

I didnt like the idea of leaving halfway through. Some people just wanted to buy the shares cheap so they could sell them in a years time. We would have ended up giving the same amount of the company to venture capitalists for half the money.

Butterworth, whose background is in IT sales, spells out the two main reasons behind Expansys success story loudly and clearly: developing a strong reputation as a specialist supplier and acquiring new businesses.

He explains: We give a better standard of pre- and post-sales customer support and we specialise in products we dont sell everything. We dont sell low-end handsets. We just have our own niche, in the online sale of high end phones and mobile computers, and because we focus on them, we know more about them than our competitors.

There are a lot of small e-tailers and its very difficult to make money when you are small. Youve got to get big. You can continue as a £5 million or £10 million pound e-tailer but youll never make any real money. By consolidating the business under one public company we can realise more significant profits.

The minimum you can run a warehouse for is £400,000 or £500 000 pounds a year, even if its a tiny warehouse. You need accountants, a call centre, and thats going to cost you another £200,000 or £300,000 pounds a year, and thats going to be your basic costs of running any kind of retail business.

It doesnt cost us an extra £400,000 pounds to roll a new business into Expansys and do its logistics for it.

Intensive staff training is another factor in delivering strong customer service, with everyone at Expansys attending some form of training at least twice a week.

True to the ethos Butterworth has outlined, in the past five years, Expansys has not only marked its presence in 149 countries, but made five acquisitions: two distribution businesses, and online retailers in the UK, US and France. In the next 12 months, Butterworth hints, there could be more to add to the Expansys portfolio. The best approach, he reckons, is not placing limits on what borders a company can cross or where it can set up shop.

We will probably do a couple more acquisitions over the next year or two, and we would consider anything, he says. If you set out and say, I will buy an online retailer in Germany this year, and there are only two available, you end up over paying because youve committed to it.

Were looking around at the moment. We often get approached by people looking to sell. There are a lot of people with businesses that overvalue them and then there are also a lot of businesses that could integrate really well with ours, so there is a mix.

Success in Europe has already been demonstrated, with Expansys establishing a warehouse in Montpelier in the south of France, and sales offices in Sweden, Italy, Spain and one on the cards for the competitive German market.

Expansys has also managed to reach Australia, which Butterworth says, is an ideal environment for online retail because of its large size and sparse population. We tend to do really well in countries like that, he says.

When Butterworth joined Expansys seven years ago, the online retail industry was just kicking off, as was Expansys. Now, he says, thanks to an increasing quality in customer service, online sales are stronger than ever.

A lot more money has been spent online in the past five or six years, interestingly, Butterworth says. Recently, I think prices have become less important online. They still matters but people are starting to realise if you buy from a quality retailer an extra £5 or £10 can be really good value as an insurance policy against things going wrong.

So strong have online sales become that Butterworth predicts they could slow down the crowds making their way to high street shopfronts to search for the latest in converged devices, particularly with his main customers, business users, becoming more and more strapped for time. Could the birth of online retail have spelt the long, slow death of the high street electronics store?

Long term high street retail is probably going to decline significantly in favour of online retail, Butterworth argues. Its not the fault of the retailers, but retail landlords charge way too much rent in this country. We looked at purchasing some retail stores in London a while back and the rents were just unbelievable. Maintaining a website and a warehouse is way cheaper. I dont think you could rent 1000 square feet on Oxford Street for the price we pay for all our website developers plus our warehouse combined for a year. Im really glad Im not paying rent on a store – that must hurt real bad.

Through the further development of the Expansys website, the company has effectively created an online community of about 300,000 global users all sharing information and feedback on their various devices.

That social interaction is really new and its not something you can do offline you wouldnt go and stand in a Carphone Warehouse store and just chat about phones, Butterworth says. That community provides a lot of information so as we add video and audio functions into that chat facility, our users will get a much more compelling experience.

A new version of the website scheduled for launch in the coming weeks will also feature video presentations of products on offer, like Expansys answer to a retail salespersons live demo.

We could probably give a better quality product presentation than in a store, Butterworth says. The quality of sales people varies from store to store, whereas every single customer coming to our site will get the same video and the same key points highlighted.

Expansys is well-known for being the first to obtain a highly-sought after device, which Butterworth says comes down to understanding his audience.

A lot of retailers dont understand the high end products as they can be quite expensive, he explains. Something like a HTC Titan is quite complicated and expensive, and a lot of retailers wont take the risk until theyve got demand for it. We know the product and weve sold products like it before, so were happier to commit to the manufacturer and say okay, well take 1,000, because we know we can sell them.

As for threats in the market, Butterworth acknowledges that there are a lot, but he names the biggest as being a slow down in the technological advancement of mobile products.

If there stops being innovation then that will be a really significant threat, he said.

Lets take digital cameras thats a great example of a product where innovation really ceased about two years ago. Three megapixels became four, then five, six, seven and eight, but then people just kind of went, whats the difference between a 10MP and 8MP camera? Am I really going to go buy a 10MP camera when Ive got an 8MP one sitting in my drawer? Probably not?

I dont see that happening any time soon with the mobile industry, but I think it will happen eventually. Most of the manufacturers have a very healthy two or three year road map so Im comfortable with that. Im confident there will continue to be innovation for a long time to come.