Mailpac innovates and expands operationsWednesday, August 19, 2020
BY DAVID ROSE
Nearly one year after being formed and listing on the junior market of the Jamaica Stock Exchange (JSE), Mailpac Group Limited has made significant gains due to the effects of COVID-19 and has charted a course to further enhance its business amid the changing consumer environment.
Although the Mailpac brand has been around for more than 20 years, Mailpac Group is an e-commerce and logistics company which was formed in September 2019 following the amalgamation of Mailpac Services, Mailpac Marketplace, Mailpac Local, Mailpac Financial Services, and Mailpac Ocean Freight.
In 2010, Norbrook Equity Partners — led by former Goldman Sachs investment banker Khary Robinson — acquired Mailpac Services from its prior owners based on the premise that online shopping would become the norm in Jamaica. Several years later, Mailpac Group has found that the industry has begun to thrive as Jamaicans move their habits online.
This single operating business has now surpassed the initial projections set out in its prospectus. In fact, Mailpac has already achieved 55 per cent of its 2020 financial year projection at $730.9 million, not including the typical revenue jump experienced in retail in the last quarter of the year.
“Our local business spiked over 500 per cent in April as people used the convenience of our platform to stockpile household necessities without having to leave their homes,” Executive Chairman Khary Robinson told the Jamaica Observer. “While the levels have come down since then, the increased awareness of our Mailpac Local service has sustained increased usage of our platform by over 150 per cent relative to pre-COVID volumes.”
Part of this explosion in demand came from the introduction of social distancing and quarantine protocols, as well as a new partnership Mailpac inked with PriceSmart, which itself saw a 12 per cent sales spike for the quarter.
“The partnership with PriceSmart has proved very fruitful as it has allowed us to enhance the service experience at Mailpac Local, especially for customers that use our platform to purchase PriceSmart goods and have them delivered to their doorstep,” Robinson told the Business Observer.
“The rapid volume increase in April caught us off guard and we struggled for a bit to meet our efficiency standards. However, the partnership allowed us to put in technology and operational enhancements that enabled a much more seamless shopping and delivery experience for our customers,” he added.
While Mailpac's local business saw a tripling in clients during March and gradual increase since then, Robinson said it is still a smaller contributor to the overall business.
“Despite its massive growth, Mailpac Local didn't bring in most of the business for the quarter. Mailpac Services is still significantly larger than Mailpac Local in revenues and even more so in profitability,” he explained.
Despite Mailpac's e-commerce fulfilment services from the USA seeing a decline in April partly due to measures put in place by Amazon to process essential products and the uncertainty surrounding consumer income in light of COVID-19, there was a substantial increase in business overall as more people look to source their goods from overseas.
The rapid growth in the local business coupled with the recovery of the international business has forced the group to expand its capacity to meet the increased level of demand which has arisen due to changing consumer habits.
“We are in the process of building out a new and significantly larger sorting and processing facility for both Mailpac and Mailpac Local. Mailpac Local's growth forced us to create a separate logistics business line to support Mailpac Local and various other logistics platforms at Norbrook Equity Partners,” Robinson said.
Apart from online shopping and delivery services, Mailpac is planning to utilise the resources of some of its sister companies to enhance customer service. One such enhancement is the Mailpac Prepaid Mastercard, which would give unbanked and underbanked consumers more seamless access to online shopping. However, the launch of the card was delayed due to recent changes at the Bank of Jamaica (BOJ).
“A few changes to the BOJ regulations forced us to make some fundamental adjustments with ePay before we could officially launch. Those changes are now made and so we are gearing up to have our official launch any day now,” Robinson told the Business Observer.
Even with several other firms launching their own prepaid Mastercard products and most commercial banks offering Visa debit cards by next year, Mailpac sees the entry of its prepaid card as complementary to the other products in the market space.
“The reality is that Jamaicans now have a much greater awareness of the styles, trends and savings available in the United States and want to access those through online shopping. However, with over one million unbanked or underbanked individuals, many of these consumers don't have the ability to pay for items online. Accordingly, the Mailpac Mastercard is just one way we aim to alleviate that issue and unlock their access to the world of online shopping,” Robinson said.
As a way to optimise cost while allowing customers to maximise the convenience of shopping online, the company will be introducing the Mailpac Prime Programme which will offer unlimited free delivery of packages, to existing customers, for three months prior to the start of August.
“We are always looking at the balance between operating cost and operating efficiency. New locations carry more cost but allow us to serve the customers better. As online shopping deepens its penetration of the local market, this evaluation will continue as we want to continue serving our customers where they are located,” said Robinson.
Another initiative on the horizon is a collaboration with Express Fitness to let Mailpac clients collect their packages at Express Fitness locations. “We are in the process of testing that model for the first time at our Express Fitness location in Whitter Village in Montego Bay. Depending on the success of that venture, we will decide if that becomes a broader and more established relationship,” Robinson related.
Even though Mailpac has generated nearly $200 million in cash over the last two quarters, it is not necessarily looking at acquisitions for growth in Jamaica. Instead, the local business is focused on service and distribution in Jamaica.
However, the company is actively looking at acquisitions as a way to enter new markets in the region.
“We have a clearly defined plan around how we will reach and serve our customers faster and better with the use of technology and unique infrastructure. However, regional expansion would likely take hold in the form of acquisitions and we are aggressively exploring expansion outside of Jamaica.”
This has fed into the company's share policy which saw it pay a $100-million dividend to shareholders at the end of July. Due to the low capital expenditure and varying cash needs as a growing company, Mailpac might be able to deliver on its annual 75 per cent target set out in its prospectus.
Robinson reiterated the company's aim to deliver unsurpassed service while changing the perception of customer service.
Asked whether the company will need some of that cash to support growth in the business, especially on the local side, Robinson suggested that efficiency and not scale of infrastructure is the better solution to managing growth.
“Norbrook has spent most of its tenure focused on logistics, having acquired or built over 22 logistics companies in three continents, with a total fleet of over 1,200 vehicles during that time. Logistics is in our DNA. You do not succeed in logistics by investing every time your volume grows. We know how to get more out of our existing infrastructure and that expertise is what creates greater service and even bigger margins,” he said.
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