Exciting Commerce // Unlimited

The Untapped Online Potential of the European Fashion Industry

Success is relative when looking at dynamically growing markets. Even market leaders with growth rates of 50% and above cannot be really sure if they haven’t already used up their full market potential.

For a long time, Asos was a benchmark for the online fashion business in Europe. Then an impressive Vente-Privée showed everyone what the real dimensions of the market was: the 366 million euro turnover of Asos last year was not even half of the estimated 781 million euro that Vente-Privée is speculated to have turned over last year:

(From 0 to … euro – the revenue trend of the strongest European online fashion merchants since 2000)

The difference is the sales model. No other online sector in Europe is working so far under their potential than the fashion industry. And in no other e-commerce segment is the pressure to innovate sales so evident. Thus the most radical changes in the e-commerce landscape should be expected from the eFashion industry.

In recent posts on the German Exciting Commerce blog, we have repeatedly pointed out where the true potential for online fashion lies, which strategic prospects are on the horizon and how alone in Germany, there is an untapped potential of about 2.3 billion euro with an upwards trend.

Putting this in perspective, there is place for one or two Amazons in the eFashion segment now - without crossing fire with the currently running fashion businesses. The challenge for all newcomers is the business model. Until now, none of the established players have been able to build binding customer loyalty, let alone a lasting emotional connection with their female customers.

A new player could slip themselves in somewhere between Etsy, Polyvore and Vente-Privée. The only pre-requisite would be to stay away from traditional e-commerce methods and it might be a good idea to liven up the sense of style a few notches relative to Asos and the like. It is highly debateable if Modcloth, Garmz, Gemvara or Shoedazzle already have the answer. Their sales models are too weak to conquer a broad market layer.

The most promising sales potential are generated from three dimensions – gaming elements with visual stimulus, social exchange and active sales (such as shopping events).

From past experience, a strong role in online fashion sales can also be played by interesting personalities such as Martha Stewart, Karl Lagerfeld or Coco Chanel. Such celebrities can open up markets, add a trust factor and drive emotions.

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.

Extras: Groupon vs. LivingSocial, Wag.com, Rakuten, AmazonLocal

A few notable e-commerce news items from the past week:

Users from Groupon and LivingSocial

ComScore published an interesting study on the reach and usage of Groupon and LivingSocial within the US. Particularly notable is the demographic profile:

The market leaders for the Daily Deal/Group Buying sector in the US is dominated by Groupon in the lead and LivingSocial in second place:

Amazon is introducing Wag.com

Diapers.com/Quidsi, which was acquired by Amazon.com in November 2010, is introducing a new niche e-commerce site called Wag.com. The site will focus on pet products:

"According to [Quidsi-Mitgründer Marc Lore's] message, the site will carry thousands of products for dogs, cats, birds, fish, reptiles and small animals, including food and toys.

The site will share Quidsi’s universal shopping cart, which allows consumers to shop across Diapers.com, Soap.com and Wag.com properties, and check out once. Wag.com will offer free two-day shipping on orders of $49 or more."

AmazonLocal

Amazon is actively stepping into the local deal sector with AmazonLocal. Similar to Groupon and LivingSocial, AmazonLocal will offer geographically relevant, deeply discounted deals for a limited time.

For the beginning, Amazon will not set up the deals themselves but will rely on external service providers. Not so surprising is the first deal provider: LivingSocial, into which Amazon invested $175 million last December.

First trials are being done in selected US cities.

Shopzilla

The holding company Symphony has acquired shopping search company Shopzilla for $165 million:

"Shopzilla manages a portfolio of online shopping brands in the U.S. and Europe, consisting of Bizrate, Beso, Shopzilla, TaDa, PrixMoinsCher, and SparDeinGeld."

Facebook Credits

Facebook is continuing to add functionality to their online currency Facebook Credits one piece at a time. This time it is the possibility to pay out Credits directly in PayPal. Originally for the sale of virtual goods, Facebook Credits are now used to sell concert tickets and films.

Rakuten on e-commerce shopping spree

The Japanese e-commerce conglomerate Rakuten is taking over Ikeda from Brazil. Ikeda is a provider of a variety of services for online merchants. Rakuten is on a shopping spree right now:

"The company recently teamed up with Baidu to invest $50 million in an online ‘B2B2C’ shopping mall for Chinese Internet users, acquired Buy.com for $250 million and subsequently spent the exact same amount purchasing France’s PriceMinister."

Related posts:

• Extras: 3D-Printing, Groupon Guide, Etsy, Google, Facebook
• Extras: Facebook, Tippr, Cookies, Spreadshirt-API
• Extras: GiltCity, FanForce, CustomMade
• Amazon Onboard with Groupon Clone Living Social for $175 Million

Originally posted in German by Marcel Weiss, adapted for excitingcommerce.com by Jason Soo.

Cafepress IPO: Cafepress Can Learn from Shutterfly

Despite a relatively disappointing financial trend, Cafepress is working towards an IPO. By comparing with Shutterfly, the potential that Cafepress wasn’t able to convert these past years becomes apparent:

As opposed to Cafepress, who are trying to offer universal solutions, Shutterfly is targeting their offers to mothers between 25 and 44, for which “Technology is a means, not an end” (Shutterfly presentation, PDF):

Shutterfly is a still relatively rare example of good, user oriented e-commerce. Shutterfly manages to shift not only the technology to the background, but also the product itself. Instead, the foreground is occupied by a collective personal experience: “Life’s a story. Tell yours in pictures at Shutterfly”.

Shutterfly, which is already public, is aiming to grow from $308 million (2010) to at least $468 million in 2011 (+52%). Shutterfly is currently ranked 66^th in terms of revenue amongst online retailers in the US.

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.

Top 500 Online Retailers in the US: The Pure Players Gain More Ground

The latest Internet Retailer Top 500 List was published recently and shows that the online pure players are the market drivers. And irrespective of Amazon, they are by wide margin the strongest growth e-commerce segment (“What the 2011 Top 500 reveals”):

"Overall, with Amazon included, Top 500 web-only merchants grew 30.6% to about $56.89 billion last year from $43.55 billion in 2009.

But even without Amazon, sales for the remaining web-only merchants grew year over year 19.5% to $22.7 billion from $19.0 billion.

A total of 68 retailers among 205 Top 500 web-only merchants also met or exceeded the growth rate of 18% for all Top 500 retailers, and 85 grew as fast or faster than the increase in U.S. e-commerce sales of 14.8%.

Instead of trying to outwrestle Amazon.com, other web-only retailers found success by concentrating on their niches, making acquisitions or diversifying."

Strong as usual is the mass customization segment – from Vistaprint (36^th place) and Shutterfly (66^th) to Cafepress (122^th) and Zazzle (134^th) to MyMMs (490^th).

Private sales shopping clubs in the US are following the European trend and have entered into the top leagues of America’s e-commerce sector. Within the top 500, five such companies are represented and Gilt Groupe and Ruelala are for the first time now under the top 100:

• Gilt Groupe was already leading the pack at 140^th place in 2010 and has sprung now with $420 million of revenue to 49^th place. Ruelala steps up to 82^nd place from 103^rd place with revenues of $235 million.
• Within the top 200 were also Hautelook (rising from the 191^st spot to 156^th) which is now a part of Nordstrom (in 34^th place). Newly at 191^st place is the Canadian Beyond the Rack.
• Ideeli is ranked at 310^th under the Top 500

In the live shopping segment, Woot! is now a part of Amazon and is not separately ranked like last year. Instead, 1-Sale-A-Day has reached rank 161. The jewellery auction site Bidz is at 150^th place.

Also other newcomers such as Alice.com (467^th) and Modcloth (403^rd) have made it under the top 500.

The market in the US is in movement. Besides Zappos and Woot!, Amazon took over Diapers in 2009/2010. And recently Walgreen (73^rd) acquired Drugstore (46^th).

It is redeeming to see that in the Market Analysis ("What the 2011 Top 500 reveals"), Internet Retailer is also seeing what Exciting Commerce has been describing for years.

Related posts:

• Internet Retailer: Top 500 in the USA (2009)
• Internet Retailer Top 500 Guide (2008)

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.

Business Intelligence at Samwers' Rocket Internet Startups

In one of his rare public appearances, Rocket Internet CEO Florian Heinemann gave a very insightful presentation on Business Intelligence at the Next Conference. The presentation on this aspect of the Rocket Internet strategy is a very worthwhile view (“Towards a Better Understanding of Marketing Performance Across Multiple Channels”):

As opposed to other companies where the marketing budget is still calculated in traditional ways, startups funded by the German Samwer brothers take a very precise view on the measurability and controllability of their marketing activities. Rocket Internet has built up an enormous amount of in-house expertise in the course of marketing such companies as Zalando, eDarling or Groupon using a combination of TV spots, display ads and other traditional performance marketing methods:

"At a company like Zalando we don't have a marketing budget. We just say: We are willing to acquire a customer for price x."

In Florian Heinemann’s presentation, he illustrated the marketing approaches used by Rocket Internet as well as the fundamental models for forecasting and quantification of results. He gives an insider peek into the evolution of Rocket Internet with its various startups, which now encompasses thousands of employees. And by reading a bit between the lines, one can glean a little about the relationship with companies such as Google, StudiVZ, Web.de and others.

After seeing the video, you might have a new assessment of the financial reports of Groupon which were not long ago made public. A parallel between the Groupon and overall Rocket Internet strategy is clear.

In his talk, Florian Heinemann also touches on some comments on the Exciting Commerce German blog, which protend the management of Zalando and the like to be much more naïve than they actually are:

"If you look at the comments you see on exciting commerce, everybody says: "Well, these stupid idiots, you know, they are spending so much money. Zalando cannot be worth the money. They are just throwing out all their marketing budgets." I can assure you: This is definitely not happening. We know exactly what we're doing there."

This is the fallacy here: Just because the Samwer brothers tend to re-use ideas from other international companies, it would be wrong to believe that they cannot turnaround and execute in a very professional way. Besides the sales talent that they have, their analytic and measurement-driven models are surely their most undervalued competency.

Related posts:

• Groupon IPO: The Best Analyses of the Public Offering
• Groupon IPO: Groupon Reveals Financial Performance Figures
• Samwer Report: Kinnevik Holds 12% of Rocket Internet

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.

Groupon IPO: The Best Analyses of the Public Offering

Valuing a growth phase company such as Groupon is traditionally difficult for Wall Street prophets: How can you evaluate run up costs in the order of several hundred million dollars when a company is growing at a break-neck pace and is building a new form of sales concept for which there is no precedent?

How far can Groupon reduce it’s sales effort (in the direction of merchants) and it’s marketing effort (in the direction of customers) over time? And can Groupon remain attractive for all participants over the long run? These are the decisive factors for a substantiated valuation of Groupon’s financials.

At Exciting Commerce we have repeatedly grappled with the growth potential of Groupon. But the most exciting part of the Groupon business model is that for less ambitious CEOs, it is possible to run at modest profitability levels:

"In a letter to prospective shareholders, Groupon’s chief executive, Andrew D. Mason, highlighted the company’s growth opportunities but cautioned investors to temper their profit expectations.

“In the past, we’ve made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss,” he said.

“When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.”

The Dealbook of the New York Times gives a background abstract of Groupon’s short history which started at the end of 2008 when it went online. They have published a well based evaluation of the planned IPO.

Symptomatic for the evaluation of companies such as Groupon is the debate which GigaOm has noted ("Groupon: Doomed to Fail or Worth a Leap?"). It just goes to show that it depends on which glasses you are wearing when doing the analysis.

Deeper analysis into the financials also available on Quora.

Related posts:

• Groupon IPO: Groupon Reveals Financial Performance Figures
• Groupon Now! and the Mobile Future
• Is Groupon Developing in the Right Direction for the Long Term?
• On The Way To $950 Million: Groupon Raises $500 Million With $345 Million Going To Cash Out Insiders

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.

Groupon IPO: Groupon Reveals Financial Performance Figures

On Thursday Groupon filed for an IPO with the SEC and with that, have made their financial performance figures public ("Groupon Files For $750 Million IPO; Lost $413 Million In 2010").

"Groupon gross revenues in 2010 were $713.3 million with gross profit of $279.9 million. According to the S-1, Groupon has almost reached that gross revenue in 2010 in the first quarter of 2011 with revenue of $644.7 million and gross profit of $270 million."

The registration statement contains a good amount of interesting information on the Groupon business model as well as numbers which track their business development since the beginning of 2009 (revenues, members, customers, etc.):

Already now, Groupon is generating 54% of their gross revenues outside of the USA.

The S-1 filing also shows that the big financing rounds of the last months have been primarily used to pay out old investors ("Where Did Groupon’s Billion Dollars Go?").

Related posts:

• Groupon Now! and the Mobile Future
• Is Groupon Developing in the Right Direction for the Long Term?
• On The Way To $950 Million: Groupon Raises $500 Million With $345 Million Going To Cash Out Insiders
• Groupon Stays Independent and Everyone Gains
• Is Groupon Putting Too Much Pressure on its Merchants?

Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.