August 7, 2015

Neela Montgomery on multi-channel at Otto

Neela Montgomery, Member of the Executive Board, Multichannel (photo: Otto Group)
Neela Montgomery: "Some of my businesses need corrective action, and you don't do turnarounds at a slow pace" (photo: Otto Group)
As a woman, Neela Montgomery, executive board member at Hamburg-based Otto Group, is regrettably still quite a rarity in German retail c-suites. But any gender talk obfuscates her commanding credentials for her important new task: the restructuring of Otto Group's most important business division, Multichannel Retail.

A glance at her CV suffices. Montgomery is a veteran of world-leading and has worked for the UK grocer in a variety of senior management roles in a number of countries, including Malaysia. As such, the lady is a good fit at Otto Group whose 123 companies are active in more than 20 countries.

Montgomery's new fief embraces group companies in Germany and abroad that sell their goods through catalogues, e-commerce, and in over-the-counter retail. The range includes fashion, footwear, lifestyle accessories, furniture, interior décor items, and toys, as well as technology, sport and leisure products.

So what can the new girl on the block bring to the game? 
Crate&Barrel in New York City (photo: Christian Lattmann)
A Crate&Barrel store in New York City (photo: Christian Lattmann)
Revenues at Otto Group grew only slightly by 0.5 percent to €12.1bn over the past financial year 2014/15 and ebit declined from €401m to €79m. This was primarily due to difficulties in Russia, a weak clothing business in Germany, restructuring in France and the USA as well as problems with is SportScheck and Mytoys subsidiaries.

Group activities are structured into three business segments – Multichannel Retail, Financial Services, and Services. The Internet has become Otto Group's main sales channel, and more than half of its retail revenues are achieved via 100-odd online platforms. Some Otto Group companies, such as OTTO or Baur, now generate about two-thirds of their revenues from e-commerce.

Worldwide, the company states that it is the largest B2C online vendor of fashion and lifestyle and the number two vendor behind Amazon. In Germany, where it is facing increasing competition from shoes and fashion online retailer Zalando, the company has consolidated its leading position as the largest B2C e-commerce provider.

Otto Group is also steadily expanding its Internet offering by developing existing concepts, founding start-ups and joint ventures, and making acquisitions.

In the company's traditional catalogue business, customers not only receive the established 'main catalogues' but also supplementary special catalogues or 'specialogues', with specific ranges. As customers become more attuned to the Internet, the function of catalogues is changing – they serve mainly for inspiration, with products frequently being ordered online.

Otto Group's retail outlets are aimed at their respective target groups in terms of fittings, product range, location and store management. The more than 400 stores include SportScheck shops as well as Frankonia and bonprix stores, and those of the US company Crate&Barrel in North America.

SportScheck in Berlin (photo: SportScheck)
A SportScheck store in Berlin (photo: SportScheck)
But what one should really understand about Otto Group is that it has become a household name in Germany during its more than 60-year business history. By establishing his mail-order company, founder Werner Otto wrote an important chapter in German post-war history, and one could legitimately call it part of the country's legendary Wirtschaftswunder" (economic miracle).

Even to this day, the very name of Otto conjures up visions of Trümmerfrauen (the resolute women who cleared away the rubble of bomb-damaged Germany largely on their own after the second world war) impatiently waiting for the post to arrive with new dress patterns.

Perhaps Otto Group was almost pre-destined to become an Internet giant, and Werner Otto's original business idea was even more visionary than was believed at the time. If you substitute online shopping for catalogues and home delivery for the German Postamt (post office), then it all looks very much like a precursor of e-commerce.

"We have to be better in what we do in the stores"

Neela Montgomery, Member of the Executive Board, Multichannel (photo: Otto Group)
(photo: Otto Group)
Ms Montgomery, you worked at Tesco for the last twelve years. What was your biggest surprise when you came to Otto Group?

I wouldn't say a surprise necessarily. There are definitely differences between working for a family-owned and a public-listed business, which was actually part of the attraction. Retail is really going through a transformation, and customers are changing their shopping behaviour fast.

We have to reinvent business models and in that context it is very helpful to be in a private-owned situation, because you can take more of a medium to long-term perspective.

Did you need to adapt the way you work?

Yes, although not quite as much as I thought I would have to. I was thinking I would need to slow down, but I don't. Some of my businesses need some corrective action, and you don't do turnarounds at a slow pace.

There are some cultural differences for me to understand, having grown up in an Anglo-Saxon culture. For instance, the decision-making is slightly different, but this has been quite interesting for me to learn.

Perhaps Otto Group had to adapt a little bit more to you?!

I think very much. That has been my realization that I'm probably less adapting. My German colleagues are using English more, and I am trying to learn German. But I find my colleagues and the managers at the companies I run have been very open-minded. It's been great.

Some media reports claimed that you were only nominated to your current position because Otto Group wanted a woman on the Board. Did that annoy you?

Of course I am a woman, and I have had senior roles quite early in my career. I tend not to pay a lot of attention to commentaries. I am here to do my job, and I am very focused on that.

If you are a woman in a senior role, you can't avoid being a figurehead. I take that responsibility, amongst others, to mentor younger women in the organization and make them more confident in moving forwards in their careers. That is what I focus on. The rest is just noise.

Tesco is known as one of the best examples for digitalization. What did you learn from them that you can now bring to Otto Group?

Both companies come from quite different perspectives, which allow them to learn from each other. When you run a business with 500,000 people like Tesco, you have to have really good retail processes; otherwise you aren't able to function. And at a business like Crate&Barrel they could benefit a lot from these modern retail processes right now.

And what are the advantages of Otto Group?

Otto has an advantage in that it was founded by an entrepreneur and is full of people that are entrepreneurs. This means that at one point in their career they had to take risks and change the way they think. That is very helpful, if you are going to digitalize the business.

You have spent a lot of time in the US lately at Crate&Barrel, and when one looks at the figures, evidently with some success. How did you achieve this?

I am not going to take all the credit for the change. I think half of the gains are the market and half are the changes we made: We changed the promotional strategy and went to a much lower promotional cadence, which helped the business. The former management did – for very good reasons – want to modernize the brand, so they modernized the merchandise.

And that didn't work out?

No. As my mentor used to say: You lose your old customers faster than you gain new ones, which is exactly what happened. So we needed a course correction, but we still need to innovate and modernize more. That was the challenge that I gave to the new CEO.

What kind of innovations are you thinking of?

There are a number of avenues for growth for C&B. Product innovation is the key one. We have products that have been iconic for 20 to 30 years. You don’t delist those products, but you need to get new iconic products for the next 20 to 30 years.

Looking on so much innovation – what about bricks & mortar? Will this continue to be an important channel in the future?

Absolutely, but we have to be better in what we do in the stores. You really need to give people reasons to come to shop. We have to figure out what the multi-channel format for C&B looks like. What we need is a much more technology-related multi-channel store with a smaller footprint. But at the moment, we are focussing on the core business.

Are you on track returning to profitability this year?

We are definitely on a good track. Whether we achieve profitability, we will see at the end of the year.  

Otto Group is reviewing its complete portfolio. Will you keep your US business?

Yes, even if there would always be someone who would take C&B from us. There are very few markets like the US home furniture market. Also international is a very under-potentialised opportunity at the moment. We needed to stabilize the US first, and we continue to do that, but, for sure, in 6 to 12 months we could put our foot back on.

How about Sportscheck?

There is no plan to sell that either. The sports market in Germany is quite unique. In France, Spain and UK you have discount channels that dominate the market. In France, for example, you have Decathlon with a 30 per cent market share. In Germany, which invented discount retailing, you don’t have a very strong discount segment in sports.

Neela Montgomery, Member of the Executive Board, Multichannel (photo: Otto Group)
(photo: Otto Group)
Last year has been challenging for the retailer. It was dominated by technical problems. You have lost customers and it will probably be hard to get them back…

We have been taken some pain. But we have a lot of campaigns coming up over the next six months in order to regain customers, and we already see some growth. In the middle of May we personally wrote to all online customers who had had a poor experience last year. We apologized, and said that we hope they come back. It is something that we need to improve in retailing: If we mess up, we need to say sorry.

When you are talking about campaigns, do you want to go get into discount heavily?

No. We do some discounts in a moderate scale but our intention is not to become a discount retailer due to the damage that would cause our brand. But, in the face of that and the online competition, Sportscheck needs to find what it stands for – a premium, multi-channel retailer. Most of what we will do is personalizing and making clear to the customer that we can offer them a lot of services that competitors can't.

Competitors like Globetrotter also did that, but they weren't successful

I am aware of that, but the market is growing and it is still really fragmented. There is no dominant player, and everyone has the opportunity to grow. We made big investments in IT & logistics, which caused us some problems last year, but it will be an advantage for us longer-term.

We have just rolled-out iPads to our outlets, so that they can place orders online in-store. In addition, you can now see on our website what products are available in store, which is great from a customer perspective.

What are your expansion plans?

Probably every business that needs to recover should not focus on expansion. Now we need to focus on winning our customers  back. So expansion is postponed until Sportscheck delivers a good customer experience, is growing and profitable.

So your focus is on getting back to profitability?

Yes, but the way I see it, you first have to stabilize the customer experience, then you have to win back your customers, and then you do the P&L work. Any other order will end up in a mess, but strangely that's what some companies do.

What about cost-cutting?

We do have to look at costs, but what we do is to make sure that what we do it right. We need to do some restructuring, but we also made a lot of investments. We can't cut ourselves towards profitability, that doesn't work. We have to grow.

You have a lot of international experience, but none in Germany, which is a very unusual market. How can you know that your decisions are right for this country?

I have teams, so I listen to them and learn. Some things are different, in terms of how customers react and how employees and unions work. It's important to learn about these differences and not to be too quick with your solutions. But under the circumstances my job is to make sure that I have the right team around me and have the right people in place, so I spend quite a lot of time simply listening to people.

The CEOs of C&B and Sportscheck can act pretty independently, is that different from your previous work experience?

I think at Otto Group it's less "hands on" than Tesco, but Tesco is pretty big, which makes this more necessary. At Otto, what I would never want is a push model, which just wouldn't be healthy. I want a pull model, where they can call me. We talk a lot. There is quite a lot of contact, coaching and discussion. So it's a little bit of an adjustment, but, if you didn't have that kind of relationship, you couldn’t run so many companies.

You are already on the board of three companies, but there are other multi-channel retailers within the group portfolio. Will you be applying your expertise to those as well?

I am planning to create a body of retail experts within Otto Group, just a small team with two or three people who are very experienced in multi-channel retailing. The team is not about developing the right business model, which is what the companies themselves must do, but about improving excellence in store.

Lebensmittel Zeitung with digital sister (photo: LZ)
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: Interview by online news editors Jens Holst & Manuela Ohs in Lebensmittel Zeitung, no. 32, 07.08.2015

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