Tengelmann CEO Haub talks multi-channel
Active in two worlds: LZ editors Silvia Flier and Mathias Vogel cross-examine Karl-Erivan Haub on his growing online empire
Since his appointment as Tengelmann CEO in 2000, Haub has presided over a steady implosion at the once dominant family-owned company and has radically downsized the Mülheim-based retail group.
However, anyone who thought this fifth-generation family representative was bidding adieu in instalments has seriously underestimated the man. Since 2010, Haub has also been enthusiastically building an empire of online businesses.
A score of participations and a big learning curve later, Haub (52) is probably in a unique position as a retailer. He can compare the merits of clicks and bricks, and make as shrewd a guess as anyone regarding how best to combine them.
In 2011 Mülheim-based Tengelmann posted revenues of €7.3bn, but all Tengelmann's larger stores, its discount subsidiary "Plus" in Germany and eastern Europe, as well as the "A&P" supermarkets in the US have now been sold.
Today in bricks & mortar, Tengelmann Group is essentially a clothing discounter ("Kik") and a regional supermarket operator in the Northern Rhine area as well as in Greater Berlin and Munich. The company also has a majority stake in leading DIY multiple "Obi".
Herr Haub, why are you powering away so hard in online businesses?
Because we want to learn more about how online business works. It's a different world with its own set of rules. It's also fun developing new ideas and business concepts. Who knows, maybe we'll hit on something big.
Why so tentative a response?
Not everyone who has tried their luck on the internet has struck gold. Perhaps only two out of ten will make it and achieve national or even international success.
Could Zalando, the online shoes and clothing shop you have taken a 9 per cent share in, be one of the success stories?
Zalando might make it. It is certainly an exception...and has made remarkable progress. Revenues tripled to more than €500m during the last business year. Zalando has the potential to become a major brand.
But Zalando still makes a loss. In fact, losses are increasing faster than annual revenues.
Zalando is still in the development stage. You need money to build something up. Zalando needs to invest a lot in marketing, logistics and, above all, IT and software. It's just the same with bricks & mortar, entrepreneurs have to put their money up front before they can make a profit.
Would you say that the internet is more of a niche game for retailers?
That would seem to be the case at the moment, or at least in Germany. That's because there haven't been so many investments in the trade yet. It's different in the USA where a lot of money is invested in start-ups and even new market entrants have deep pockets....
Are you worried about burning your money?
We are investing in an area of business which belongs to the future. Our investments are limited because we participate in start-ups where the costs are relatively small. That said, we don't intend to throw our money out the window.
How much money have you invested so far?
A lower three-figure million sum to date.
One of your companies has already gone bust. Do you think there will be any more?
Our family group participates in a vehicle called Tengelmann Venture, and we work on the basis that not all the projects this company invests in will be successful.
But surely at the end of the day your goal is to make money?
You bet. Last year, for example, we sold a stake we owned in a company and made a buck or two in the process.
Who do you think has the best chances of success, established bricks & mortar retailers or internet newcomers?
I think the better question would be: what can both systems learn from each other, and where are the advantages in each system?
Where are they then?
Internet retailing has a big advantage in terms of the huge, and almost unlimited, choice which online shops can offer. Bricks & mortar retailing, where sales surfaces are finite, is totally different: you have to limit your assortment and make a selection.
Why, then, bother with bricks & mortar at all?
There are trades where online doesn't work so well. In food retailing, for instance, success doesn't depend on selection, but on one's capacity to get the goods as quickly and reliably as possible to the customer and at a viable cost.
Fresh produce and chilled food can't just be dumped somewhere for collection.
Why then are Tengelmann's supermarkets trying an online delivery service?
We've been doing this for years. We want to see whether we can do it despite the problems. We are concentrating on big cities and also have a lot of commercial customers, whether offices or doctors' surgeries. This reduces delivery problems.
Tesco is a bricks & mortar retailer which also sells online. What do you think of them?
They are certainly helped by the fact that net margins in the UK are several times higher than in Germany. Sending food is expensive. If that wasn't the case, you'd have a lot of pure online players in the business.
There are still some who say that it's cheaper to sell over the internet?
That's not the case with food, at least in Germany. No pure online retailer would be able to match the discounters on price. The cost of delivery alone would make this impossible...
So, here too, everything comes down to price?
If you haven't got the right price, online is not going to work for you either. That said, it's completely wrong to assume that online only sells via price. Everything depends on the total offer.
Can you give an example?
Zalando, for instance. It doesn't undercut the prices normally found in shoe and clothing shops.
Which channel involves more costs?
It's most expensive when you do both. Traditional retailers who also start online operations have to build the new business up while not neglecting their existing store base. Believe you me, online isn't good for your margin.
But online retailers don't have to pay rent or modernise their store base. They also have lower energy costs and need fewer staff?
True, but they have other costs. For instance, they have to spend a lot more on software and IT systems than bricks & mortar retailers. That can cost billions.
Look at the latest quarterly figures for Amazon. The world's largest pure online player has billions in annual revenues, but hardly makes anything below the line because it costs billions to maintain and develop its business systems.
You said earlier that clicks & mortar is the most expensive option. Why then is Obi trying to build an online shop?
Our subsidiary Obi is an established retailer. As DIY market leader in Germany, it benefits from extremely high brand recognition. That's also very advantageous when it comes to being perceived in virtual retailing.
When you are a retailer, people have to find you. What the site of the store is for bricks & mortar, your position on a Google search list is for the internet. That's not as easy, however, as it sounds.
We have therefore created our own company, Tengelmann New Media, which deals exclusively with online marketing. We employ experts who used to be pure online specialists. Their knowledge is essential...
Do different rules apply on the internet?
Yes, especially in marketing. In all other things, it's more or or less like bricks & mortar retailing. That's why we don't just give money to start-ups.
We show them how the daily business of retailing works, we teach them how to do their accounts and to control their costs. These are things which our young entrepreneurial business partners tend to forget...
Obi uses its own name on the internet. Other companies tend to separate their online from their bricks & mortar marketing worlds. Do you think that's right?
No, I don't. At the end of the day, a company which works in both worlds and which sells identical products under different brand names is only competing against itself...
So multichannel is the way forward?
Yes, especially in the DIY business. Our customers don't only use Obi's online shop to buy things... It also contains a lot of information for DIY enthusiasts.
The Obi platform is also a community where customers can exchange information and help each other. That's all good for the Obi brand.
Is online more than just retailing?
Much more; in fact, it's a whole new world. It's changing our shopping habits and making everything faster. It has huge potential, much of which we haven't perhaps even envisaged yet, but it also brings totally new challenges.
Is it still possible to be a retailer and not go online?
No one today can afford not to be online.
Related article in German: Lebensmittel Zeitung, no. 32, 10.08.2012, by Mathias Vogel & Silvia Flier