November 6, 2013

Thinking German e-commerce

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Karl-Erivan Haub: "Retailers are increasingly becoming tech companies"
To "Haub" or not to "Haub", that is the question!

On the one hand, Tengelmann CEO Karl-Erivan Haub is virtually omnipresent when it comes to online retailing and risks grazing the fine, but dangerous line between professional self-marketing and overkill.

On the other, there are few top retail managers in Germany with his knowledge and experience of both bricks & clicks.

Certainly, the organisers of this year's Neocom mail order congress in Dusseldorf came to the conclusion that this is a speaker no trade audience can do without.

With bricks & mortar sales in virtual stagnation and online revenues forging ahead at double-digit rates, perhaps it was worth stating the obvious: "E-commerce and the internet are not going to go away...and there is no alternative."
 
As Haub points out, online customers can buy whenever and wherever they want and choose from larger assortments with greater price transparency.
 
But the CEO, who runs Germany's seventh largest retailer with annual revenues of around €7.4bn, doesn't see an end to classic retailing.

Only connect

But, looking to the USA, he pleads for an omnichannel approach and a seamless customer experience. "We must connect the (two) worlds."

The advantages are clear: Customers can return faulty or unwanted goods to local outlets or pick their online orders up at in-store click & collect points.

Haub certainly practices what he preaches. The "Kaiser's" supermarkets, "Obi" DIY, and "Kik" discount clothing fascias at Tengelmann Group all provide an online service.

There are numerous consequences: As Amazon & Co. continue to encroach on retail assortments, retailers are increasingly becoming "tech companies".

At 53 it was refreshingly frank to hear Haub state that "the older generation do not necessarily have digital competence" and that there is a need for more "digital natives" in retail management.

Mandac's looking glass

Many of these thoughts were echoed by Kaufhof CEO Lovro Mandac whose own online service was revamped two years ago to replicate a "department store experience".

However, Mandac also put e-commerce retailing into perspective. It still accounts for only €33bn in annual sales, compared with a total German universe of more than €400bn.

Perhaps to the surprise of some Anglo-Saxon readers, Mandac also claimed that online retailing is beginning to show signs of saturation in categories such as fashion, toys and consumer electronics in England.

Certainly food online retailing has been a slow starter here in Germany where market share is still a negligible 0.3 per cent. A.T. Kearney estimates of 3.5 to 5 per cent  by 2025 don't look thrilling compared with, for instance, the UK.

No scale, no money

Since Amazon Germany added food to its delivery service in 2010, there have only been minor experiments at the largest retailers, Edeka and Rewe.

Rewe, who has been testing an online delivery service in seven big German cities for the last two years, admits that it would need to reach an average order size of around €100 to cover high logistics costs and reach profitability.

It is surely significant that online food delivery in Germany has been dominated to date by specialists such as Hawesko (wines), Mymuesli (granola) or Otto Gourmet (high-quality meat) and various start-ups (such as Allyouneed.com or Emmas-Enkel.de).

Trust is good, control is better

For at the end of the day, it all comes down to trust. For years German supermarket customers have had to act as unpaid quality controllers in the F&V department.

They have grown used to sorting through squashed and mouldy fruit & vegetables that retailers are either too unimaginative or understaffed to remove from the shelves of this image-making or -breaking category.

All too often, customers buy sealed packages with seemingly intact produce on top only to find numerous duds on opening at home.

Small wonder, then, that A.T. Kearney estimates that four out of five consumers want to check and feel fresh produce before they buy it. Given these factors, can online really deliver the goods?

 
Related article in German: Lebensmittel Zeitung, no. 44, 01.11.2013, by Manuela Ohs

 

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Comments for this article are closed.

  1. Created 7 November, 2013 07:30 | Permanent link

    We're all "digital natives" now.

    "Retailers are increasingly becoming "tech companies" an admission that all sectors of an economy are being chewed up and spat out by the impact of the Trojan mouse which is the internet.

    In essence, if retailers are becoming tech companies, then tech companies are for sure becoming retailers (Apple).

    Omni-channel is right, and what it means is that all of us, whether individual, company or government department, are becoming media channels who have to select, curate and broadcast (narrowcast?).

    So in the FMCG arena it's worth investigating VRM http://en.wikipedia.org/wiki/Vendor_relationship_management

  2. Created 7 November, 2013 21:51 | Permanent link

    What's holding them back? Trust appears to be the primary issue. As was the case with other markets, including the U.S., the early days of online shopping in China have been plagued by credit card fraud and counterfeit goods -- some of which are swapped out for genuine articles during shipment.

    These two issues have been addressed, in part, by the introduction of PayPal-like payment services, including Alibaba-owned Alipay, which allows users to make purchases without sharing their credit card details with individual vendors. As an extra security measure, Alipay only transfers payments to vendors after clients have received and expressed satisfaction with their goods.

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