“One must not only see the threat posed by new forms of distribution”

In fashion retail, 50 percent of sales are already made online. Do department stores have a future at all?
Online trading as a whole has a market share of a good ten percent. But one thing is true: In most cases, retailers will only survive if they link their branches to e-commerce. The dealers who ducked away and thought that digitization would pass them by, now they have the biggest problems. Online trading also offers great opportunities for stationary retailers.

Isn’t that a good thing for you as an online retailer to say?
It’s easy to overlook the fact that we have a lot of over-the-counter shops in the Group, at Manufactum, Lascana, Witt and Crate & Barrel in the USA. For example, we were able to compensate for the loss of sales during the Corona period with stronger online business. And by going digital in the stores, you can generate additional sales by showing products that you have in the central warehouse and can send to customers.

The Italian piazza as a model for the city center

But that can only succeed if people come back to the cities at all.
That is why the goal must be to revitalize the cities more strongly. For this, many more apartments have to be built again, especially in the inner cities. Offices that are no longer needed because of the home office trend can be converted into apartments, for example.

Are many cities still too fixated on trade?
Basically yes, we need a different mix of the offer. The city planners, but also the property owners, have to rethink and develop concepts together with the dealers. Otherwise, only those who can pay the high rents will survive. The decisive factor is improving the quality of stay, people have to feel comfortable. They need sufficient gastronomy, seating, cultural events, local providers, small manufacturers and craft businesses. Just like on an Italian piazza, where people meet, drink a cappuccino and then also go shopping.

You also operate shopping centers with your sister company ECE. In view of the declining customer frequency, aren’t they threatened with the same fate as department stores?
There is a risk, but ECE is investing in making the centers more attractive. In addition, there is the opportunity to increase frequency and generate additional sales in combination with an online platform. For example, we have a joint venture with ECE, with which we offer retailers in their shopping centers software that they can also use to sell via our Otto platform.

But young customers in particular are becoming increasingly difficult to get into business. What do the centers have to do to remain attractive?
With a good mix of offers, supervised playrooms for children and attractive cultural and sports offers, shopping centers ensure a high level of attractiveness, including for younger customers.

Is that also a recipe for inner cities?
You would have to manage the inner cities like shopping centers. Everyone would have to be brought to one table under the management of city managers. But it is much more difficult for the cities because many different property owners come together with their own interests.

Is there a lack of money or good ideas?
Rather, there is a lack of convincing concepts. If these are available, then one can consider who will participate financially. And one thing is clear: we are running out of time, action must be taken now.

“Department stores are no longer magnets”

The reality, however, is that the municipalities are complaining that with the closed Kaufhof and Karstadt branches they would lose their customer magnets. Can they still fulfill this task at all?
No, the department stores are no longer magnets. They could have been if they hadn’t completely overslept the development. In the 1970s, department stores still had a market share of 15 percent. Today that would correspond to a turnover of almost 100 billion euros – that is far more than three times as much as Amazon achieves with all its activities in Germany today.

Otto is basically the digital version of a department store. Have you ever been tempted to run a department store yourself?
We actually opened a hypermarket in Hamburg-Eidelstedt at the end of the 1960s. Our logistics manager set it up and it was profitable after just one year. Then we wanted to expand that, but made the mistake of bringing in specialists for department stores. They watered down the concept and developed small department stores with two floors and service. We quickly realized that this wouldn’t work and then sold the houses to Horten.

“All that’s left of a good idea is the name”

When did the development for the department stores tip over?
It all started back in the 1970s, when the first self-service stores and specialist retail chains came into being. The directors of the department store groups did not take this seriously. They then made the same mistake much later with the advent of online trading. Anyone who does not see such developments will inevitably run into problems. The most innovative thing back then was Horten with the Galeria concept. But all that remains of this good idea today is the name. Kaufhof took over Horten but did not develop the concept any further.

What was so promising about this approach?
At that time, Horten already offered much more brand shops and set clear priorities in the range. And that should have been further developed and supplemented with an online offer that complements the entire range of products. After the takeover of Neckermann and later in association with Quelle, Karstadt would have had every opportunity to build up a significant position in online retail. One must not only see the threat posed by new forms of distribution, but also the opportunities that arise with them.

Does that mean that the decline of the department stores is not a law of nature, but rather a result of mismanagement?
For a long time, the German department store groups underestimated the change and did not react. Just look at Spain. The department store company El Corte Inglés realigned itself very early on and is in an excellent position today.

Is the secret of success permanent change?
Yes, you could also see that with the big mail-order companies. We were already online with our entire range in 1995, although at that time less than one percent of our customers had access to the Internet at all. But the companies that said we would start very carefully and wait and see, they no longer exist today.

Why did you take this risk?
It is enormously important to set the course early on when you are doing well. Then you still have the means to invest in the transformation.

When the Otto Group was founded, her father immediately focused on mail order. Was that an early skepticism about the branch trade?
No, that was a lucky coincidence. After the war he started with a shoe factory and then switched to shoe mail order because he saw good opportunities there. In the first catalogue, photos were still glued to the pages and it was held together with a cord. The second was then already printed and bound.

They then gradually switched the company to e-commerce. How difficult was it for you to get rid of the Otto catalogue?
That was certainly a drastic story at the time. More for the customers than for us. Basically, we didn’t decide it, but the customers, who already ordered more than 90 percent online and no longer via the thick main catalogue.

“We don’t want to copy Amazon”

You got into e-commerce early on, but then Amazon set the standards in Germany. How did that happen?
Amazon financed itself via the capital market and was lucky enough to find investors who financed it with billions, despite years of losses and numerous changes in the business model. Even today, they mainly make their profits from services such as retail media and the cloud business. This enabled them to do many things in commerce that other companies that depended on profits could not do.

>>Read also: Eco-pioneer Michael Otto turns 80

Otto would have had every opportunity to set up his own marketplace back then. Haven’t the traditional retailers recognized this potential?
Like Amazon, we only started building a marketplace much later. This requires the technical requirements and the customer frequencies from your own trading business.

But isn’t it a question of ideas? They had their own logistics with Hermes before Amazon thought about it. As a sender, you knew your customers, so a subscription model like Amazon Prime would have been obvious.
You have to see that it takes a certain amount of time for a traditional retailer like us to become a digital corporation. We made it because we started early. But it also took us many years to turn the catalog mail order into such a strong online business and now successfully build up a marketplace with otto.de. When you start a new business, it’s a lot faster. You can see that in our group company About You, for example.

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Looking back, should you have been more adventurous to keep up with Amazon?
If anyone was willing to experiment, it was us. We were the first in the BTX, the first in e-commerce, we set up the first funds for start-ups, and today we have holdings in over 300 start-ups. We have always been very innovative, we even had the first virtual dressing room in 2001, when the metaverse was not even conceivable. No, in the end it is and remains a question of the time required for a company transformation and the financial resources.

Still, it wasn’t enough to beat Amazon. Are you happy as a strong number two?
After all, we are the strong number two. We don’t want to copy Amazon, we just have a different concept. We offer a more personal service, attach great importance to sustainable products and only allow retailers to our marketplace who comply with environmental and social standards, pay their taxes in Germany and are available for complaints. It is better to develop something good more slowly than to take big steps towards something that we cannot stand behind. We don’t want growth at any price.

Mr Otto, thank you very much for the interview.

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