Dusseldorf, Berlin The Otto Group had tried everything to save the subsidiary Mytoys. As recently as February, Otto board member Sebastian Klauke said, referring to the wave of layoffs at other digital companies: “We will not lightly part with employees who we might need again in a few months.”
But he also added: “In times like these, it is not serious to rule out any measures.” Less than two weeks later, the day of truth came. Otto is closing the online toy retailer Mytoys and the 19 affiliated branches in Germany. 800 employees lose their jobs.
For years, online sales in Germany only went in one direction: upwards. But now there are weekly reports of business closures, retailers are going bankrupt, even heavyweights like Zalando are laying off hundreds of employees.
The bad news: Experts expect more bad news. “Many unprofitable companies will exit the market,” predicts Alex Graf, e-commerce expert and co-founder of the digital consultancy Etribes. The good news: “Those who remain have the opportunity to grow more profitably,” Graf is certain.
Rainer Münch, trading expert at the Oliver Wyman consultancy, sees no end to the upswing in e-commerce, but rather a necessary cleansing of the market. “We see a selection in online retail,” he emphasizes.
Corona pandemic has masked problems at online retailers
“Companies that lack a clearly differentiated value proposition from the customer’s perspective and who cannot get their costs under control are now getting into trouble,” observes the consultant. However, the well-positioned companies would benefit from the adjustment and return to the path of growth.
This adjustment would probably have come even earlier if the extraordinary boom in e-commerce caused by the corona pandemic had not covered many problems for two years. When most of the shops in the cities had to close, many online retailers did the business of their lives – without having to do much for it.
But it was precisely this explosive growth that was fatal for many a company. “Apparently, many start-ups simply scaled their administration as they grew, without adapting the structures and processes to the new size and the changed requirements,” says retail expert Münch. “This creates an inefficiency that can jeopardize the company when the environment becomes more difficult.”
A study by Oliver Wyman has shown that there are productivity differences in overhead costs of up to 50 percent among online retailers. “That’s considerably higher than with stationary retailers,” notes consultant Münch. The differences in productivity were particularly evident in the use of resources for IT and marketing. “In e-commerce companies, however, central functions such as accounting or human resources are also characterized by a surprising number of manual processes that have long been automated or outsourced in large corporations,” he criticizes.
Windeln.de goes bankrupt without ever having made a profit
A classic example of an online retailer that never had its costs under control is the former e-commerce star Windeln.de. In 2015, when it went public, it was valued at half a billion euros, but to date it has never made a profit. In 2021 he reported a minus of 13.5 million euros, with a loss carried forward from previous years of 171 million euros.
Windeln.de also did not have its costs under control.
(Photo: dpa)
Windeln.de saved itself from the pandemic with a bang, and on January 30, 2023, the Munich district court opened insolvency proceedings. Since the insolvency administrator Ivo-Meinert Wilrodt could not find an investor, the remaining goods are sold off and the company then closed.
>> Read also: Baby supplies dealer Windeln.de is being wound up – no investor found
The current reluctance to buy is also causing problems for brick-and-mortar retailers who only do e-commerce half-heartedly and offer customers no added value compared to pure online retailers. You have the costs of the digital construction – but little benefit from it. This has helped companies like Galeria and Peek & Cloppenburg go into insolvency proceedings.
Apart from such extreme examples, however, the majority of online retailers are still doing good business despite the recent slowdown in growth figures. “Online trading has had one year of growth after the other,” says e-commerce expert Graf. Now it will be consolidated for the first time. “But no matter how bad things are going in e-commerce – things are going worse in brick-and-mortar retail,” he emphasizes.
This is also shown by the figures from the online trade association BEVH. Total sales in the fourth quarter of 2022 were 24 percent higher than in the fourth quarter of 2019. A total of 90.4 billion euros were sold in online retail in Germany. For everyday goods, sales even increased by 94 percent compared to the level before the pandemic. Even when it came to clothing, it was 14 percent higher.
“Consolidation in e-commerce will continue for the time being, spontaneous purchases in particular are currently being postponed,” says Martin Groß-Albenhausen, general manager at BEVH. The bad consumer mood hit the entire trade. “As soon as it improves again, we expect e-commerce to grow faster than the overall market again.”
Zalando benefits from its marketplace business
That should also apply to the recently scolded fashion retailer Zalando. He is also currently struggling with the slump in consumption. But since 2019 it has increased its sales by 80 percent and, according to figures from the market researcher Euromonitor, has grown significantly faster than online fashion retail in Europe.
Experts see a plus point at Zalando in the fact that the business model goes well beyond actual retail. Similar to Amazon, Zalando now offers other retailers and especially brand manufacturers its infrastructure with department stores and shipping for a fee.
The company also joins forces with retail partners who choose the Zalando platform as an additional sales channel. In 2022, partners accounted for 36 percent of the gross merchandise volume achieved on the fashion portal. The proportion is set to rise to 50 percent by 2025.
E-commerce expert Stefan Wenzel believes that this is the right strategy and justifies this assessment with the fact that sales are generated without one’s own inventory risk and markdowns do not burden one’s own gross margin. The range and selection for customers are also growing, which brings Zalando closer to its goal of becoming the first point of contact for fashion on the Internet.
The Munich fashion retailer MyTheresa has managed to do this – at least for its luxury fashion market segment. Hardly any top brand can avoid selling through MyTheresa, the affiliate program is growing rapidly. Accordingly, total revenue via the platform rose by 21.3 percent to EUR 747.3 million in the 2021/22 financial year.
>> Read also: Otto discontinues the business operations of the subsidiary Mytoys
Mytoys also wanted to save itself by turning the retailer into a marketplace. But it lacked the relevant size to become the first point of contact for brands and customers, and on the other hand it was unable to offer its partners any relevant additional services. In view of the tough competition, there was only one conclusion for Otto: “Against this background, the success of an absolutely necessary turnaround, combined with further high investments and increasing cost and market pressure, can neither be planned seriously nor is it realistic.”
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