GLOBAL RETAIL STRATEGY

Review of Otto Group’s internet retailing revenues

PRODUCT STRATEGY

Does Otto Group have too many apparel retail brands?

O

tto Group has a number of apparel retail brands which are generalist in nature. This means that they sell a wide range of apparel items targeting both male and female consumers.

I

n addition to being generalist, most of these retail brands target older consumers. This has allowed rivals to compete in this space.

R

ather than have so many brands competing in the same market, Otto Group should target different demographic groups.

Main Apparel Generalist Retail Brands

in 2011

Specialist

PRODUCT STRATEGY

Otto well placed to benefit from increased distance sales

Europe features prominently in highest per capita distance selling markets

Seven of the top 10 per capita distance selling markets are located within Western Europe, where Otto has a strong presence. Typically, homeshopping in these markets has been gradually replaced by internet retailing and catalogues are increasingly being used as web traffic drivers. However, older consumers in some markets, such as Japan and Germany, prefer to purchase products over the telephone and consequently homeshopping remained an important channel in these markets in 2011.

Change in demographics set to make Japan an increasingly important market for Otto Group

In 2011, Germany was the second oldest market in terms of median and mean age. Consequently, a number of retail brands that Otto operates target the older consumer. The only market in the world with a higher average age is Japan and, therefore, many of the same brands which feature in Europe would fit well in Japan.

PRODUCT STRATEGY

Bigger drive needed to expand non-apparel retail brands

Limited geographic scope for many of Otto’s non-apparel retail brands

Whilst Otto operates a wide variety of non-apparel retail brands, many of them are only available in select countries. Given that much of the cost structure for non-store retailers lie centrally, it seems inefficient to limit the geographic scope of non-store brands to a handful of countries.

One of the barriers for Otto’s websites will be localisation of language and currency for international consumers. However, many of its apparel retail sites are multi-lingual and support consumers from countries as diverse as Turkey and Russia. Ultimately, the potential increase to sales from international consumers will outweigh the costs of localisation providing Otto can maintain an efficient shipping and handling system.

Otto Group: Non-apparel Geographic Presence by Retail Brand in 2011

Crate & Barrel Quelle Shopping24 SportScheck Manufactum Baumarkt Direkt myToys.de

PRODUCT STRATEGY

Appliances to join electronics as major distance sales category

Although Otto Group is well positioned to benefit from strong growth in apparel internet retailing, it has somewhat neglected other potential growth areas within internet retailing.

Sales of both electronics and appliance products over the internet are expected to grow rapidly over the 2011-2016 period. Quelle is Otto’s primary retail brand for these product areas. However, the German-based retail brand only delivers to consumers in the German market.

Expanding its geographic scope to include delivery to other key European markets could yield rapid growth.

OPERATIONS

Locations of headquarters show extent of decentralisation at Otto

OPERATIONS

Otto benefits from its advanced logistics arm, Hermes

tto Group offers logistic services

uch like its competitor Amazon.com, Otto has developed a state-of-the-art and efficient supply chain, which, at the end of the review period, it is increasingly leveraging to establish itself in the business-to-business market, by offering logistics support to other internet retailers. Services include warehousing, fulfilment and webshop operations.

tto provides a full range of services, through to customer delivery, through its subsidiary Hermes. Otto claims that Hermes delivers over one million consignments to private households each day. In 2009, it launched shop2shop, a service that allows its customers to have their private parcels delivered from one shop to another for customer collection.

tto Group adds to roster of leading websites

tto made the jump to become a multi-channel distributor in the mid-1990s. In 2012, it includes 123 major companies and almost 50,000 employees in 20 countries.

tto Group key companies and interests

lba Moda, Baumarkt Direkt, Baur, Bonprix, Crate & Barrel, Discount24, EOS, Frankonia, Freemans Grattan Holdings, Hanseatic Bank, Hanseatic Versicherungsdienst, Hansecontrol , Heine, Hermes Europe, Hermes-OTTO International, Küche&Co, Lascana, Limango, Manufactum, Mirapodo, myToys.de, OFT, OTTO, Otto Group Russia, Otto Japan, OTTO Office , phi-t products & services, Schwab, Shopping24, Smatch.com, SportScheck, 3 Suisses International Group, Witt-Gruppe, Yalook.