For 68 years, shoppers browsed through the Otto catalogue. For a year now, they can place their orders online only. This means that the Otto Group suddenly finds itself competing with global giants like Amazon. Sebastian Klauke is managing this digital transformation.
About Mr Klauke
Sebastian Klauke has been responsible for e-commerce on the Otto Group's Executive Board since May 2019. Founded exactly 70 years ago in Hamburg as a mail order company, today Otto is a globally operating retail and service group with 52,560 employees. With online sales of 7.7 billion euros (total sales: 13.4 billion euros in fiscal year 2018/2019), the group is one of the largest online retailers in the world. Sebastian Klauke already began working at Otto as Chief Digital Officer in 2017. After studying physics, he began his career as a consultant with the Boston Consulting Group. He then founded Europe’s first online shop for used cars, autoda.de.
The Otto catalogue was the shop window to a world of wonders for millions of people. It stopped being printed in 2018. What can you offer the smartphone generation in comparison?
Customers have it even better today. In the Internet I can filter, search and discover products in a completely different way – Otto puts this into practice in a very special manner that is consistent with our DNA.
What does this entail?
Since the era of the catalogue, we have been very customer focused. If you’re looking for a phone number on the web pages of reputable competitors, it’s not easy. But we offer advice to our customers about what to buy and are there for them. This pays off. Which is why we are still a window to the world of wonders.
Is that enough to set yourself apart from competitors who are always just a click away?
No question, the competition has gotten tougher. And it will continue to intensify. Customers expect more every year and we have to keep up, otherwise, we’ll fail. In addition to customer focus, we benefit from the fact that more and more people want to buy from a provider that is verifiably fair and meets certain standards. We are in the fortunate position that we don’t have to come up with PR strategies because Michael Otto took social responsibility and environmental protection into account very early on. We are happy, of course, that these values are also now relevant for our customers.
Do sustainability and fairness also play a role when you make products more expensive?
Customers don’t necessarily want to pay more, that’s true. But they want to know that they can rely on certain standards. Many people want to be sure that their clothes were not made with child labour. For providers, this means not being able to compete in the absurdly low-priced segments. When we actively support suppliers, it allows us to leverage efficiency potentials to work more responsibly. Our clothing retailer Bonprix, for example, is working with manufacturers to dye clothing using water-saving methods, when possible based on natural dyes. This is an efficient and also economically attractive method with huge environmental benefits. And it’s clear that it works. You just have to do it.
In the mass market, other things, digital things, seem to be more important – like voice assistants or video streaming. You don’t have anything like that at Otto.
Of course we use Voice Commerce and Virtual Reality to communicate with our customers. We are not developing these technologies on our own because it’s not economical for us. Our focus is on customer contact. This may seem less spectacular, but our customers appreciate it. I also don’t believe in the theory that only one winner will be left standing in the end. Nobody wants a monopoly. This is already apparent from the high level of interest in our platform strategy for otto.de.
According to your strategy, you no longer want to sell everything on the Otto website yourself, but instead want to turn it into a kind of marketplace – just like Amazon has been doing for years. Isn’t this strategic shift coming a bit late?
No. I think there is a huge need for a counterbalance, both from suppliers and from customers. Everyone wants diversity on the market, and we have noticed that we are successful with our focus on values such as fairness and customer proximity.
"I don’t believe in the theory that only one winner will be left standing in the end.“
How much progress have you made in transforming the company?
The market is moving incredibly fast, and nobody is ever finished – not Amazon, not Zalando. The key ingredient for success is technology that improves customer value, serves the customer, and makes shopping more enjoyable and convenient. Technology is not an end in itself. This is the guiding principle for all of our activities, whether online or offline.
How do things look offline?
Take our Bonprix store in downtown Hamburg: you won’t see any racks crammed with clothes; every item is available exactly once. Everything looks very neat, and the fashions are perfectly accentuated. If you like something, you can scan the barcode of the garment with your smartphone. It is then automatically brought to the changing room in your size.
Where is the item stored?
The store has two parts. Behind the part accessible to the customer, there is a narrow labyrinth for storage and loading. Technology plays an important role here, too: smartphones tell employees where to find a garment because the clothes are in different compartments, not all sizes are together. Why is that? Because it’s faster. If each compartment has only a single garment in a single size, I can grab it right away and don’t have to search through the sizes first.
What has your experience been so far?
Our customers like the concept. This store is actually a laboratory. We’re not doing this to earn unbelievable amounts of money off the cuff. We see it as an efficient way to try things out first-hand with our customers and learn from them.
This year, the Otto Group turned 70. It's not easy to constantly adjust to new circumstances at this age.
It’s often claimed: "I would rather have a 20-year-old wearing sneakers than a 50-year-old in a suit." But that is completely irrelevant. How the employees work and what makes them tick is what's important. We have some great success stories from people who have just joined us from the outside and are driving the rapid development. And we have some great examples of people who have been with the company for 30 years and who have nevertheless become drivers of change because they simply grow with the company.
Many traditional companies find it difficult to cope with profound changes. How do you get employees excited about change, even if it can sometimes be painful?
This is first and foremost a cultural issue. We are investing a great deal of attention, money and capacity in this area. Because we will only succeed in winning people over if we give them the opportunity to help shape change. It would be presumptuous and not particularly smart for us as Executive Board members to think that we are so brilliant that we always set the right priorities. This means that the employees must be able to be involved. Teams need more freedom without generally eliminating hierarchies. Responsibility is still very important. To manage this balancing act, to successfully transform a culture and a way of working, this is the biggest challenge in a digital transformation – not to mention the technological aspects. This is also difficult, but ultimately easier than transforming the identity and the core of cooperation.
All of this costs a lot of money. How are you financing the transformation?
First, we are profitable and finance many investments from our cash flow. We also use borrowed capital, bank loans or special financing – as in the case of the 50 million euros loan from KfW IPEX-Bank, which was put to tender for the digital transformation. That was an essential element in the mix for us.
What has been your biggest hit in the digital business so far?
Without a question, About You, our fashion mail-order company which targets a young, digitally savvy audience and functions almost like a social network. We built a very successful company from the ground up in an online fashion market that was supposedly already completely staked out. This shows how quickly things can change. We started About You five years after Zalando and have a completely different brand identity. The software that About You runs on is also highly successful. We are now also selling our own e-commerce infrastructure as a licensed product and see that we can stand our ground against other providers whose e-commerce solutions have been on the market for much longer.
Sounds like you’re moving farther away from pure mail order. How would you describe the Otto Group today?
We are a digitalised retail and service company. And the services we offer always have a meaningful link to retail. We consciously don’t say, "We’re going to be a technology company." But precisely because we are retailers, we are particularly good at retail-related technology.
This article was published in the autumn/winter 2019 issue of CHANCEN magazine “Wendezeiten”.To German edition
With Hermes, you are also responsible for delivery. Many people like to buy online, but moan about congested streets because of the vans. What are you doing to reduce the impact on the environment?
No question: in its current form, online shopping cannot continue to grow sustainably. However, nobody has a ready-made answer yet. We are pursuing different approaches. At Hermes, for example, we aim to make zero-emissions deliveries to the 80 largest German cities using e-mobility by 2025. In addition, we are striving to improve the status quo, for example with new software that helps our drivers get to their destination faster and increases the likelihood of finding a neighbour who can accept the package when the recipient is not at home. This is because the delivery rate is a key driver of traffic volume.
The described project contributes to the following United Nationsʼ Sustainable Development Goals
Goal 8: Promote inclusive and sustainable economic growth, employment and decent work for all
The economic growth of the past decades has come at the expense of natural resources and the global climate, and has long since reached ecological limits. If all people were to be given access to the quality of life that people accept as a matter of course in Germany, several planet Earths would be required to sustain it. Sustainable economic development reconciles social, ecological and economic development goals.
All United Nations member states adopted the 2030 Agenda in 2015. At its heart is a list of 17 goals for sustainable development, known as the Sustainable Development Goals (SDGs). Our world should become a place where people are able to live in peace with each other in ways that are ecologically compatible, socially just, and economically effective.
Published on KfW Stories: 19 November 2019.