This should not come as a surprise. Big retailers, especially vertically integrated ones like Zara and H&M, got big in a world were one shopped in whatever was nearby. Bring everything inhouse and build retail stores around the world and you can reach the people with your products.
It is different online. Online, one destination (increasingly this means: one app) is enough. It’s the retail store in everyone’s pocket. You don’t need the best locations in every city. You “only” need a position on the home screen. A company focused on the online experience like Zalando is better equipped to deliver a superior online experience than traditional retailers trying to bring online and traditional business smoothly together.1
Everything else being equal, a better online user experience leads to faster online growth. The next step, which is already underway at Zalando, is to use this reach to cover more of the industry one operates in. The “platform”. Because access to customers is always valuable, once significant reach is established this position can be increasingly used to persuade other companies to come on board. (This is how the Amazon Marketplace got big, for example.) Once more and more companies are on board, the platform/marketplace itself becomes more atractive to end customers. And the cycle continues.
This expansion of the core product from a retail operation in the traditional sense to something more comparable to a marketplace is only possible in a digital context. Neither Zara nor H&M could “open up” their retail stores similarly to all brands which might want to come in. There is, simply put, a physical barrier that is not there when it comes to online. (And we are not even talking about the obvious brand implications here. One could argue that Zara and H&M could do something similar with their apps as Zalando is creating right now. But besides the very important questions wether the structures and incentives would be aligned for this, there is also the question on brand identity. The strength of both Zara and H&M lie in their vertical integrations. But therein also lie strategic limitations.)
Done right, this ‘opening up’ leads to a virtuous cycle. The final stage of this would be people looking too Zalando as their default destination for fashion shopping, their fashion search engine, their fashion social network, their fashion browser – take your pick.
Recently, Zalando has been ramping up the B2B side of its platform play, with an investment in French B2B service provide Le New Black being the latest announcement:
You may see a pattern here: Recently Zalando bought marketplace services provider Tradebyte, helping fashion brands and retailers “to help digitize the stock”. Le New Black’s slogan is “Digitize Your Wholesale”. Zalando also recently invested in Anatwine, sort of a UK based alternative to Tradebyte.
As I recently laid out, Zalando is very much building an (all of the fashion industry encompassing) B2B platform.
We are rapidly getting to a place where fashion brands can not avoid the Zalando universe, even if they would want to.
Combine this with a mobile dynamic where it is going to be increasingly hard to convince customers to install your app so they can shop in your shop. The more all-encompassing the Zalando apps become -“I can find almost everything I need and want there”- the more like outliers apps from single retailers like Zara and H&M are going to look like. Both from a setup point (“I already have a Zalando account”) and from using the app.2
It is comparable to Zara and H&M rejecting to set up shop in malls. This may sound like hyperbole today, but to customers it will increasingly look like this.
This gravity pull by platforms/marketplaces should not be underestimated.
It can be observed at Amazon’s marketplace, one of it’s three pillars. Once huge enough, the marketplace vendor can dictate terms to, for example, participating brands. With Amazon, those terms are increasingly at the squeezing side of things. Access to customers is always valuable, and thus a great lever in negotiations.
This is the point: The one who owns the customer will own the rest of the industry as well.
Robert Gentz, co-founder and Co-CEO of Zalando, told Wired UK last year that a trip to China changed his view on how e-commerce can work. Back then, I wrote about the potential inspiration and the implications of a new e-commerce order:
One can only guess what Gentz is referring to exactly but both Alibaba’s Taobao and Tmall and Tencent’s WeChat (the mobile messenger gone full-on platform) are platforms owned by companies with own agendas; and there is hardly any e-commerce business in China outside these platforms. One well known example for what this can mean for companies wanting to conduct business on these platforms is what happened to Uber this summer: “In Uber’s Quest to Win Over China, Tencent Blocks the Way”, Bloomberg wrote.
The journey for Zara et al is laid out right there. Even though these retailers today are still far bigger than Zalando in every sense, I see Zalando overtaking and dominating them given enough time.
The questions thus are:
- How much time?
- And what is going to happen in the meantime?
- Zalando’s B2B Expansion: Investment in Le New Black, 120+ Brand Shops on Zalando
- What the Takeover of Amaze Tells us About Zalando’s App Platform
- Zalando buys Marketplace Services Provider Tradebyte to Bolster Platform Strategy
- Zalando’s Platform is, Unfortunately, Closer to Rocket Internet than to Amazon
- Mobile Dynamics: Zalando vs. Apple Pay
- Zalando’s Plans for the Coming “Fulfillment by Zalando” Service
- Capital Markets Day ’16: Zalando sees Itself as the Spotify of Fashion
- Amazon vs. Zalando In a World Of Apps
- Gap CEO Would Consider Using Amazon to Reach Customers
- Multi-channel is a very dangerous proposition. It suggests synergy within complexity. We have yet to come across a case where the complexity within multi-channel does indeed create synergies next to its massive operational and strategic costs. ↩
- Unless a traditional retailer goes all in, apps won’t be part of their core competencies. Hence increasing quality discrepancies between apps from online pure players and apps from other retailers. ↩