Set-up and development of a successful e- commerce

Set-up and development of a successful e- commerce Universita degli Studi di Siena Facolta di Economia R. Goodwin Daniele Bruttini Siena, November 17 th 2014 1

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando And now? Conclusions 2

Background and experiences 2007 2007 2008 Bachelor of Science (BSc) in Economia e Commercio Universita degli Studi di Siena Exchange period (Erasmus program) at W.H.U. - Otto Beisheim Business School of Management, Vallendar Germany 2008 Summer internship at Intraworlds GmbH, Munich Germany 2009 Master of Science (MSc) in Business and Management Universita degli Studi di Siena 2009 Founding of Energiachiara.it, Siena - Italy 2010 2011 Business Analyst at Bip Business Integration Partners Spa, Rome - Italy 2011 2012 Country Manager Italy at Wimdu, Rome - Italy 2012 2014 Commercial Head Italy at Zalando Italy, Berlin and Milan Germany and Italy 3

Energiachiara.it Energiachiara.it is a marketplace with the purpose to allow energy and gas companies to get in touch with final consumers. Energiachiara.it was established in 2010 following the liberalization of the energy & gas market in Italy. At first, the company only focused on the needs of the Retail market. In 2012 a second business unit targeting small and medium companies has been launched. 2010 Foundation 2011 Launch of the business unit «Imprese» 2010 Launch of the business unit «Retail» 2012 Agreements with commercial and financial partners 4

Energiachiara.it the business model Energiachiara.it collects energy and gas tariffs directly from the suppliers The final consumer can switch to the new offer / supplier with the support of Energiachiara.it Business Unit Retail The final consumer can compare the different offers and the choose the one that best fits his needs Business Unit Imprese Energiachiara.it has access to special tariffs thanks to the established relationships with the suppliers EC will support the consumer with the process of switching to the new supplier / offer The final energy and gas consumer can get access to favourable tariffs thanks to EC 5

Wimdu The company Wimdu is an online platform with a wide range of private accommodation that stretches as far as your imagination is willing to take you. Wimdu aims at connecting guests and hosts all over the world, inspiring unique encounters that allow you to discover a new way of traveling, staying true to our slogan 'Travel like a local'. Wimdu works as an online booking platform. Everyone can list his own apartment on Wimdu when respecting some basics criteria. Listing an apartment is completely free, Wimdu charges a fee on every booking from both the host and the guest. Hosts Guests 6

Wimdu Key facts Wimdu Key facts Established: March 2011 Amazing international and national media coverage Headquarters: Berlin, Germany > 15 languages > 100 countries > 350 employees > 50,000 properties > 100,000 registered users > $90,000,000 financing 7

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando And now? Conclusions 8

Setting up an e-commerce: challenges, opportunities and threats E-commerce is one of the fastest growing sectors in the World. In 2012, the total value of the ecommerce sector in the World has reached approx. $ 1.025 trillions, + 21% compared to 2011. North America (USA and Canada) is still the largest market but Asian countries are growing even faster Growth in Europe has been even higher, + 22% compared to 2011, with a total market value of 305 billions. UK, Germany and France are the biggest markets, Eastern European countries (i.e. Poland) are growing significantly Source: Report L Ecommerce in Italia 2013, Casaleggio Associati 9

Italian e-commerce market with biggest growth in Europe in 2013 223.6 Source: Osservatorio ecommerce B2c, Politecnico di Milano 10

Italian retail landscape: ecommerce is growing fast but still represents a minor share of total retail market Source: Osservatorio ecommerce B2c, Politecnico di Milano 11

The success of every e-commerce company is based on four main pillars Product and User Experience: simplicity is the priority for every ecommerce. Your webpage needs to be simple and develop product which is simple, consistent and a strong and easy-to-use product. Make sure you can track the behavior of your customers and adapt your webpage to their needs Operations (logistic system and customer service): through your operations structure you will establish a direct contact with your customers. It s the key to build and enforce the trust in the company Marketing: a strong and successful online marketing team will allow you to target the right customers and improve efficiency of your marketing expenditures Procurement: create an offer which reflects the needs of your targeted customers 12

Setting up an e-commerce: main KPIs KPI Area Observations Orders Revenues It s the main indicator to look at to evaluate daily performances Basket size Revenues It can be influenced with discount campaigns, payment methods and sorting algorithm Returning customers Revenues Increasing the share of returning customers is key to be profitable Discount Rate Return Rate CPV (Cost per visit) Revenues Revenues Marketing Discount rate has a direct impact on the PC3. It can be influenced through marketing campaigns and sorting algorithms. It needs to be at a sustainable level in the long term Return rate could vary significantly for different categories of products or different markets Cost per Visit is different across all the marketing channels. It could be very high for TV and relatively low for SEM campaigns CAC (Cost Acquisition Customer) Marketing CAC will be very high at the beginning. CPO (Cost Per Order) Marketing CPO will be very high for specific marketing channels (i.e. TV) and during scaling periods. In the long term, with improvements in mkting channels efficiency, it will get lower Conversion Rate Marketing It s usually low at the beginning and sometime also during scaling periods CLV (Customer Lifetime Value) Marketing Customer Lifetime Value needs to be higher than CAC in the long term COGS P&L account A lower COGS value could be achieved through better negotiations with the suppliers PC2 per order P&L account PC2 per order should never be negative, not even at the beginning Costs / Sales ratio (CSR) P&L account It shouldn t be higher than 45% at the beginning PC3 EBIT P&L account P&L account PC3 depends on PC2 and CPO, it is necessarily negative at the beginning and during the scaling period EBIT is the final indicator of the sustainability of the business. It s usually negative 13 for the first years of the company

A typical order for a newly launched country is different to a typical order later on 14

Be aware of country specificity: economic characteristics don t necessarily explain the success of a market 15

Setting up an e-commerce: the acceptance of the business in a country can be influenced by many external factors 16

Share of returning customers can be related to the competitive environment and the mkting expenditure 17

A negative EBIT is endogenous at the beginning of an ecommerce startup due to the high level of cash outflow required to launch the business (in particular for marketing) 18

PC2 per order indicates the net profit per order before marketing costs. It can vary significantly depending on the country but should never be negative 19

Country specific adjustments can have a strong impact of the performances of the business 20

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando And now? Conclusions 21

Rocket Internet - The company Rocket Internet is the World s largest Internet Incubator Rocket Internet was started in 2007 by the Samwer brothers (Oliver, Alexander, Marc) The Samwers had already experienced a wide success in startups and ecommerce. They first founded Alando in 1999 (sold to Ebay in 1999 for $ 54 mln) and then in 2000 Jamba (sold to Verisign in 2004 for $ 273 mln) Rocket Internet, headquartered in Berlin, is behind many successful startups, among which MyCityDeal (sold in 2010 to Groupon for approx. $ 100mln) and Zalando Today Rocket Internet has 25 international offices in all 5 continents with an operational reach of 50+ countries and 75+ active independent portfolio companies The company directly employees more than 500 people, while employees in Rocket portfolio companies are approx. 25.000 22

Rocket Internet The ventures Selected Exits Most relevant ventures 23

Rocket Internet the reasons behind the success Great entrepreneurial and aggressive approach Strong online marketing competencies Cutting edge technological team (developers) Worldwide expertise in e-commerce Huge amount of financial resources 24

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando The company Some figures Focus on Italy And now? Conclusions 25

Zalando the company Development of revenues of Zalando 2012 Online in 14 countries 2011 Expansion beyond DACH and beyond shoes 510 >1.100 2008 founded in Berlin 154 2010 2011 2012 2013 We create the world s best online fashion experience # 1 in Europe 26

Zalando the international growth 2011 2012 27

Global financial institutions trust Zalando New: Anders Holch Povlsen Investors Bank loans and credit lines Credit insurances 28

The promise we make can only be sustained by state of the art technology and extensive warehouse growth Großbeeren Winter 2011 Brieselang Summer 2011 Marquardt Summer 2012 Erfurt Fall 2012 Mönchengladbach Spring 2013 29

Zalando Company structure (old version) 30

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando The company Some figures Focus on Italy And now? Conclusions 31

Over 21 milions of visits every month Growth of number of visits per month Period: Dec 2008 Dec 2012 German Marketing Award First TV Spot for Sports Zalando Outlet Store EFFIE Award First TV Spot Zalando Sports LAUNCH Zalando LAUNCH Dec 2008 Apr 2009 Aug 2009 Dec 2009 Apr 2010 Aug 2010 Dec 2010 Apr 2011 Aug 2011 Dec 2011 Apr 2012 Aug 2012 Dec 2012 32

With a unique promise to consumers we grew a sizable business Our Promise Our Business Free delivery Over 10 million customers* Free return within 100* days More than 3,000 employees (avg. Age 28) Free customer service line >150,000 articles >1,500 brands No hidden fees Over 1bn net sales in 4 years *Not all countries ** 2012 33

7 main categories ensure the best shopping experience Women Men Kids 1,500 Brands 150,000 Products Accessoires Sports Premium Home Coming from Women Shoes we are now organized along categories, driven by dedicated teams 34

Zalando provides inspirational shopping, drags generic traffic and therefore is no competition for own e-com 1 2 3 4 Onsite Onsite traffic Catalogue navigation Top navigation Internal Search Onsite Teaser Brand Direct-type-ins TV Print Offline Brand specific online marketing 5 6 7 Online SEM SEO CRM

Our ambition: Outgrow a growing market Growth in European fashion market is driven by Online retail with Zalando poised to outperform in billion EUR 228 238 +4% Footwear 23 Apparel Continuing international growth and growth in newer markets 13 +77% Continuing to grow beyond women shoes Leveraging a large and increasingly loyal customer base 2011 2014 2011 2014 Total Market* Online Market** Source: * Euromonitor ** Forrester Research

Main drivers for Zalando success 1. Extremely number driven company: What you cannot measure does not exist 2. Attention to details: Retail is Detail, Fly high and Deep Dive 3. Strong online marketing competencies 4. Quick and efficient logistic system 5. Strong focus on customers behaviors (User Experience): Always put yourself in your customers shoes 6. Efficient and reliable Customer Service 7. Get local: adapt products and services to the specificity of each markets: i. Have a wide and country specific offer (products, etc.) ii. Country specific management teams iii. Country specific webpage 37

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando The company Some figures Focus on Italy And now? Conclusions 38

Focus on Italy: Why Italy? 1. European 4 th biggest markets (GDP) 2. European 3 rd biggest European fashion market 3. European country with the highest fashion expenditure per capita 4. Weak competition 5. E-commerce is a fast growing market in Italy (CAGR: + 18% between 2009 and 2013) 6. E-commerce success stories: Groupon, Amazon, flash sales players (Privalia, Buy Vip, Ventee Privee, etc.) 39

E - c o m m e r c e in I t a l y is n o t as a d v a n c e d as in o t h e r E u r o p e a n c o u n t r i e s Ecommerce affinity, 2012 Internet penetration In percent Share of online shoppers In percent GDP per capita (nominal) In thousands USD IT 56% 17% 33 PL 62% 30% 13 FR 81% 57% 41 DE 82% 65% 42 UK 87% 73% 39 NL 91% 69% 46 2 1. 1 1. 2 0 1 4 S o u r c e : E u r o m o n i t o r, 2 0 1 2 v a l u e s 40

B u i l d t r u s t a n d e d u c a t e p o t e n t i a l c u s t o m e r s a b o u t o n l i n e s h o p p i n g a r e t h e k e y c h a l l e n g e s Indexed KPIs (%), April 2013 CR Contact Rate Gross Basket Return rate DE 100 37 100 100 NL 58 40 67 68 IT 32 77 44 22 PL 20 100 47 40 Low Trust in e-commerce Lack of model understanding Not making fully use of the convenience model 2 1. 1 1. 2 0 1 4 S o u r c e ; I n t e r n a l report

Invoice Share LCPO [excl. Transport] Return Rate [value based] In convenience markets, customers are more likely to buy & place larger orders increasing however to RRs & LCPOs Convenience Costs Convenience Benefits Convenience Slow market Convenience Slow market Conversion Rate Convenience Slow market Convenience Trade-Offs Convenience Slow market Gross Basket [EUR] Contact Rate Convenience Slow market Convenience Slow market 21.11.2014

Convenience markets characteristics contribute to much faster growth in mature countries than in less mature ones Convenience Markets Growth Implications Market Penetration Key Take Aways 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Convenience Gap 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Months in marktet 1. Much faster growth in convenience markets equalling in higher market penetration than in Southern Europe 2. Speed is thus required to develop convenience markets and cope with mushrooming demand 3. By contrast, stamina required in Southern Europe to grow markets at slower rate 21.11.2014 Quelle 43

Total Invest into Customer Fulfillment Costs Convenience markets have to burden significant return costs while heavier customer investment needed in slow markets Convenience Markets Profitabtility Implications Convenience market Net Sales bef. Canc/Ret./Disc./Coupon 223% (net) Cancelation 7% (net) Return 116% Net Sales bef. Disc. & Coupon Logistics 20% Payment 3% Service 1% PCII 4 30% 100% COGS 3 45% 24% Slow market 116% 3% 13% 100% 45% 16% 3% 22% 3% 32% Key Take Aways 1. In convenience markets, net sales decision is largely taken at home leading to high return value; by comparison, Southern Europeans rather decide onsite - implying much lower returns 2. COGS and logistics cost structure remain widely similar Marketing 17% Discount 5 10% Coupon 5 2% PCIII 1% 29% 14% 2% -17% 33% 49% 3. Further market development in SE requires higher marketing invest than in penetrated convenience markets 21.11.2014 44 Note: 1) Cohort from Feb-2012 to Jan-2013; 3) COGS are out of scope; 4) PCII = PCII before Discount and Coupon; 5) Discount and Coupon refer to neither returned nor cancelled items.

Specificity of the local market Topics Observations Conversion Rate Low level compared to other Zalando countries. Perfect pricing and improved assortment represent crucial levers Trust project (testimonial project) Return Rate Italy has the lowest Zalando return rate. Italians buy when they are extremely convinced therefore return is physiologically less likely Brand Awareness (aided) TV had great impact. Offline measure under testing (Magazine, educational booklet ) Preferred Payment methods Call-Center Contact Ratio Customer Satisfaction Cash on Delivery represents more than half of the Italian payment method. Strong focus in the current advertising in order to get offliners online Italy has the highest contact ratio with half of the contacts presale and CS represent a powerful marketing tool (telephone orders) Italy has one of the highest customer satisfaction level. Huge efforts in order to achieve First Class Operations Fashionability New home page Add specific Italian brands 45

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando And now? Conclusions 46

Anfoora (www.anfoora.it) 47

Quomi (www.quomi.it) 48

Tiny Shop (www.tinyshop.it) 49

Funding Wonder (www.fundingwonder.com) 50

Miratour (www.miratourapp.com) 51

Agenda Background and experiences Setting up an e-commerce: challenges, opportunities and threats E-commerce success stories: Rocket Internet and Zalando And now? Conclusions 52

Drivers of success of an e-commerce company There is no rule for building up an ecommerce start-up! Product: develop a strong and easy-to-use product Market: clearly identify your target customers and be ready to adapt your offer to what your target customers ask for Online marketing: have a strong and successful online marketing team Service: build an efficient and reliable logistic process; Customer service: always give the possibility to your customers to establish a direct contact with the company Offer: create an offer which reflects the needs of your targeted customers Get local: adapt your company to the specificity of each country you want to target 53

The secrets of success for Oliver Samwer I don t want to talk about building a bakery, I want to talk about a bakery chain Be hungry, aggressive and fast for success. Know your business numbers and do your deals accordingly. Become a stickler for details. Use trial and error to find the right approach. Enjoy making decisions. Be remorseless. Your creativity and ingenuity are the bonus. Know how to persuade people. Choose between the carrot and the stick. Always be flexible. Prototypes can make solutions for you. Master the art of multitasking. Work hard, work hard. Work hard. Be the person of power. Don t waste too much time in consulting companies Being good with people, good at a pitch, is important for hiring new employees and raising money 54

Contacts Daniele Bruttini Mail: daniele.bruttini@mail.com Tel: +39 338 1602193 Twitter: @danibruttini Skype: danbruttini 55