Mit dem CEO von Kinnevik unterhalte ich mich über das Investment in Zalando, die Historie von Kinnevik und natürlich darüber wer das Rennen um die europäische Fashionhandelskrone machen wird. Wir haben das Gespräch im Rahmen einer Konferenz in Stockholm aufgezeichnet. Kinnevik und Beststeller haben die jeweils besten Voraussetzungen in Europa die Konsolidierung der großen Anbieter voranzutreiben und danach vom „Fashionmonopol“ zu profitieren. Teile dieser Diskussion wurden auch im Rahmen der K5 und im Podcast mit Tarek Müller geführt. Alternativ könnte sich z.B. ein asiatischer Player einfach Zalando kaufen, was bezogen auf die Zalando Infrastruktur und Führungsrolle im Segement Fashion bei der aktuellen Bewertung ein recht günstiger Einstieg sein könnte. So oder so werden wir in diesem Bereich viel Bewegung in den nächsten Jahren sehen.

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Online fashion with Georgi Ganev, CEO of Kinnevik

One of the first institutional investors in what was then a Berlin start-up by the name of Zalando, 85-year-old private equity fund Kinnevik is one of Sweden’s largest companies. Georgi Ganev came in as CEO in January 2018 and talks frankly in this podcast about the online fashion market, in which Zalando is a European leader and in which Kinnevik plays an important role as an investor, and about e-commerce and platforms more generally.

“Everyone sitting on assets – especially bricks and mortar – wants to highlight them as an advantage”


Alex:Was Zalando your first e-commerce investment?

Georgi: No, we were pioneers inasmuch as we were invested in the Swedish media group MTG in 1999 when it began to develop its first online retail operations. We’ve been part of Zalando since the early days, too.

Alex: What was your original investment hypothesis when you took a position in Zalando? Around 2010-2011 there was a shift in the perception of e-commerce models away from the idea that the market would come to defined by various category killers and towards the assumption that a few platform monopolists would come to dominate online retail. Has your approach changed since?

Georgi: 10 years back, the industry was far less mature: looking back, there have been so many new opportunities and business models since then, and platforms are one of these developments. From Kinnevik’s perspective, however, the defining feature of the period is actually another fundamental shift – from offline to online. Customers began to see advantages in convenience, price transparency, etc. from buying on the internet. That is the mega-trend that Kinnevik took a bet on, and did so with the team behind Zalando, which was the most important factor in the investment.

Recognising mega-trends early and seeing them from the customer point of view is in the Kinnevik DNA: our company has never stopped transforming its portfolio, and so we sold old assets – like Korsnäs in the paper industry – and shifted capital into e-commerce businesses. At that time, a lot of our shareholders didn’t understand the trend and weren’t particularly appreciative of our strategy…

Alex: Comparing the level of maturity in e-commerce between more developed markets such as Germany or UK and Sweden, would you say that Sweden is two, five or how many years behind? After all, Swedish customers are probably looking for the same level of convenience as German or UK consumers, but it isn’t being offered just yet…

Georgi: In certain categories, online penetration is actually quite high in Sweden, but is much lower in others. What is very clear, though, is that the platform model hasn’t matured to the same extent in the Nordics. One thing behind this is that Amazon is lacking as a driving force in this direction.

(Alex charts Kinnevik’s major e-commerce investments to date: Zalando 2011, then online furniture retailers Home 24, both Rocket Internet businesses; then there was a stake in Lazada, a Zalando-clone for the south-east Asian market)


Alex: Is the Zalando business model easy to copy in other markets or is it more a matter of good timing and good luck?

Georgi: I think it would be too easy to simply say that we recognised the trend early enough and then got lucky. When it invested in Zalando first time round, Kinnevik didn’t deploy all its capital, holding some back which it deployed along the way. Somewhere around 2012, for instance, we injected 272 million Euros, followed by another 100 million the year after. That is quite a lot of money for a company of our size and shows that we have a great deal of conviction in the idea and confidence in the team. It’s one thing to spread your bets and see if you get lucky, but quite another to really understand a model – and then stand behind it.

Alex: So how was the shareholder reception like back when e-commerce was not as mature and you were ploughing in so much money?

Georgi: Very bad! To exaggerate slightly: they asked us what we’d been smoking. The market sentiment was: “Why are they pumping so much capital into a business which will never become profitable – and is overvalued to boot?” At Kinnevik, we were so convinced about the reality of this mega-trend, however, that we continued to invest; and Zalando has now grown into a leading player in Europe.

(Alex outlines the ‘winner takes all’ theory of the platform economy – as well as the pressure to build monopolies given the resources required to acquire customers and the thin margins in digital business models.)


Alex: Is it your strategy to try and erect regional monopolies – potentially by joining forces with other players (e.g. a Zalando-ASOS-AboutYou tie-up)?

Georgi: No, we focus on the company we are invested in and its prospects for success – either within its niche or as something truly scalable across borders (and potentially into other sectors). Zalando, for instance, has built up a strong platform in Europe with many very loyal customers, and at their latest capital markets day in late February, they disclosed their ambition to expand their partner programme – i.e. the marketplace part of the business. The aim is to have around 40% of GMV from third-party sales by 2023-24.

In my view, that is the right strategy: Zalando is leveraging its position to develop from a typical retailer to being the ‘starting point of fashion’. It’s comparable with Spotify as the starting point of music or Netflix as the starting point of film. That’s a big bet, but when you’re Zalando and you have so many customers and so much traffic, so much customer data and relationships to so many brands, you can actually build that position.

Alex: I’ve also read that they are getting rid of their own-brand labels.

Georgi: Yes, and that underlines that they want to become an unbiased platform for other brands. It’s also an issue of focus, because, even as a large company, if you want to be really successful in your niche, you can’t let yourself get distracted. That, in my view, is why Spotify can take up cudgels against the giants of the size of Google: they are the best within music.

Alex: Looking at the Swedish market, Zalando is the fifth or sixth biggest e-commerce business in the country. Are there any local players who can compete with Zalando – and who could compete with Amazon, were it to enter the market here?

Georgi: Local knowledge is always an advantage, and we have some strong candidates with a loyal customer base: Boozt in fashion and Nelly for some segments, for example. It’s difficult for challengers from outside, but over the last two years, Zalando has been putting significant resources into the Nordic region – both on the fulfilment side, with a new centre here just outside of Stockholm, and a product range more focussed on local markets. As such, over time, it will be difficult for home-grown players to get by on local knowledge alone.


Alex: I can’t see any advantage at all from being a local player, actually. From an investment point of view, how attractive would a local Scandinavian e-commerce start-up in a segment like furniture be? Is there is enough potential to do what Spotify did and grow out of Sweden into other markets? Especially given that your investment in Zalando was almost ten years ago and the market has changed a lot since then…

Georgi: Maybe I wasn’t clear enough: I think there is an initial local advantage, but over time, I agree with your assessment. It’s scaling that matters. In today’s market, I would rather focus on investments in the eco-system around e-commerce. Talking about platform models, for example, that can be anything from simple traffic aggregation through to offering a whole customer experience throughout the value chain; the Shopify or Ocado models takes things a step further and sells technology to retailers who want to go online. On top of that, there are eco-system elements such as payments or last-mile logistics which are attractive.

(Alex outlines what he sees as a lack of a sense of urgency on the boards of many companies with analogue backgrounds who fail to recognise how platforms will become a threat in their industries.)


Alex: What is the situation vis-à-vis Amazon et al. in corporate Sweden like? Is there a general understanding of the platform economy at board level here?

Georgi: They understand that consumers are moving online, but what certainly is the case is that everyone sitting on assets – especially bricks and mortar – wants to highlight them as an advantage in this transformation. Honestly, however, I have not seen one single company globally which has been highly successful in transforming from an online to an onmichannel or online business.

One case people often talk about is Nordstrom in the US, who have spent many years on their transformation – only to come out with the same profits, or somewhat less. What that shows is that the costs linked to physical infrastructure like stores make transformation very difficult. Yet typically, when I meet people on the boards of this kind of company, they are generally trying to tell me that these legacy burdens are actually assets.        

Alex: I agree 100% with your assessment. So what is the strategy for these companies? “Try again!”?

Georgi: They have to transform in order to survive: it’s a defensive strategy – and they have no choice. That is where the window of opportunity for pure players lies: capturing the market while the offline players are still running around in circles and talking to consultants. That is precisely what Zalando did until the large offline retailers realised that e-commerce wasn’t just some passing fad and actually the way many customers prefer shopping.


Alex: Do you see better chances for B2B businesses?

Georgi: I see no reason why this sector won’t develop in the same way. Nevertheless, it is currently lagging behind and I think the reason is that a lot of B2B sales are based on relationships with salesforces which create customer loyalty; that will change as time goes on, however, and we can see how fast Amazon Business is growing in the US – especially in the SME segment. That is where we will definitely, in my view, see platform solutions similar to those on the B2C side.

Alex: So what would be your strategic advice to manufacturers? Get onto Amazon and focus on that? Build their own e-commerce infrastructure? Partner up with Zalando if they’re in the fashion industry…?

Georgi: There is no silver bullet out there – and we’ve just heard a presentation at this conference about the difficulties of being a seller on the Amazon Marketplace. My message would be that you need to put a lot of thought into your go-to-market strategy and find a balance between all of the channels.

(Many companies understand what is happening and how Amazon is a threat, but have trouble applying their platform strategies, observes Alex, and asks why. Is the issue one of HR resources, legacy commitments, execution capability…? Georgi says that, in his view, it boils down to poor execution.)


Alex: Are there things you look at today and ask “Why the hell didn’t we invest in that back then?!”

Georgi: As investor there are always missed opportunities to take a position or cases which you didn’t take the time to evaluate fully. In alphabetical order, AirBnB would have been a good company to invest in early on…

Alex: Did Kinnevik pass up a chance to do so?

Georgi: As a long-term investor with patient capital and a good track record, we have the opportunity to invest in all sorts of companies. That isn’t to say that we are welcome everywhere, of course, and there are competitors out there; but we have something unique in our long-term approach and proven company-building competence. Then there’s the letter B: would have been nice… Seeing what is happening in the e-commerce ecosystem, we have not just the opportunity, but the obligation to look at adjacent investments and get in early enough.

Alex: So what you’re saying is that, essentially, there are no good opportunities in e-commerce markets such as fashion, furniture, consumer electronics anymore, so now you’ll be investing in things like warehouse management software – is that right?

Georgi: We have four sectors in which we invest: telecommunications, financial services, healthcare, and e-commerce/marketplace. What we try to understand are changes in consumer behaviour in these sectors – and what they will lead to. One example would be our investment in a last-mile logistics company in Sweden called Budbee. We all know that last-mile logistics is key to customer satisfaction, and with this e-commerce insight, we thought it would be interesting to make investments in this kind of space; as such, we’ve also invested in two online grocers, Kolonial in Norway and MatHem in Sweden. These might not be cross-border scalable models, but that kind of local last-mile network is an infrastructure play. If you serve 10 out of 20 houses on a given street with food deliveries once a week, you build up a customer relationship which very difficult for the second, third, and fourth players to capture. It’s either that, or an asset-light model which scales globally without intensive consumption of capital.


Alex: We know what risks are for legacy companies: what would you say the biggest risks are for companies like Zalando, though?

Georgi: There are two key challenges. Firstly, how do you keep your entrepreneurial spirit and speedy decision-making as your company expands into a larger organisation with layers of management? When I meet with the founders of Zalando, I’m always very impressed with how they talk about their culture, because this sort of things comes from the top.

The second thing is focus. As you grow, it’s easy to kick off lots of initiatives because you have the opportunity – i.e. the cash-flow or the venture capital. Later, though, you have to prune, and that means shutting things down that don’t work. In a larger organisation in which everyone wants to protect their business, that is something I see companies struggling with.

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