Rocket is Europe’s Largest Technology Company

The FT reports that Rocket Internet is ‘Europe’s largest Technology group’ though the definition is a little vague. It’s also continuing to bleed money:

However, all of them continue to lose money. Mr Samwer said he expected three of the companies to reach break-even in the next 24 months.

We know Rocket is a pure play outfit i.e Zalando in the B2C fashion space and HelloFresh in the nascent food delivery sector all operate as online only services without the typical fixed assets of storefronts. We also know a little more nowaways about their financials given they’re a public company.

First-half revenues at Global Fashion Group, which brings together five of Rocket’s emerging markets fashion retailers, rose from €256.9m to €418.3m, while adjusted ebitda losses grew from €103.5m to €151.2m.

Revenues rising shows how quickly these types of companies can grow as acquiring customers can happen very quickly. But also just as quick we see mounting losses, typically marketing spend acquiring those customers. Rocket hasn’t been shy at spending money on traditional marketing either. The question is, and similar to SAAS type businesses in enterprise software that are also growing fast, can they acquire customers profitably in the long term?

That question is the question mark over ecommerce. We’re only twenty years into ecommerce as we know it but what will it look like in another twenty? And will these guys be giants or perhaps long forgotten?

Five Key Features of Chinese E-commerce

The E-commerce sector in China is an incredibly lucrative one. An internet penetration rate of just under 50% results in 600 million Chinese citizens having access to the internet. E-retailing is therefore a key opportunity for western brands who can establish a presence in the mysterious orient without having to physically move operations here. With the large potential consumer base coupled with the relatively low costs of operating online, this is a significant opportunity for western brands.
Here are five unique features of Chinese e-commerce.
China is the largest market for e-commerce in the world
Forbes reported that in China “the e-retail market is estimated to grow to over $1 trillion by 2018”, it could therefore become larger than the e-commerce markets of the U.S, Britain, Japan, Germany, and France combined. There were more than 360 million online shoppers in China in 2014, more than the entire population of the U.S. Due to rapid urbanisation in China cities are increasingly more congested, polluted and crowded with more pressure put on infrastructure and public services. Many Chinese as a result turn to online shopping to avoid the crowds, this coupled with faster delivery times leads to more purchases.
The Chinese popularly purchase fashion items, cosmetics and entertainment based products online.
E-commerce has ‘gone mobile’ in China
E-commerce has truly gone mobile in China, online shopping conducted on smartphones, tablets, and other mobile devices will reach US $334 billion in 2015, mobile shopping will thus account for 49.7 percent of ecommerce expenditure. With the rise of the smart phone/tablet (phone sales have increased 17% from the previous year) and user friendly apps, the Chinese consumer’s life is increasingly centred around their mobile. This produces an avid consumer who seeks to purchase ‘on the go’ without relying on physical stores or locations.
The e-commerce landscape is different
The e-commerce market is unique in China largely due to internet censorship, many western e-commerce giants have not been able to successfully expand into the middle kingdom due to state restrictions. This is also evidence that the Chinese market is very different, you cannot simply transplant an existing business model that works in the west into China.
As a result the largest e-commerce websites in China are domestic firms that have grown to cater for the unique demands of the market here.
Who are the main players?
The Chinese internet giant Alibaba own the two largest e-commerce platforms.
Tao Bao – Tao Bao is owned by online giants Alibaba and is the most successful online retail platform in China. Taobao facilitates consumer to consumer (C2C) retail by providing a platform for small businesses and entrepreneurs to open online stores. Sellers can post goods to sell at a fixed price but also in auction (although this makes up a very small percentage of sales).
Unlike eBay who charge sellers on a transaction basis, Taobao offers the basic service to sellers for free.
Taobao also offers an advertising/promotion service to monetize traffic, which sellers will popularly pay to participate. Taobao provides two lists, an ‘organic’ listing, where sellers are listed for free, as well as a ‘paid’ listing, where sellers pay Taobao to increase their exposure to potential buyers.
The Chinese greatly value direct communication so setting up a messaging system between buyers has also proved popular, users can rate sellers and leave reviews which are strongly heeded in China.
TmallTmall has become a popular e-commerce platform where Chinese shoppers are able to purchase international and local brands.
It was launched in 2008 as an e-commerce website with the aim to host official brand ‘shops’. This greatly appeals to the Chinese as there are so many fake and counterfeit goods circulating, they want to ensure brands are genuine and will pay a premium for this.
Tmall Global was then launched in 2014 with the purpose of promoting foreign brands and facilitating their access to the Chinese market. Nowadays, Tmall has more than 70,000 brands in 50,000 stores.

Other sites such as JD.com or yhd.com are also growing in popularity but Alibaba currently have the e-commerce monopoly in the middle kingdom.

The Chinese actively share their purchases on social media

Shoppers are incredibly active in terms of their online communication, they will often share their purchase decisions with their network on social media outlets such as Weibo or WeChat. Many Chinese online platforms offer consumers the chance to share their purchases directly after they are made online. The Chinese particularly place great trust in their immediate social circle so linking e-commerce to social networks is an important cross-over to capitalize upon.
Understanding the right channels and the market is key, many firms will partner with local, specialist agencies to develop this knowledge and utilize their connections in China. Establishing connections with online retailers is key, of course the language barrier can be an issue (there are still relatively low levels of English) so having a Mandarin speaker and their knowledge is vital.
Benji Lamb has lived in Shanghai for five years and specializes in e-commerce, digital marketing, and social networking in China. He is passionate about finding solutions for western firms in the aptly named mysterious orient. For more information see his marketing website and blog.

Future of Ecommerce According to Bill Gurley

Prominent VC BIll Gurley comments on the future of ecommerce at the Sailthru conference. In their words:

In this chat, Bill examines the future of ecommerce and provides his perspective on the future of the unicorn market, how “funnel reversal” is impacting marketer’s focus on google, and why retention is critical to profitability over acquisition’s hold on growth.

Worth watching this video if you’re thinking about your site, third party marketplaces and so-on.

Sir Philip Green Interview

The FT published an interesting interview with Sir Philip Green – the owner of Arcadia whose brands include Topshop – about how ecommerce is changing fashion retail. It leads with the question:

He rose from the rag trade to a retail empire. But can the entrepreneur thrive in an age of online shopping?

And if you’re wondering how one of Britain’s most successful retailers got to where he is today:

It was the second M&S bid in 2004, though, that cemented the larger-than-life reputation of Green as an aggressive, brash, sometimes unpredictable business personality — in contrast to the dull suits running the listed retail companies.

Think about this when you launch your business or are thinking about a new marketing effort; be different.

Customers Rule

It’s not just a trend like so many in ecommerce but a fact; customers rule. It’s the way online retailers respond to customers that helps decide their fate and as the FT notes, this time it’s Boden opening physical stores:

The move underlines the need for purely online retailers to have a physical presence as customers demand the ability to buy online but pick up in a physical store. Some customers are deterred by the inability to try on clothes on and others drive up returns by buying more than one size to ensure the correct fit.

Read the full piece here, an excellent overview of the topic.

Bricks and Mortar Fightback

As I mentioned in my last post, pure play ecommerce is hard. And now as the FT notes, bricks and mortar i.e physical retail are fighting back. The FT neatly sums up the state of ecommerce today:

…the growth of pure-play digital retailers is under threat as their marketplace becomes increasingly crowded. The big beasts of the UK high street have finally fought their way into the sector, meaning that digital retailing is no longer the preserve of digital businesses.

Read full FT article (paywall)