JT: E-commerce features heavily in your investment portfolio; the stake in Zalando is your biggest single holding, and your stake in Global Fashion Group is also in your top five, and you have other investments in Budbee, Mathem and Kolonial. You have been personally involved in the sector during your time as CEO of Dustin – how do you see digitalisation affecting the retail industry going forward, and what are the big trends and their drivers?
GG: I had several operational leadership roles before joining Kinnevik, and the CEO role here at Kinnevik appealed to me much because the company wants to be an engaged and active owner rather than merely a passive investor. In this sense, my operational background has a natural relevance in this role. My specific prior experience from e-commerce can be helpful in our understanding of these consumer trends we have talked about.
Although the online share of retail sales in some categories has now become quite high, we expect the migration from store-based to online sales to continue. The COVID-19 pandemic has sharply accelerated consumers' digital behaviour, and I find it hard to see why this would reverse when the pandemic is over. Many new consumers have now been prompted, perhaps even forced, to try online shopping, particularly in the under-penetrated groceries category. Finding that it is convenient, time-effective and good for the environment, they should be strongly motivated to keep buying online. I also think both pure online retailers and omnichannel players with physical stores will greatly improve their fulfilment capabilities and improve the customer experience for home deliveries. This is why there are great opportunities for service providers like our portfolio company Budbee in last-mile deliveries, payment service providers, and suppliers of customer data analysis, to help professionalise e-commerce fulfilment and stimulate growth.
The whole ecosystem around e-commerce has evolved remarkably in just the last few years. I think this will continue. 20 years ago, we started seeing a shift from physical stores towards one or a few e-commerce players, such as Amazon. Now the shift is from offline to a range of different online players. E-commerce is increasingly being split between actual e-tailers and fulfilment and other service and platform providers.
Zalando is a good illustration of how this can work. It has a technical platform for e-commerce which it offers to retailers, who can choose if they want help with the whole value chain, from client acquisition to purchasing all the way to online sales and home delivery, or, if they prefer, to make use of some components of the platform. There are bricks-and-mortar retailers who use Zalando to establish and run an online presence, often including delivering goods to customers from their own physical stores. Platform thinking is becoming more important across the e-commerce space.
As for growth drivers for e-commerce, I would point to the three "classics": product assortment, price and quality of delivery. But consumers' expectations for the quality of the last-mile delivery have increased dramatically. Price has become less critical than in the beginning. It is important that prices are competitive and stand up to scrutiny, but that is more of a basic hygiene factor.
Delivery expectations have evolved from "I will be happy if the goods are delivered at all" to being able to choose a delivery slot time "for when the goods are to be dropped outside my door". And this shift has happened over perhaps the past five years. Few if any consumers are prepared to accept online shopping with a home delivery "sometime between 8am and 5pm" on a weekday, with physical reception and signature needed. Being able to offer superior fulfilment is becoming necessary, and has increased the relative attraction of online shopping versus visiting a store. And this is helping push the online migration of retail sales further.