For the first time in 15 years, sales in German e-commerce did not grow. The times of growth in German online retail are over for the time being, according to the EHI’s analysis of online retail sales in 2022 a few days ago. This declining trend is expected to continue this year. So what does it currently look like in online fashion retail? And what can companies do now to compensate for the lack of sales? We asked Tobias Ring, Co-CEO at Scayle, about this. Scayle, once the B2B shop system within About You, has been a subsidiary of the Hamburg-based About You Group since August and operates independently.
Mr. Ring, how is e-commerce currently doing? Buyer reluctance is becoming more widespread and German online retail is declining for the first time. Do you feel that?
Tobias Ring: The Corona effect has now leveled off, so that overall e-commerce is almost back to where it was before. Of course, many brands and retailers are feeling this, including us, because necessary migration projects are being completely postponed or approached very hesitantly. At the same time, new large players such as Shein and Temu are now entering the European market with very strong platforms and aggressive marketing measures. The reluctance of established European players to invest in a modern commerce platform is, in our view, very dangerous.
In an international comparison, many European countries are currently doing better. How important is it to be present there now and can it be implemented quickly?
Of course you can’t say that in general terms. To do this, the market must first be evaluated for your own target group. Once you have decided to internationalize, it depends on your own tech stack. For example, About You plans an average time-to-market of three months for a fully localized shop. At Scayle, this is possible because we rely on modern, flexible, API-first headless technology and combine this with a wide range of existing integrations such as payment methods and extensive functions. On the business side, however, a new market always means a lot of effort in developing brand awareness and acquiring new customers. These are expenses that usually only pay off after more than two years and therefore often do not emerge as winners when evaluated against other projects, for example the development of a loyalty program.
What measures should retailers take in such difficult times?
In general, there are two main measures that retailers should take. First, they should place increased focus on their profitability. The days when commerce was all about sales growth are over. Now it’s time to make money. On the one hand, the total cost of ownership of the commerce technology used should be analyzed and at the same time all business levers should be put to the test, such as logistics, marketing expenses and so on. Secondly, it is about increasing your own flexibility in order to be able to react to market changes as quickly as possible. It is uncertain for all of us what the preferred device will be for end customers in five years. Is it still the smartphone? Or do we shop with our glasses? We should be prepared for both.
Where are there levers that retailers can now use to compensate for declining sales, for example with increasing profitability?
There are numerous levers in e-commerce that large platforms such as Zalando or About You are already successfully implementing. We are increasingly advising our customers on these topics with our business partnership team, as the demand for advice is very high, especially in difficult economic times. An example from marketing is the use of product-based discounts instead of basically giving percentages on the entire range. This enables more precise control to reduce inventory and increase sales without destroying margins. Top sellers don’t need discounts to sell. Slow sellers can simply sell better with a little incentive – especially when the warehouse is full. Shipping costs below a minimum order value can also be a way to become more profitable. In addition, the issue of loyalty, i.e. getting more out of your existing customers, is a key success factor. In times when marketing expenses are reduced and fewer new customers can be acquired, it is important to provide existing customers with the best possible support and actively offer offers.
To what extent is technology an important approach to achieving this goal?
Technology plays a huge role in long-term cost reduction and sustainable profitability. You don’t even need any particularly fancy functions that are controlled with AI. The biggest challenges are usually very central to the core of your system and have a long history, such as the fact that not the entire product range is available centrally and therefore cannot be sold equally online and offline. The key word here is differentiation. Brands and retailers need to have their “hands free” to focus on differentiating issues, such as activating customers with loyalty programs. The less resources and time you have to invest in the basic functions for maintenance and further development, the more you can invest in what puts you on the fast track. Sounds logical. However, it is sometimes difficult to implement if your own system is not flexible enough or offers too few functions.
How is the marketplace business developing for your customers? Do you see that retailers are currently wanting to become a marketplace themselves – to boost sales, for example? Or are there other reasons?
Sales through a larger product range are of course an argument for having your own marketplace. But you shouldn’t underestimate the increased customer loyalty that comes with it. A larger range with continuously new products that are precisely tailored to your own target group naturally ensures that end customers can discover new things or suitable additional items more often – without a high investment on the part of the retailer. In addition, it is primarily attractive, highly profitable B2B services that can be provided as marketplace operators, such as the sale of advertising space or logistics offers. For these reasons, we continue to see a lot of inquiries about our marketplace functionalities, even though this is also a large project.
If you look at the marketplace landscape in the fashion sector, are there new players on the market? Who should you keep an eye on?
I already mentioned Temu and Shein. There is also Trendyol. All three are real powerhouses when it comes to technology and marketing. Temu is currently still comparatively weak in the fashion sector, but is consistently relying on a discovery model that involves a lot of gamification and social media marketing. With Shein you have to expect a kickstart as a marketplace, as they also invest heavily in marketing, especially in the area of influencers. Of course you can argue about the quality at Temu and Shein, but the low prices there in particular are not an attractive environment for many brands. Trendyol, on the other hand, can best be compared with established fashion marketplaces here. The “Turkish Amazon” currently has a tailwind, but still has a long way to go in terms of internationalization. The mobile-first approach naturally appeals particularly to younger target groups and here too we see high marketing costs. However, as a brand you shouldn’t panic right now. You can also learn from new players – and at the same time focus on your own strengths. We are currently talking very intensively to many of our customers and advising them.
The Scayle business unit has been an independent subsidiary of the About You Group since August. Why did you make this change?
There are several reasons for that. On the one hand, the spin-off of Scayle strengthens our brand identity so that we can concentrate even more precisely on our positioning and differentiation from the competition. On the other hand, this step gives our teams a clear orientation as to where we should go as a technology provider. Both will ultimately be reflected in an even better product. And not only do we benefit from this, but also our customers.
Why did the spin-off happen now?
Interest in Scayle has increased tremendously over the last year and a half. We were able to gain many well-known customers. These include, for example, Deichmann, Fielmann and FC Bayern, all of whom have already gone live with shops, although some of them are large migration projects. In addition, we have now reached a level of structural maturity that allows us to further accelerate our growth with more flexibility and autonomy. So now was just the perfect time.
Where are there points of contact between About You and Scayle?
The About You online fashion store is not only one of our customers, but also part of our retail DNA. Many new core functionalities are tested here first, so that they have already proven themselves on the market when rolled out. And in the case of About You, that’s 28 countries in Europe. Additionally, many Scayle employees are former About You employees who have a deep understanding of the retail business. This applies to both product development and the service area. It is a big advantage that we come from a commerce company ourselves and therefore not only understand the problems of brands and retailers immediately, but can also develop the solutions directly. We hear this again and again from our customers. We now also work very closely with other customers – especially when it comes to the further development of special use cases, for example with our omnichannel add-on.