Inside Retail Weekly: GFG’s results for the June quarter came out recently. What were your thoughts on the results? I feel like it’s the year of e-commerce, really.
Patrick Schmidt: I think that’s true and it’s probably even more true for the markets we’re in because they are probably 10 to 15 years behind when it comes to e-commerce. What does that mean? The penetration of e-commerce within fashion in our markets is only about 6 per cent, which is very low, and that’s the average across all our markets – it’s a bit lower in Indonesia, a bit higher in Australia. That’s pre-pandemic. We don’t have the latest numbers now that we’re mid-pandemic, but it’s obviously higher than 6 per cent and the potential for that number to get higher in our markets is really high. In the UK or US, it’s more than 20, and in China, it’s more than 30.
We had a great quarter overall. We had good revenue growth and sales growth of 23 per cent to almost half a billion euros. We had really good marketplace growth, we made progress on what we had internally targeted for two to three years [which we did] in three months and we increased our percentage of marketplace [participation] from 19 to 31 per cent. We also posted our second profitable quarter with almost €10 million ($16.5 million) in EBITDA, which is fantastic.
Underneath all those numbers lies a lot of volatility. We had a really steep drop-off in demand in March and leading into April, just as the whole world went into lockdown and it felt a bit like the world was ending. But we had a big recovery starting in April and then May and June.
If you just look at the headline numbers, it looks like an easy quarter, but it was certainly volatile and a quarter where we had a lot of challenges – sending our people home, keeping people safe – but the team has pulled together and the results are that it’s a safe workplace but we’ve also had really good financials.
IRW: If you reflect on your markets in Southeast Asia and Australia, what would you say have been some of the interesting challenges or highlights that you’ve noted throughout the year?
PS: We’ve seen a really big shift from some of our core categories, which as you can imagine, living in Sydney, are dresses, even more so at The Iconic than Zalora, although that’s important for any online fashion retailer. We’ve seen a steep drop as people don’t really have a reason to go out, and a result, they don’t dress up in the same way. They dress up in different ways and they’ve changed their behaviour and routine and we’ve seen it in buying behaviour – we’ve seen a lot more essentials, fitness equipment, kids’ products. It’s really gone from shopping for a party, wedding or an interview, to shopping for the home, which has a dramatic impact on our category mix.
Lingerie has more than doubled in sales and I think it makes sense, you’re ultimately more inside and it’s probably something more important than a suit, which you’re wearing when you’re in the office every day.
IRW: I saw that GFG had an accelerated rollout of categories. Can you elaborate a bit more on that?
PS: I’m usually based in Malaysia and when lockdown was announced, everyone was shopping – not so much for toilet paper like in Australia – but pasta, hand sanitiser, face masks. It was quite chaotic. It was really hard to get your hands on these products, but because we have a good sourcing office in China for those particular products, we launched an essential category. The team launched it within less than a week which was really impressive. Consumers really demanded it. There wasn’t a lot of stock available for essentials in offline retail, as there were a lot of restrictions for leaving the house in Asia, so it solved a problem for consumers.
We launched beauty in Australia just a couple of weeks ago. We always planned to do it, but we pulled the plans forward by a couple of years, simply because we saw more demand in that category as well.
IRW: As a marketplace, your customers are not only the consumers, but the brand partners, some of which are on the smaller end and would be struggling right now. Is there anything you’ve been doing to support them during this time?
PS: The key thing for small brands is cashflow, because they don’t usually sit on a huge balance sheet. They need to pay for inventory and usually they assume a certain sell-through of their product, which covers those receivables. In our marketplace business model, brands can list their products within a day or so and because we have access to 15 million active customers, these brands can sell very quickly and generate cashflow to recover their receivables.
We’ve really accelerated the onboarding of new brands and additional products of these brands to help them generate more sales in challenging times, as the fashion industry was hit hard by the pandemic. As a result, we’ve increased our share of the marketplace from 19 to 31 per cent.
It’s been a blessing because if you don’t have the marketplace model, it actually takes a long time for product to be ordered, then the PO to be generated, the product to be inbounded in the fulfilment centre, then paid in a traditional wholesale model. The marketplace model is much more agile and provides a better margin for the brand.
IRW: What are some of the interesting plans you’ve got for GFG in the future?
PS: We’ll definitely continue our pivot into lockdown categories. It’s not completed yet and consumers are still shifting. We’re still learning what’s trending and what’s not. That’s a tactical thing.
On a strategic side, what’s important is sustainability. We embarked on the journey very early on at The Iconic in 2015 when we hired [chief sustainability officer] Jaana Quaintance-James, who came from David Jones. She led sustainability at The Iconic when I was the CEO. She now leads it at GFG globally and we’re making great progress not only in Australia, but in other regions.
In Australia, we launched sustainable packaging a couple of weeks ago, which is a big project. We’re one of the few retailers in Australia that offers it. It’s a complex beast, believe it or not.
We launched the Considered [platform] last year and now we have more than 10,000 products that have sustainable attributes on our site. We just did it at Zalora a few weeks ago and we’ll roll it out at Dafiti in South America and Lamoda in Russia and the CIS. That’s really only the start of sustainability. We have really challenging commitments for 2022 in terms of carbon, sustainable private label, products and brands. We want to become essentially a global leader in terms of sustainability. We are already a leader in Australia, I think, but we want to extend it to all the 17 countries where we are.
IRW: What kind of work is GFG doing to ensure ethical supply chains, where the focus is not only on sustainability, but also the people who work in your factories?
PS: It’s heavily impacted by the pandemic, unfortunately, but in the last few years from The Iconic point of view, we have supplier workshops in Guangzhou, where we’ve trained factory workers and factories on sustainability. Those workshops will be rolled out globally. When I say ‘sustainability’, I don’t just mean sustainable fabrics, but how we make sure that workers are being treated in the right way in terms of their working hours, how shifts are recorded, their pay, safety, health insurance – all those things.
We’re working with the factories directly. Pre-pandemic, we were very hands-on. We were in China, visiting factories and doing workshops to make sure we build good relationships. Once you build that relationship, it’s much easier for us to influence change and that’s paying dividends now. Now, obviously, and I think unfortunately for the foreseeable future, travel to China and India will either be difficult or impossible. But because we’ve already built relationships with factory owners and workers and supervisors, we can leverage that to influence change.
IRW: At The Iconic, tech innovation and creating a culture of creativity is a big focus. How is that side of things travelling in your other markets?
PS: At Zalora, we launched B2B solution Trender. It’s basically a data solution service which we launched in April and especially in the current environment, it helps our brand partners navigate through challenging times. At Trender, they can access our data to obtain insights into what consumers are buying and what their behaviours are like. There’s a basic free service and there’s a premium version available with more insights. We have so much data – not only on what people are buying, their age and demographic, but also what they’re not buying, what they’re not looking at, what’s in their basket, how price-sensitive they are and what day and time of the week they’re buying. That’s important for the marketers of brands, but also the designers, buyers and merchandisers.
We launched it only four or five months ago, but it’s been really popular. Many brands in big markets like the US, the UK or Europe are quite sophisticated, but in markets like Indonesia, Hong Kong and the Philippines, they don’t necessarily have the same insights and same numbers of people. They’re less developed markets and there’s less history there, which is why we think these insights are quite powerful.
Another B2B solution I’m excited about is Single Stock Solution. A brand can put all their stock in our fulfilment centre, then we’ll obviously use that stock to send it to our customers if there’s an order, but we also provide a service where we can send their product to their brand.com customer. For example, if the customer orders on Puma.com or if a brand wants to list on Lazada in Southeast Asia, we provide the service of fulfilment, shipping and returns for the brand.
The advantage is that the brand has essentially all the stock in one place, it becomes a lot more productive and the brand doesn’t have to take care of the fulfilment, delivery and return service, which is a core competence of ours. It’s not always the core competence for a lot of other brands. Most are good at designing, buying and producing. Some are good at distribution, don’t get me wrong, but not all brands, and some brands simply don’t want to do it. So, we’ll provide that service now.
We just launched that [at Zalora] and we plan to roll that out [globally] because quite a few markets have asked about it, especially markets that are harder to access like Southeast Asia.
IRW: I feel like when you’re in e-commerce and you want to do it really well, you’ve often got to think of yourself as an excellent logistics company.
PS: That’s spot-on, but you’re not just a logistics company, you’re a tech company, a fashion company. I think it’s sometimes underappreciated, but when we look at the number of people working in those specific areas of our business, the largest numbers of people are working in operations and logistics in our fulfilment centres. Ultimately, if you have great product on the site but don’t fulfil it quickly to the customer, that customer won’t be happy, even if the product is great and the price is great. The expectation these days of customers, especially those of millennials, is to get that product fast and that starts with picking it quickly, dispatching it quickly, making sure you track it and making sure returns are handled efficiently.
All this sounds basic, but if you’re processing literally hundreds of thousands of orders every day, which we do, it becomes very complex. We have built this competence over years, we’ve built 10 fulfilment centres, we now have an almost fully automated centre in Brazil, which we’re about to go live with. We’ve built new fulfilment centres in the Philippines and Indonesia. They’re major construction sites, they’re major planning projects and a lot of money has gone into them. They’re major assets for us, which we want to leverage, not only for the orders we receive on our side, but also for the brands to essentially get better at e-commerce through us, but also through third parties.
IRW: There’s a lot of talk about China and the well-informed Chinese consumer. But are there any other underrated markets that should be discussed more often?
PS: Obviously, the narrative globally is about the big markets, especially because of the trade war that’s dominating the headlines. Look at Indonesia – it’s got 250 million people and growing. It’s almost the size of Europe, depending on how you slice it. It’s an enormous amount of people. The whole Southeast Asia region has almost half a billion people and it’s not covered that much in the press. South America has more than 430 million people. There are a lot of markets that are vast and probably under-served by global brands which are relatively complex to access, but have vast potential.
Low penetration of e-commerce in our markets is a really interesting phenomenon and provides for a great opportunity. It blows my mind.
IRW: I’ve heard that marketplaces are particularly popular in the current climate. What’s behind that?
PS: It comes down to supply and demand. Many physical outlets are closed and even those that are reopened don’t see the same footfall as before and they won’t for a long time. So, brands are seeking new online channels where they can sell the products they used to sell via physical retail. The world has changed over the last 10 years from 2010 to 2020 towards e-commerce.
The changes in the last six months have been so fast and quite brutal for some companies, especially those with a physical footprint, so there’s now a rush towards channels that seem more sustainable, like online channels, given no one knows how long the pandemic will last and what the effects will be on consumer behaviour once it’s over. Everyone agrees this is driving the channel shift towards e-commerce in a much more rapid fashion than anyone had anticipated.
IRW: Has the pandemic changed the way that you look at future retail employees?
PS: Not really, but I’d say that being able to work away from the office is important. Adaptability and resilience are really important. I think the core skills in terms of coding and fashion forecasting are the same, but the social and soft skills are more important than ever. When we interview people for The Iconic, we say that it’s a VUCA environment – it’s volatile, uncertain, chaotic and ambiguous. We want people to know that this is an environment that’s growing so quickly. We were growing 60 per cent year-on-year for many years and zero to $500 million in seven years.
We’ve brought on people who are adaptive and resilient already, but it’s more important than ever. If you were a dress buyer for bridesmaid dresses in 2019 and you’re not adaptable, you might be out of a job – it’s as simple as that. It means you have to learn how to buy sports equipment. It’s a great thing for your career, but if you can’t do that, you’ll probably face tough times.