German Online Retailers Open Real Stores to Compete

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By Jabeen Bhatti

April 18 — German online retailers such as Cyberport and Zalando are opening offline stores to compete with international online retail giants and dominant real-world industry leaders in what some consider a reversal of the Internet shopping trend.

Creating omnichannel service with brick-and-mortar branches levels the playing field for German digital vendors who face cost constraints, Martin Gersch, an e-commerce professor at the Free University in Berlin, told Bloomberg BNA.

“There are areas where German online retailers can't offer lower prices in comparison with companies like Amazon, so they have to compete by offering a better way to shop.” Gersch said. “It's the classic debate of whether a mom and pop store can survive next to a supermarket.”

Over 2.7 billion people were online as of 2014 and bought $1.9 billion worth of goods over the Internet, according to the eCommerce Foundation in Amsterdam. This shift caused many businesses to build an online presence.

But online retailers are now feeling the pressure to open physical stores as consumer expectations rise, Gersch said.

“Omnichannel clients are the most attractive clients,” he said. “These customers are more loyal and have come to expect to be able to make transactions in different ways.”

Digital Infrastructure Crucial

Cyberport Chief Executive Officer Helmar Hipp told Bloomberg BNA that even though Internet retailers must take time to learn how to run brick-and-mortar stores, it's easier for a digital retailer to open a real-world shop than for a brick-and-mortar store to digitalize one.

It took German electronics and appliance retailer Mediamarkt a decade to find its feet in the online world, but it only took five years for Cyberport to gain confidence in its real-world sales plan, Hipp said.

“It's much easier for us to integrate our two businesses than for big players to develop online presences,” Hipp told Bloomberg BNA. “We came from the digital first and therefore had already built up good infrastructure that easily let us connect the offline and online stores.”

He added that the 15 Cyberport stores across Germany and Austria are profitable and have become inseparable from its original web-based service.

“The stores grow with the online business,” Hipp said. “When you gain online customers there is always a percentage that use the pickup service and customers that come in the store usually come again.”

Even Internet giants are opening real-world stores. Amazon.com Inc. launched a Seattle location in 2015 to sell e-books and its e-book readers, the Kindle.

Christian Schulze, a marketing professor who specializes in e-commerce at the Frankfurt School of Finance told Bloomberg BNA that offline stores can be a gamble for online retailers, even Amazon.

“It is nice for the clients to have a real point of contact where they can hold the kindle in their hands, but it isn't clear that the Amazon stores will be profitable,” Schulze said. “Online retailers don't have experience running these shops and they don't have in-house expertise on which locations are best, what staff is needed or how to train them,” he said. “This makes real-world stores much more expensive for online retailers,” he added.

Chains that based their success on real-world stores have the upper hand because their stores are already self-sufficient, Schulze.

Real-World Fixes

Online fashion retailer, Zalando, uses outlet stores in major German cities to sell merchandise that is unsuitable to sell over the Internet, company officials said.

Company spokeswoman, Nadine Przybilski, told Bloomberg BNA that the outlets in Berlin and Frankfurt are a supplement to the web-based delivery model.

“It is a possibility to sell lightly damaged merchandise or merchandise that doesn't follow conventional sizing in an attractive environment,” Przybilski said. “We are not trying to build a strong chain offline, but rather finding a solution to problems we face online.”

The brand also uses pop-up stores, or temporary stand-alone stores and sections of larger department stores, to connect with clients in the real world, she said.

“We want to let customers experience the brand,” she said. “We seldom have the opportunity to get together with customers face-to-face. It's a good way to see who your customers are and ask them what they want.”

Secure Payments

German retailers take into consideration the particularities of the national market.

Germany was a late adopter of e-commerce with annual sales of 13 billion euros ($14.7 billion) in 2004, according to Franziska Ulbricht, a spokeswoman for online trade association Händlerbund. Online sales tripled over nine years reaching 39 billion euros ($44.12 billion) in 2013. Ulbricht told Bloomberg BNA that part of the early skepticism can be attributed to German data protection concerns.

“Germans are still concerned about misuse of their data when shopping online,” Ulbricht said. “But consumers have built trust in safe payment methods and fraud protection. For instance, they are more likely to choose online shops that offer risk-free payment.”

German shoppers are known for preferring cash to credit and debit card payments to reduce the amount of data they are giving to sites. While businesses can accommodate this by offering in-store payment options, it is also important to offer secure online payment methods, Ulbricht said.

According to Hipp, the extra layer of security added by PayPal Holdings Inc. has made it the preferred online payment method for German shoppers.

Schultze said that although regional preferences have developed for e-commerce shopping preferences, the modern client prefers options not only regarding where they make their purchases but how they pay for them.

“The client wants everything when they want it,” Schulze said. “On Sundays when nothing is open they want a great online store, but on Tuesday and Wednesday when the product arrives and doesn't fit they want to be able to take it to a real store and exchange it. If they decide later that they don't like it, they also want to be able to send it back through the mail.”

To contact the reporter on this story: Jabeen Bhatti in Berlin at correspondents@bna.com

To contact the editor responsible for this story: Alexis Kramer at akramer@bna.com