Magnus Fredin - Nordic eCommerce Summit Malmö 2015

Um, I think my presentation will tell us a little bit why, but I think it's a... you see, CDON somehow is a unique opportunity. It's a new launch marketplace. I see the market in the Nordics doesn't have a clear market leader in this niche, which more or less all major markets in Europe have. So for me, it's just doing something that is extremely inspiring by building something new. I think that's okay, that's the thing. That's exciting, yeah.

Of course it is, in many ways. I think it has its pros and cons. Of course you get the benefits, so you need to have your compliance under control, you need to have your numbers in shape, and you need to do that as well in another company, but especially on the stock market. But I think in the end, stock market or not, you need to do what your customers want you to do, because I think that's what gives value to the shareholders anyway in the long run.

Um, good question. I think of course there are probably several, but there's one moment. I don't remember exactly when it was, but the person who founded Libris in Apatti said once that e-commerce is 95% logistics. Not being and working in the e-com side, so to say, just working on the supplier side. I think I was very skeptical when I heard that, but as soon as you are in the e-com business and you're doing a campaign, you have your Christmas sales and everything up and running, you soon realize how extremely important logistics is. And it's really a big portion of the e-commerce world, I would say so.

Uh, hopefully I will clarify my view at least on marketplaces and why you should or not sell on the marketplace.

So, I have a little bit of a hate-love being on stage here, because this tree actually did fall down on my roof a couple of months ago. I have an American neighbor, he's a fantastic guy, but you know the difference between cultures between Sweden and American people is that when you ask a Swede if they're good at something, they usually say 'I'm not that good.' So I walk over to my neighbor and ask him, 'Can you fell down a tree for me?' And he said, 'Oh my god, I have like the world championship certification tree falling.' So a couple of hours later, he fell down the tree on my house, which was a bit of a mess actually. And then he disappeared and came back like 10 minutes later with two Norrlands Guld, and he said in an American accent, 'When you fall down a tree on your neighbor's house, you need to give them a beer.' And this was 10 in the morning on a Sunday. So we took the beer and started thinking about what to do next. But that's not the reason why I'm here, obviously.

Short intro: 10 seconds. I clown up Baby Shop and since two months, two and a half months back, new CEO of Sidion. And I wanted to give you a little glimpse of Sidion even though I've been in this industry for quite a while. I don't know that much about them. They haven't usually been that transparent in sharing what actually goes on inside the company. And I thought I'd just give you a little bit of a glimpse before I start talking about marketplaces. But the company started in '99, and this is not the newest designer homepage, this is how the site looked in 2000. We were selling CDs, your record store online. And after that, obviously the company has been growing by adding categories like DVD, games, electronics, and in the end also fashion, shoes, outdoor, etc. And in 2014, somehow the marketplace started to jump off a little bit. This is our revenue curve, net sales, once again as Paul mentioned, which is not including sales from our merchants that we have. So we're going from around 300 million up to 2.1 billion, a little bit down again and then up. So we are in the neighborhood of close to 2 billion SEK sales yearly revenue. So we have around 2 million active customers. Definition of active in our world is that they have made a purchase in the last 12 months. We have obviously a much bigger database. We have around 4 million orders we had in 2014. 85 million visitors. And the revenues come mainly from Sweden, but we're also fairly big in Norway and Finland, a little bit in Denmark. But one thing that is unique with Sidion, which also is a hard thing and a challenge I would say, is that aided awareness, brand awareness in Sweden, it's higher than H&M online. However, it's also known and the perception of the brand is still a little bit connected to what we used to be: CDs and DVDs. But it's a phenomenal known brand in Sweden, I have to say. Our target group, or our customers, is 50-50, which shocked me a little bit when I started. We have females which is 35-40-45, and we have also women which is illusory? Men that is 25 to 30. So that's our strong group. And we have an NPS score of 60, which is something we're working very hard with, because I would say that Sidion has not been the most customer-focused company in the past, but it's something we're working really hard with right now. I love this comparison, but Olaria, just to give you a glimpse, last year on Black Friday we did around 1.4 million visits and 77 million in revenue, 100,000 orders plus. And it had a record day in 2015 was 30,000 visitors and 35 million. So it gives some perspective that when we push the button, things happen for sure.

To kick it off, talking about marketplaces going forward and how we view CDON is that we view CDON.com as any other place for merchants. We have around 700 merchants signed up that are selling on the marketplace, and CDON is just one of them, obviously they are the biggest one. But I give some perspective on how we view the CDON marketplace today and how important that business case is for us. And I think that if you're looking at the landscape, the global landscape, you see the rise of marketplaces. The success of Amazon and eBay have definitely made an explosion of marketplaces popping up everywhere. And if you believe in an investigation from ChannelAdvisors Corp in June 2014, in the UK and in the US, 90% of independent retailers sell through a marketplace, which somehow is a huge difference compared to how it is in the Nordics. But I think you can definitely say that marketplace is a channel here to stay, and around 25% according to ChannelAdvisors again, 25% of the total global online retail business is going through marketplaces. So it's obviously a significant channel. And if you're looking at global ranking by revenue of online companies, and you're looking at these top 20 companies, you have five that are marketplaces, and you have three that are in the absolutely top. So this says a lot about the customers and the consumers embracing the marketplace concept, I have to say. And also, it gives some perspective. I was supposed to show you a picture about the global reach of marketplaces, and you have Alibaba and Amazon, they're reaching about 20% of the total population over 15 years on desktop and home and workstations, which is quite a large portion. So, but looking at the US, we can clearly see a trend. And looking at the online retail sales, the leading online retail sales change in the US, and it's not always fair to compare US against Europe, but in this case I have to say it's a relevant trend because on these top 10 retail chains in the US, five of them have launched a marketplace in one way or another, allowing third-party sellers to sell to their customer base and capitalizing on that. And if you look at the Swedish landscape, it's a little bit different. In Germany or in the UK, which has spent quite some time working with e-commerce in one way or another, and I think that you always have a couple of players that have a very, very big market share. If we take Amazon as an example in Germany, they have around 17% market share and around 16% in the UK. But looking in Sweden, we don't have a clear leader. We don't have a clear, you know, really who's taking the lead in terms of taking the marketplace concept to the market. And my goal and what I hope is that Sidion is going to be the player, and we're going to truly invest in doing what we can to take that lead.

So the key question is why sell on marketplaces? Well, I think it's not an easy answer to that, but I would try to clarify from my perspective why you should and what to consider if you will do it. But I think one important thing is that all online retailers somehow long-term view is to find customers that are loyal and stick to the brand. They want to build a profitable brand that scales. And profit and scales, these dynamics are not always that easy to manage. Because when you're growing at a fairly slow pace, you can keep your cost of sales normalized. What I mean by that is that you can work with channels and the low-hanging fruits, like you can buy the keywords that you really get your eye on, or you can make marketing that gets a better investment. But if you want to scale that up, you would probably see, and I can ensure I'm talking from my own experience as well, is that if you really want to grow fast, you're going to see the marketing investment go not in correlation with sales. Probably it's going to be higher than what it used to be when you're growing slower. And I think that if you're looking at the landscape today, the click prices are going up from my experience at least. And I think also that the retail chains are going online now with H&M and everybody, and it's creating a huge competition. So it's not as easy as it used to be. You can't just go out and spend money on Google and then you're going to get some sales. You need to do something more. And I think one key metric why I'm telling you this is that I think this is a way how you can think about marketplaces. And I have an example here.

And I have an example here. If you have a merchant that's selling something on the marketplace, and they're selling the same products on their home web page. In this case, it's a pair of street shoes, a shirt, a winter jacket, total value 2,200 SEK. And let's assume it's a 10% commission for the seller on the marketplace. It can be 5, it can be 15, but let's assume it's 10%. And it's going to cost you then 226 SEK in marketing spend to get that 2,200 back. So then if you compare it with, I naturally have not made a second option more expensive, but somehow I think you will find out if you start looking at it that might be the case. If you compare and look at acquiring a customer through Google AdWords or similar, let's assume it costs 300 SEK, and then you have a remarketing fee that is 5% because the price transparency and the global commerce that is coming is making it harder and harder to get the customer loyal. Let's say this is the case, you will find out that you have a 17% marketing cost compared to 10% marketing cost. And whatever it is for you, I think it's a good way of thinking about it financially if you're going to sell on the marketplace or not. So that's one way of looking at it. Another way of looking at it, of course, is pros and cons a little bit more in soft values. But for me, e-commerce is definitely a volume business. Volume is extremely important. I think it's better to be small or big than to be in the middle, because you somehow don't get the advantages of being small that you can work a little bit harder and you can get the orders out. But at the same time, when you are in the middle, you don't have the advantages of being really big and have the scale in terms of cost, freight cost, logistic handling cost, customer care cost. So somehow for me, it's extremely important to get the volume up to be able to split the fixed cost in as many orders as possible. So that's one side of it, and marketplace is a good thing in that sense. You can do that fairly risk-free to increase sales. But at the same time, it's also very, very price competitive. You have on Amazon as an example, you have many sellers selling the same thing. And then you have the brand visibility, and that differs from marketplace to marketplace. But on Sidion at least, we not only push transaction, it's not only a transaction acquisition channel, it's also a customer acquisition channel by showing your brand to all the customers that want to buy your products. So that's one way of doing it. But also small basket orders, it's always dangerous to make sure you get a profitable order. You need to make sure that you have the right kind of product mix to do it. But one thing that also I think is quite challenging is looking at country and competitors.

How you actually going to attack that when, for example, you have CDON as one example and you have a German merchant coming in selling shoes, and you're selling shoes in Sweden. Should you go online and sell shoes as well, or should you not, to defend your market? I think it's a difficult question to answer, but I think it's important to defend the market. And then obviously fulfillment and growing outside your maybe your core markets. I think that marketplaces really contribute with a logistic setup that you actually can scale up and grow outside your home markets in a very fast and controlled way by using, for example, Amazon Fulfilled By or similar. So there's a lot of advantages in the space, but at the same time, the thing that is very difficult is the ability to differentiate yourself and differentiate your brand when you're selling on a marketplace, because you can't work with content in the same way. And also it's dangerous to be too dependent on one sales channel, as I said. So these are pros and cons that I think are worth investigating if you're thinking about selling on the marketplace or not. But I also think you have to consider what kind of things you're selling. If it's products that your customer buys regularly, you need to make sure that you get a profitable transaction on your first purchase, on your first buy, because you're not going to have the retention rate as you have on your own home page, for example. And that's important. But you also have a possibility to capture new clients and new customers, because usually you send a package from your own warehouse with your own branding, etc. So that's important stuff. And if you have orders that are not as regularly purchased, then obviously the retention rate is not as important, but you also have usually something that gears up with the commission. So if you're selling electronics, you have a lower commission; if you're selling clothes, you have a higher commission. You can make sure you make money on the first purchase. So there are upsides and downsides. And I think it's also important to evaluate. And if you have your own brands, it's also about making sure you don't get brand dilution and making sure your brand is still cool, depending on what you want to do. So I think these are the key things for me to look into if you want to sell on the marketplace. And I think that everybody should evaluate it and really look into it, making sure maybe this is something for us. But looking at the financials, looking at the pros and cons for your business, but in the end, I think that there are very few channels where you actually can increase sales fast in a very low-risk way like you can with the marketplace. And I think exploring new markets is also very interesting because it's not cannibalizing on your own sales in your home market. And increasing the buying power, you can get lower freight cost or lower handling cost in your warehouse or in your logistics, and maybe make your company more profitable that way. So it's important. And of course, acquiring new customers, decreasing stock value, and improving cash flow. But also, if you're looking at the landscape today, there are very few channels that actually can increase sales quickly, and I think marketplaces could be one of them. So that's me, that's all from me. Thank you for listening.

Uh, where are... if I understand your question right, where are Nike compared to, you know, what value do they bring into the CDON chain? I mean, exactly. Okay, I think good question. Now, I think in the end, and what you see from my point of view in general in the e-commerce landscape, is that you have companies like Nike, which is a producer but they're also a distributor and a retailer. You have companies like Zalando, who actually are a reseller and need to add value in the chain between someone who is making the products and the consumer. And then you have mass players like Alibaba, like Amazon, that either have inventory or not have inventory and push it out, taking basically small players to the market and making it in that way that they can have all these players and making it a very, very powerful combination with the traffic they have on their site. And then you have Alibaba who take distributors and producers directly to the market. And I think that for CDON, the core for us is that we can help both companies that are outside the Nordics to come into the Nordics. I think that is extremely important. But we also can help customers or merchants in the Nordics to go to Finland or to Denmark, or we can also help them to increase heavily in Sweden. I don't think that maybe Nike will be the customer for us going forward. I think it's for us more to help others to scale up in a cost-efficient way.