Nov 26, 2013
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Germany's Otto bets on furniture over clothing for online boom

Nov 26, 2013

BERLIN, Germany - Germany's Otto, a mail order firm that shifted early into e-commerce to become Europe's second biggest player behind Amazon, believes furniture will be the next area to see sales move online after books, electronics and clothing.

Otto, which sells almost everything from toys to perfume and washing machines, is already Germany's biggest online retailer of furniture, with a market share of 30 percent, but hopes to grow sales by hundreds of millions of euros by 2015.

Otto headquarters in Hamburg | Source: Otto

"The online market in the furniture sector is still relatively small and shows massive growth opportunities," Alexander Birken, head of multichannel distance selling for Otto Group, told Reuters in a telephone interview.

"We will therefore massively invest in this area."

Many big furniture chains have been slow to embrace e-commerce, put off by the cost of delivering bulky goods and concerned whether shoppers would be prepared to make expensive purchases without seeing them in person.

However, the success of online clothes retailing in particular - now the largest e-commerce sector in Europe despite similar early doubts - is changing the attitudes of buyers and sellers alike.

Online furniture sales are now growing quickly, prompting the Germany head of IKEA Group, the world's biggest furniture retailer, to predict last week that 10 percent of sales will eventually come from e-commerce.

Research firm Euromonitor forecasts global e-commerce sales of home furnishings will grow almost 10 percent a year to $24 billion by 2015 from $20 billion in 2013.

Growth is even faster in Germany, which has the highest per capita spending on furniture in Europe, and saw online sales leap 58 percent to 1.23 billion euros ($1.66 billion) in 2012, according to the country's e-commerce trade association BVH.


The Otto Group, which runs more than 60 e-commerce websites worldwide including Germany's dominant OTTO site, saw total online sales rise 7.5 percent to 5.7 billion euros in the financial year to Feb. 28. It is targeting 8 billion by 2015.

To that end, it is investing 300 million euros in its online business to 2015 and recently went live with new software for the OTTO site, which it developed in-house and which Birken said dramatically improves search function and speed of updates.

"We see that the whole Christmas business at the moment is growing very well," he said. "We have taken many steps that make me very confident for the next financial year."

German online sales will grow by 44 percent in 2013 to 39.8 billion euros, or more than 9 percent of total retail sales, the BVH association said last week.

To boost the furniture business, Otto plans to increase the range of products on offer and develop complete service packages, for example finding an electrician to install your new kitchen or organising the disposal of your old fridge.

"After-sales service ... is a barrier to entry for many companies. Can one really offer that sensibly across the whole of Germany? You need critical mass to run such a network," he said. "We are really accelerating here."

That kind of package could allow Otto to differentiate itself from new dedicated furniture websites like Home24, launched in 2011 by German venture capital group Rocket Internet that also counts Sweden's Kinnevik as an investor.

$1 = 0.7394 euros

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