When he was sent to Moscow in late 2010 to launch Lamoda, 26-year-old Niels Tonsen had no experience of Russia but already numerous years of experience in Internet projects – including working for German incubator Rocket Internet and its projects Groupon International and Zalando.
The goal – to build Russia’s online leader in the footwear segment – was not easy to reach just months after other Western investors had launched first mover Sapato.ru. Lamoda finally came out victoriously from a titanic marketing battle, asserting itself as the segment leader in terms of sales and progressively expanding to other fashion product categories.
While Sapato was acquired by e-commerce giant (on the Russian scale) Ozon.ru, Lamoda was helped by giant capital injections exceeding $200 million in total. Tonsen answered our questions without many taboos, addressing the criticisms that market leadership inevitably generates.
Lamoda started with shoes; now the site also offers apparel and even some home textile and decor items. What is your positioning today, and do you expect it to change in the future?
We position Lamoda as the number one go-to fashion e-commerce site in Russia and the CIS, offering the best customer experience on the market. Product portfolio is defined from a customer perspective. Shoes and apparel will always play the main role with customers being offered the possibility to buy complete outfits. It is important for us to not only go for the sheer quantity of products but also to care about quality and relevance.
However, we expect significant demand for such complementary products as cosmetics, even though non-core categories will not account for more than 10% of sales going forward.
You have raised approximately $200 million in total since inception, a record in Russian e-commerce (excepting perhaps Ozon during its 15 years of existence). What did you do or plan to do with this money?
Major investments are being made in our product offering and customer acquisition – which is a standard situation for e-commerce companies. On top of that, we’ve decided to build our own distribution, delivery and shopping platform from scratch. This requires both CAPEX and investment in great talent, especially on the IT side.
We’re firm believers in the massive potential of Russian e-commerce. Significant investments are necessary to be able to offer nationwide delivery and a world-class shopping experience. This focus on customer experience pays off over time with lower marketing costs.
Many players are angry at wealthy e-commerce startups, accusing them of spoiling the market (price hike in SEM, HR…) after raising huge sums. How would you answer them?
I can just say that we do not make expense decisions based on the amount of financing raised. Generally speaking, I believe that players raising money to build infrastructure are helping e-commerce to grow faster by offering a great customer experience. This is a strong support for the entire ecosystem.
Critics present the model of some well funded Russian e-commerce projects as essentially venture/IPO oriented, with a kind of populist marketing approach and little or no consideration for profit and sustainable KPIs. Is Lamoda anything else but a big gamble?
We are building the business by carefully looking at the long-term metrics such as customer lifetime value. While it is true that the insufficient existing infrastructure requires certain initial investments, there is no doubt about the fundamental relevance of unit economics in this business. In my opinion, there is no such thing in e-commerce as building a business without a laser-focus on profitability KPIs.
What is your final goal? Being sold to Zappos? Going public? When? Where?
Our focus is on building a great business, without wasting time thinking about potential exit scenarios. Given the attractiveness of the market and our positioning and growth, anything is possible.
How do you manage fulfillment?
Very early on, we focused on building up our own e-commerce infrastructure. We are running a self-managed fulfillment center as well as our own delivery network, Lamoda Express. Lamoda Express offers next day delivery with try-on service to more than 25 cities throughout Russia and Kazakhstan. The reasons for creating this infrastructure are manifold. In order to control the customer experience and ensure the maximum cost efficiency of operations, you need to fully control your fulfillment capacities.
Do you deliver everywhere in Russia? At what cost? With which providers?
Customers may place orders 24/7 from anywhere in Russia, and shipping is free of charge. In addition to Lamoda Express, we work with all providers who are ready to comply with our strict quality and speed requirements and can manage our fast-growing volumes. Currently these requirements are only matched by two companies, Pony Express and DPD, which tells a lot about the state of delivery infrastructure in this country.
It seems you have an important returns rate. Aren’t you too generous with your customers in terms of free delivery, 365-day return, etc.?
Our return rates are in line with the market average and well accounted for in the business model. Shipping books with the same service level would not be possible, but for a business model like ours this does make economic sense – at least if you have a fast and efficient operational platform…
If you think about it, the service level in Moscow is already now higher than in the West. Consumers have the possibility to order risk-free and only pay for the items they like.
You’ve launched a subsidiary in Kazakhstan, do you sell a lot there?
Kazakhstan is a great market for us. We launched about one year ago and sales in this country are just below 10% of our total sales.
Do you intend to expand further beyond Russia and Kazakhstan, and what’s the strategy behind this?
It is a logical step to think about providing our services to additional Russian speaking markets in the near future.
– LAMODA’S KEY FACTS AND FIGURES –
- Number of employees: More than 1,500 (mainly in fulfillment and delivery)
- SKUs: More than 80,000
- Returns rate: Particularly high due to the 1-year return policy, say Lamoda’s critics. In line with market average, according to Lamoda.
- Net sales in 2012: Lamoda does not disclose its figures, but independent analysts’ estimates vary from $144 million (Sekret Firmy) to $189 million (InSales).
RUSSIAN E-COMMERCE REPORT – More insights on Russian e-commerec can be found in EWDN’s industry report. Click here to download your free copy.
