Global fashion bets 2020’s online shopping boom is set to last

Published 10 Feb,2021 via Bloomberg Technology & Innovation - Global Fashion Group SA, a fashion retailer with ambitions to emulate European giant Zalando SE in emerging markets, has made a big bet that the pandemic-fueled boom in online shopping is here to stay.

The Luxembourg-based company has channeled much of its 2020 windfall into infrastructure by building new warehouses or expanding existing facilities in six of the nine markets where it operates fulfillment centers, co-Chief Executive Officer Christoph Barchewitz said in an interview.

Like Zalando, Global Fashion’s largest shareholder is Kinnevik AB, which invests in online businesses spanning wine to classifieds worldwide. While Global Fashion’s customers currently place orders just 2.5 times per year, Zalando’s rate is almost twice that, Barchewitz said, and the share of the population served in each of his markets is just about 1.5%, a fraction of the Berlin-based retailer’s.

“That shows where we want to go,” the executive said. “We believe online will win so much share that we want to be the biggest retailer for fashion and lifestyle in the countries we operate in. We have the chance to get more customers that order more.”

In recent years the company has targeted net merchandise value growth of more than 20%, excluding exchange rate effects. It reported a 23% gain in 2019, and projected 25% for 2020 as lockdowns kept many brick and mortar stores around the world shut. Global Fashion will report 2020 earnings and provide new targets on March 1.

“We hope we can speed up that growth to beyond our historical 20%-plus,” he said.

The company, which first sold shares to the public in June 2019, currently ranks among Germany’s best stocks after rising more than sevenfold in the past 12 months, leapfrogging Zalando, which about doubled. At 13.33 euros, the average price target of analysts Bloomberg tracks currently leaves another 10% potential.

The company’s new phase of growth will focus on countries including Argentina, Indonesia and the Philippines. Its latest logistics addition in Brazil is the largest automated fashion e-commerce fulfillment center in Latin America. The final phase of expansion for now will be a second site in Russia, to be operational in the second half of next year.

Capital expenditure will be at about 50 million euros ($61 million) per year in the coming years, Barchewitz said. The Russian and the Brazilian facilities jointly cost about 100 million euros in total.

Cash-Rich

After raising about 120 million euros in November, the company had about 400 million euros at its disposal with virtually no debt, Barchewitz said. This puts it in a “very strong position to invest for growth.” Should it decide to enter a new country or category, the company may consider alternative financing, he said.

Global Fashion operates under the Dafiti brand in Latin America, as Lamoda in Russia, as Zalora across Southeast Asia and The Iconic in Australia and New Zealand. Any new markets would be smaller countries neighboring existing ones that could be served with the existing infrastructure, Barchewitz said.

The shift toward ordering shoes and clothes over the Internet is so strong that online retailers benefit, even as the wider fashion market shrunk by about one-fifth last year with many would-be shoppers locked in at home, Barchewitz said.

“Fashion is not a winner of the pandemic,” he said. “As a category we are a loser, but as an online channel we are a winner from Covid-19.”

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