Blog // Digitalisation

Rocket Internet & Zalando

 In 2014 it floated on the Stock Exchange. Having made a profit for the first time in 2014, the company fell heavily into the red in the third quarter of 2015 with a loss of 18 to 32 million euro. The same day, Zalando shares lost over 13 percent of their value. Zalando are asking their shareholders to put up with quite a lot.2 As soon as the company makes a profit, it gets re-invested in marketing and growth. The share price has since recovered substantially and is now regarded as a good investment, like Amazon.

A favourite subject of the owners of Rocket Internet is the Old and the New Economy. The Old Economy is shops in pedestrianised areas of towns and cities that sell their goods on site in shopping centres, while the New Economy is selling goods over the Internet. At the moment the share of online dealers in the overall European market is still under 5%, but Oliver Samwer from Rocket Internet predicts that this will grow rapidly in the next 5 years and reach 25% in 10 years' time. Shopping centres will lose their significance as market places.

The aim of Rocket Internet is to attack the business models of established companies. "Did WalMart invent the supermarket, or Deutsch Bank the banking model?" asks Samwer rhetorically. "It is difficult enough in the digital world to build up a company whose business model lasts longer than 5 years".1 All the while, Rocket is focusing on growth to become a European counterpart to Amazon. Profit is less important here, what matters is being faster than the competition and putting into practice new ideas with a focus on customers.

One of Zalando's founders, Robert Gentz, describes the sometimes chaotic work as follows: "Things were going flat out, we were up to our eyes in it" he said, admitting that they completely "lost track" of the immutables of trading, and the rhythm of spring/summer and autumn/winter seasons. Consequently, they were completely surprised when the logistics experts asked for more warehouse space in autumn because heavy winter boots didn't fit in the small cardboard boxes used in summer.2

To avoid descending into chaos, Zalando started early with setting up an "Organisational Development" department. These managers reflect the company's culture in terms of leadership, decision-making and co-operation. Zalando is held to be a one-off in this. Companies can only survive such speed of permanent re-organisation if they are constantly thinking about what they do, what they can learn from it and how they can do it better in parallel with their operational activities.

Beneath all the hubris of Rocket Internet wanting to set itself up as the European competitor to Amazon and attack business models of Dax companies, there is a need for flexible, responsible, reflective and therefore lateral management. The model clearly works. Zalando has become the second-largest employer in Berlin, only the Berlin City Council having a bigger payroll.

References:

1 FAZ, 26 January 2016, Die deutsche Internetrakete (The German Internet rocket)

2 Brand 1 Rennmäuse 12/2015

Geschwill, Roland & Nieswandt, Martina, Laterales Management, Das Erfolgsprinzip für Unternehmen im digitalen Zeitalter, [The principle for success in business in the digital era] Springer 2016