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What does killing Otto’s catalog say about retail’s digital transformation?

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There will be no Otto’s print catalog next holiday season.

Last November, the family-owned business, Germany’s largest mail-order company, and once the largest in the world, printed the final millions of copies of their spring and summer 2019 edition. Six-hundred-fifty-six pages filled with fashion, technology, sportswear, toys and home decorations. Otto sells it all, successfully. They are the second largest ecommerce player in Germany — after Amazon.

So, if Otto is so successful, why are they killing their iconic catalog and moving to an app?

“We haven’t put an end to the catalog, our customers have,” Marc Opelt, chairman of the Otto Management Board told Spiegel. “Data show that they use it less and less and that they have quickly found their way online.”

In fact, 97 percent of all Otto purchases nowadays are made online. And that is exactly the story that the cover of the final edition tells us — the red cover shows a woman peering back through a smartphone screen and pronouncing, “Ich bin dann mal app!”

The unmistakably German play on words assures shoppers that Otto is still around, just on an app.

Even though this marks the end of a significant era, and some may mourn the loss of the traditional catalog, there is no real reason to be sad. In fact, Opelt told Horizont, it is “once and for all clear that we managed to successfully transform Otto from a big mail-order player to a worldwide unique ecommerce business.” And Opelt is right. Many of Otto’s competitors — such as Neckermann — didn’t change fast enough and are now no more.   

How did they do it? Where did Otto’s radical drive, courage and commitment come from? And what can other retailers learn from this remarkable evolution?

The answer is both predictable and surprising. There is no doubt that Otto is a digital transformation story — the story, in fact, of a legacy retailer undeterred by the rise of digitally native retailers, who latch together innovative tech partners to remain agile and swift.

But it is also a story of a 69-year-old company that held true to its principles — not in a hidebound way, but in a way that allowed Otto to look at those principles through an updated lens.

To understand how Otto got to where it is — a European behemoth, an Amazon rival, a revered retailer — it helps to remember where Otto started.

The iconic catalog – filling a need

Otto is named after Werner Otto, who in 1949 founded the company — Werner Otto Versandhandel — in Hamburg. The first catalog in 1950 was hand produced offering 28 styles of shoes. Only 300 copies were distributed.

But already in 1953, Otto increased it’s turnover (revenue) fivefold. Their success seemed unstoppable and almost 40,000 copies of the catalog — offering a lot more than just shoes — were printed in the same year. Werner had truly seen a need — and filled it. By the late 1950’s, Otto Versand was one of Germany’s largest companies with over 2,000 employees and a 100 Million Deutsche mark (about 51.1 million euro or $58.6 million) in revenue.

The first Otto catalog

A first of many firsts

The truth is, Otto was a retail innovator from the start. The concept of mail order via catalog was not the only retail revolution that Otto started. The company continued it’s fast-paced growth through constant innovation. To name a few milestones throughout the years:

  • In the 1950s, the company paved the way for ordering on account (or on credit), which increased sales significantly.
  • In the early 1960s, Otto started offering a telephone ordering service that turned out to be a huge success.
  • In the early 1990s, the company recognized a market need for express 24-hour delivery.
  • And last but not least: In 1995 — the early days of the internet — Otto launched their first website and became one of the first online shopping platforms.  

Otto, in other words, has always had a great eye for customer needs and has always been open to adopting strategies that no other company had thought of yet. Their success seems to be rooted in their pioneer position in the retail landscape and their willingness to take bold, and what some might call risky, decisions.

So, the digital transformation that the company is executing today is in keeping with its tradition of innovation — nothing new, some might say. What makes Otto’s online shopping transformation story truly compelling though, is the fact that the company’s historical and cultural roots lie in Germany, a country that is still quite conservative when it comes to online commerce.

If that’s the case, why and how did Otto move forward with the idea?  

From threat to opportunity

The short answer: It had to. Longer answer: Since its founding, Otto had been growing constantly and exponentially. There had never been any real struggles — until 2014. For the first time Otto met serious competition and their catalog-based business model was challenged. As the Harvard Business Review pointed out, Otto’s online revenue in 2015 was growing at 2.5 percent, while online competitors Amazon and Zalando were seeing 13 percent and 26 percent growth respectively.

Zalando and Amazon cleverly made use of digital technologies and introduced easy-to-use online shopping platforms, an even larger product portfolio and generous return policies. Otto was no longer able to keep up with the pace of these developments and could not create sufficient customer value anymore.

Otto was losing revenue fast and knew that it was all or nothing. The threat was serious. Competitors like Neckermann had failed to keep up with the online opportunities and went bankrupt shortly before Otto found itself in its slump.

It was time for a groundbreaking change.

New strategy, new responsibilities

Change meant moving fast and putting technology at the very heart of the company. This was immediately reflected in a few major decisions, for example in appointing senior ecommerce expert Dr. Michael Müller-Wünsch as Otto CIO in 2015, a position that had not existed until that day.  

Müller-Wünsch set a clear tone from the very beginning. “Changes in consumer behaviour are always technology-driven, which is why we investigate the latest technological opportunities at an early stage and evaluate their potential and benefit for the customer,” he said in an Otto website post.

And as dramatic and transformative as Otto’s new approach was, it wasn’t technology of top-down pronouncements that led to its success. Instead, it was the fact that the company’s leaders were able to change the Otto mindset and enlist employees in the effort.

The shift was reflected in Otto’s 4 pillars of successful ecommerce, which hums with the energy often exhibited by much smaller upstart retailers known as digitally native retailers:

  1. Transform
    Otto consistently reviews existing business models and continues developing them.
  2. Participate
    Whether in sourcing, marketing, data analysis, payment or logistics, with its broad portfolio of retail-related services Otto has the right solution to meet all requirements. In addition, we are constantly developing new service concepts for ecommerce in our innovation forge, Liquid Labs.
  3. Create
    Otto has developed and tested new online concepts for a wide variety of target groups, predominantly in the Fashion and Lifestyle segments – for example the highly successful About You fashion platform.
  4. Venture
    Otto Group participates in the venture capital business and in the area of business incubation, and currently holds shares in over 100 startups around the world – a figure that’s set to rise.

But the effort didn’t stop with words on paper — or a computer screen. In 2017 Otto appointed  Sebastian Klauke as their Chief Digital Officer (CDO) to further drive the digital transformation and future-proof its corresponding business models. A new and unique position, reporting directly to Dr Rainer Hillebrand, vice chairman of the executive board Otto Group. Hillebrand was responsible for corporate strategy, ecommerce and business intelligence.

Culture eats strategy

Otto has not lost sight that technology provides tools, but tools do little good without a commitment behind them. Digital transformation at Otto has always been approached as a cultural matter. That means winning employees around to the idea that the transformation process is never completed. Here lies the biggest challenge and the largest opportunity.

A successful example of involving the employees in strategic decisions is the development of a clear company vision and unifying guiding principle. In a participative process 4,350 Otto staff contributed. Each opinion was taken onboard and each vote was counted, with this principle statement as the powerful result:

“We are shaping the digital future.”

A unique, Hanseatic approach to disruption

One thing that is truly unique about Otto’s digital transformation and future focus is the way that history and tradition are used as a firm foundation for this strategic change. The company seems to be taking the best from the past and turning it into a future-proof business model.

“We recognised early on that the digital transformation does not always mean that we need to do away with the old business model,” board Chairman Opelt says on the Otto website. “The traditional way of doing business has financed the transformation at Otto over the years. This approach is less headline-grabbing than radical growth stories, but it is evidently also more successful. We call it the Hanseatic approach to disruption.”

What’s in store for the future?

Based on their journey so far, we can only look forward to seeing what Otto comes up with next. Since the industry is moving at breakneck speed, it is hard to predict Otto’s exact next move. But one thing seems to be very clear: Otto is growing and will continue to fill market needs. They will keep raising the bar when it comes to online shopping experiences.

When Rainer Hillebrand was asked in an interview for the Otto website what the future of the customer’s shopping experience would look like, he summed up the goal of digital transformation perfectly:

“It will look exactly as the customer wants it to!

Photos courtesy of the Otto Group

Digna Brand

Digna Brand

Digna is a Netherlands-based freelance writer and marketeer with a background in a broad range of complex subjects, including technology. She loves cats, is an avid reader and once ran a bookshop in Scotland (true story).