Otto may have just turned 60, but the world’s biggest home shopping group is evolving its model to stay relevant to the times. Lisa Berwin reports

A couple of weeks ago, on August 13, German retail entrepreneur Werner Otto celebrated his 100th birthday. And a few days later the home shopping firm he created, Otto Group – which owns Freemans and Grattan and Oli in the UK – marked its 60th anniversary.

His story is one of the most inspiring in global retail and has turned him into something of a celebrity in his home country. Like many retail entrepreneurs he started with nothing. A wartime refugee, Otto established his business in 1949, four years after the defeat of Hitler, by gluing pictures of shoes into exercise books, from which he sold them to customers in northern Germany. Today, Otto Group is the biggest mail order and second-biggest etailer in the world.

But the advent of digital technology and the rise of modern retailers more generally means that, despite its venerable heritage, Otto Group cannot afford to stand still. The pace of change was starkly illustrated on the tycoon’s birthday, when the travails of German retailer Arcandor were making headlines.

Arcandor’s woes may spell opportunity for Otto, which is understood to be interested in the former’s Primondo home shopping business. But more than that, Otto is determined not to suffer a similar fate to Arcandor.

So Otto Group’s main focus at the moment is to make sure it meets modern shoppers’ needs and, despite its age, the retailer’s approach to home shopping is anything but traditional.

Key to improvements the retailer makes is its determination to shape itself as a single global business. Its investment in business transformation resulted in a fall in earnings last year (see panel below), but Otto is confident it is pursuing the right course.

The retailer trades in 20 countries under various names and has realised that leveraging its combined knowledge, buying power and technology will improve its chances both as a group and in its specific markets.

Dr Michael Heller, a member of Otto’s executive board, merchandising, cites sourcing as an example. “The buying process is very international – 75% of sourcing is from Asia and the rest is from Europe,” he points out.

Faster fashion

The retailer is also speeding up its buying process to ensure it is in line with fast-fashion giants such as H&M and Inditex. While once Otto would put one collection together every six months that would be offered through its big books, it now starts working on collections every four weeks for online or smaller monthly catalogues.

As part of the centralisation of buying, most of the buying for its UK arm Freemans Grattan Holdings (FGH) is now done in Germany. FGH chief executive Koert Tulleners believes this will make its buying capabilities more efficient and that, in a globalised world, a central team will work better.

He believes that local consumer taste will still be well catered for. “If you have an item that is a best-seller in one country, 99 per cent of the time it is a best-seller in other countries too. The differences are just on the fringes. There is communication across countries as to what sells best,” he says.

“If you speak with a buyer in Germany it does not mean you will get lederhosen,” Tulleners jokes.

He says that fashion is now being dictated differently and through different mediums – not so much by individual designers but by “magazines and Sex and the City”, a global trend that he believes also warrants a more centralised buying team. In particular countries the smaller buying and sales teams then work on any domestic issues, such as sizing.

One of the big opportunities Tulleners hopes to take advantage of through the new structure is Otto Group’s extensive testing facility, Hanse Control. The function – a multimillion pound investment – carries out extensive testing on many products and garments not only from Otto suppliers, but also for third parties.

Specially produced machines test hairdryers and coffee machines over and over, while garments are washed to test for colour fade and zippers are tested repeatedly. The facility currently tests 130,000 products a year and is even testing seats for an aircraft company.

“Combined buying breaks up the cost of quality testing,” Tulleners says. “Rigorous quality testing pays for itself in the end, as it reduces returns.”

In another of its buildings the retailer is working on the latest technologies in photography and live video displays, which it hopes to introduce on its websites to entice customers and keep its ecommerce offers ahead of the game. Again, such technologies, once tested, could be rolled out across the retailer’s websites.

Examples include a photography studio in which a model can have their photo taken by 18 cameras at once, in an action pose, so that the outfit that they are wearing can be seen in a 360-degree view. This has been available for some time for products, but not models.

There is also a belt on which models can walk and be filmed on a green screen, against a background that can be set by Otto or customers to create an impression of the model walking through a scene rather simply than up and down a catwalk. The retailer is looking at using artists to create backgrounds and could even ask customers to add or design their own.

When Otto has tested these new technologies it will also offer them to other companies – excluding direct competitors – and sees this as another strong revenue stream. 

Tulleners says: “Not every company can build this kind of studio, and this investment in new technology we in the UK can now embrace.”

Cultural revolution

But it is not just combined resources that Otto is promoting; it is a new way of thinking and company culture. One example of how the company is trying to embrace its multinational identity can be seen in the entrance to its headquarters. Chairman of Otto’s supervisory board Dr Michael Otto asked all of his near-50,000 employees to paint a stone. Otto paid for them all to be sent to its head office to form a display, and the winner of the best design was able to donate a cash prize to a chosen charity.

Otto is also set to launch an intranet across its business so that staff know what’s happening in other countries and the people in this extensive network can talk to each other for ideas or advice.

Otto has 50 online shops internationally and, excluding eBay, is second only to Amazon in terms of etail sales and generates more than 919 million online visits each year. Its newest etail ventures include a private sales site, Limango, and young-fashion concept Yalook.

Division manager, new media, ecommerce Andreas Frenkler says: “Most important for an online shop is to get the basics right, such as presentation and images.”

Otto is constantly testing its sites to find out what works, particularly in social media. “Sites such as Facebook are new traffic points where you have to be present,” adds Frenkler. “You do not have to sell directly from social media, but it is important to be in touch with your target group.”

He says that not every so-called “next big thing” works online so businesses have to constantly experiment and investigate. “Second Life, for example, was something that we tested, but such things probably won’t have great importance in the future,” he says.

Talking fashion

Otto’s own social media site, Two for Fashion, launched a year ago and has fashion bloggers based in Berlin and in New York. “They are talking about fashion, not about Otto unless it suits,” says Frenkler. “People who would not have thought about Otto, as perhaps it was where their mother shopped, will now come to us.” 

Two for Fashion is now one of the top fashion blogs in Germany and Frenkler says it is an integral part of the retailer’s marketing strategy. “We are trying to migrate successful marketing concepts that can be used across countries,” he says.

Otto is also looking at other media platforms from which to create sales, including mobile phone commerce. “I think this will be very big in the future,” says Frenkler.

Otto has also been running a trial in Hong Kong enabling people to buy from their flatscreen TV’s, making direct shopping more of a family event.

“Live shopping” is another idea that Otto is finding popular. For one day, a certain product is put on a special offer that is available nowhere else until it sells out – which is sometimes only a matter of hours.

Technology advances continue in its logistics centres, which move 230 million goods each year and use specially designed cutting-edge sorting technologies to turn orders into parcels, with a sorter performance rate of 99%. The parcels are then taken up by Hermes Logistik Gruppe – another Otto Group company – which handles delivery.

The centres are typically on industrial estates but, to try and make the areas and the environment more pleasant for employees, ponds have been dug and trees planted. It has also used bright purples and greens to make what can be a gloomy work environment seem brighter and more welcoming.

But despite all the changes and strides towards becoming a more modern business, and behind all the technological wizardry, Otto is keen not to lose its more traditional customer.

In the UK the traditional FGH customer often buys through agents – individuals working for FGH sell to customers, who pay them back in weekly instalments. But there are big challenges with this model. One is that changes in society mean that the shame of not paying a neighbour on time no longer holds.

“Agents are still important to us,” Tulleners insists. However, his primary focus now is to increase the direct business; the challenge is finding a profitable balance. He says: “Some customers like the old way so we do not want to cut them off. What we are doing, then, is to launch new concepts alongside the old ones without leaving this old customer behind.”

Tulleners adds: “The way people see home shopping is changing.”

If Otto keeps changing, the retailer, like its founder, should be able to celebrate its centenary in style too.

Otto in figures

  • Revenue up €51.1m to over E10.1bn (£44.6m to £8.81bn)
  • EBITDA down from €488m to €226m (£425.7m to £197.2m)
  • Online sales €5bn (£4.36bn)
  • Catalogues worldwide 1,182
  • Online shops 20
  • 919.7 million online visitors a year

Figures for 2008/09