Wednesday, January 29, 2014

Sartorial Statements: International Online Fashion Attracts Big Investors

Shopping in a store is stressful. Between the horrible dressing rooms with bad lighting, non-existent sales associates and the high probability that the store will not actually have your size, it's no wonder that more and more people prefer to shop online from their homes and offices. Private equity companies, angel investors and anyone with extra cash are gambling that this trend will only keep growing, and will spread worldwide. Investors are pouring money into a variety of online clothing retail sites, particularly in international markets. They are focused on local companies who have managed to dominate the market in places like India, China, South America and Russia where US behemoths like Amazon.com and Zappos are still trying to break in. Even World Bank, a financial institution that is supposed to focus on global development and alleviating poverty, can't help but get in on the action. World Bank's IFC investment arm, which is supposed to invest in private companies that helping to eliminate poverty, has just invested 10 million euros in Lamoda, a fashion e-commerce site that operates in Russia and Kazakhstan, and 15 million euros in Dafiti, a fashion e-commerce site that operates in Brazil, Argentina, Chile, Columbia and Mexico. World Bank's reasoning? These companies are providing jobs for thousands of people in these reasons, many of whom are women, and are facilitating demand for "locally-sourced goods." Which sort of makes sense, if you ignore the fact that both Lamoda and Dafiti are owned by Rocket Internet, a Europe-based private equity company that invests in internet-based businesses, and the fact that the websites operate within a given country does not mean they are selling clothing from that specific country or region.

In addition to the influx of investment, local companies such as Alibaba and Tencent in China are fighting for dominance over their markets, while other online retailers are trying to break into markets such as southeast Asia where there currently is no dominant online retailer. 

All of this activity and competition is great for the consumer, because who doesn't love more places to shop? However, it is unlikely to last. Over the next few years there will most likely be a consolidation of online retailers, much as there was in the US where Amazon and Ebay now dominate the market. It is likely, though, that each region will end up with a different winner. As Amazon and Google can attest to, it is difficult to transition an internet company developed in one region and based around that region's culture and interests into another region and unseat the locally-grown dominant player. From an investor's point of view, it is therefore unclear which online retailer will win out in the different regions, and so the best decision is to spread investment out amidst a variety of companies and hope that a few will make it big. In this business there are only two directions: keep growing up until you can IPO (which means you will have to start acquiring other companies to keep yourself going) or get acquired by a bigger player. It will be interesting to see which companies win in the international online fashion business.

For more information:
European Retail Sites: Lazada Builds Out its Marketplace and Zalando Gets New Investment
Fashion E-Commerce Site Lyst Raises 14M

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