“We Wouldn’t Survive Without Technologies. In the future, over a half of all sales in the retail segments will be over the internet,” says Eduard Míka, a shareholder and a board member of Netretail Holding, the company that owns and operates Mall.cz
|The online shopping market in the Czech Republic is growing. How is Mall.cz doing these days?|
If you mean by market share then that’s hard to say, because there actually are no objective data about the Czech market. However, Mall.cz grew in the last fiscal year, year-on-year, by thirty five percent. In April we began a new fiscal year with a consolidated growth within the group by 40 percent and also noted a comparable development within the Czech Republic.
Will the consolidation of the market continue? Is Mall.cz looking for some purchases?
Consolidation happens in every industry field sooner or later. In times of the greatest boom, there were over 30,000 internet shops in the Czech Republic. It’s apparent that such a number is not sustainable long-term. In my opinion, there are currently only three players who have a long-term perspective – Mall.cz, Alza.cz and Czech Computer (Czc.cz). I don’t think that another local e-shop could seriously compete with these three in the retail area. In view of this, we’re looking more in other countries in terms of further geographic expansion.
for managerial positions, despite being partial shareholders.
First of all, I wouldn’t dare to say about myself that I’m a manager. If I were to hold a standard managerial position in the Mall or actually in Netretail Holding, I wouldn’t have been there for a long time. But Naspers still isn’t a corporation, it works as a holding structure and the companies within this structure have considerable independence, so the capital investment of Naspers didn’t change the function of Mall.cz very much. I would be a short-sighted investor if I got rid of my share when I expect further steep growth in its value. And, besides that, it’s fun for me.
How does the collaboration with Naspers, the strategic investor, work?
Right now, Naspers operates more like a financial investor. As I said, this is a global conglomerate of many companies that currently works as a holding structure. With the exception of exchanging experiences with other online retailers within the group, you can’t even talk about any collaboration. No doubt, there will eventually be a consolidation of the actual entities into a unified structure, but it’s still in the beginnings.
What’s the long-term trend in the development of internet shops? Is the development headed to more universal shops, such as Mall.cz or Alza.cz or is it keener on specialization?
Much like Amazon, Mall.cz wants to be a universal shop where customers find almost everything. The trend clearly shows that customers don’t want to „skip“ from one shop to another and want shop for everything they need in one spot, as quickly as possible. This is also why the meaning of price comparison sites is dropping worldwide. Our experience shows that customers prefer comfort and reliability. They want to be sure that goods that are shown as in stock actually are in stock, that they will get what they ordered and that they will get it fast. In larger purchases, saving a few tens of crowns will not tempt them to waste time searching out a seller with the lowest prices.
Don’t people actually go to the internet primarily to save money?
Of course, people shop cheaper online. But their way of shopping is changing, which is also partly caused by the change in the character of goods. What was a luxury a few year ago is now common goods. This is one of the reasons why customers approach shopping differently. The times when entire families took off to shopping centers on weekends are gone. It also has to do with a changing lifestyle. People want to travel, do sports, spend time with their family, have fun with friends and not spend time shopping. Most purchases are essentially involuntary – something stops working at home, or it’s necessary to top up supplies.
You mentioned American Amazon. Will its entry to the Czech market represent some significant change?
It will, but perhaps differently than you think. First of all, I wouldn’t put too many expectations on Amazon’s entry to the Czech market. For a global company such as Amazon, this is also tied to our economic potential. Although we hate to admit it, the Czech Republic is smaller than a half of Shanghai. We will welcome Amazon’s arrival to our market, because another part of the retail turnover will switch to the internet and some more big brick-and-mortar chains, whose market share continues to decline, will have to leave. That will mean profits not only for Amazon, but also for us.
Can Amazon somehow notably change the rules of online shopping in the Czech Republic?
In the medium-term, barely. What decides the success rate in online retail today is logistics and Amazon will be in the same environment with others. Companies like FedEx or UPS don’t work in the Czech Republic and Amazon will be dependent on the same infrastructure as other big players.
How important is the size of your information technology for the functioning of the online store?
In essence, it’s the most important thing. Mall.cz views the entire process of fulfilling an order as a production line. Next year we will be moving to a new distribution center that will have the capacity of expediting 150,000 pieces of goods. In our estimates, we will be expediting approximately 85,000 per day in the Christmas season this year in our entire structure and we need to add some 40 to 50,000 pieces of goods that come to the warehouses every day. Given that our system centrally operates the storage and shipping of goods in five countries, something like this would be absolutely unthinkable without information technologies.
Can you give us an example of how technologies help you?
For example last year we built a solution based on the SAP HANA technology for the so-called logistics cockpits, which enable us to monitor the movement of each piece of goods in real-time and predict the usage of capacities and operate the whole process, which is the equivalent of a production line running 24/7.
You mentioned the SAP technology. You used it in Mall.cz since 2008. Even though the start wasn’t entirely without problems, how do you view this decision now, looking back?
I still believe it was the only possible decision that we could make at the time. I realized the company wasn’t ready for something like this both in terms of people and processes, because at the time, we were still a start-up to some degree. But at the same time, it was clear that if we didn’t make such a decision, we wouldn’t have a chance to survive in long term and achieve the goals we set for ourselves. I was aware that this would be a tremendous blow to the internal environment of the company and that there was a real risk that the company wouldn’t survive such a change. It wasn’t because SAP would deliver bad technologies, but because we weren’t ready for them yet. But I knew that we wouldn’t survive anyway without this risky step.
Last year at the peak you shipped over 70,000 goods per day. How is it even possible to handle such a thing?
It’s not just a matter of the 70,000 pieces of goods. In this process we dispatch single and multi-piece orders that must be composed from several sources of goods into one or more packages. Additionally, we prepare goods for our clients to be picked up in our branches and re-stock goods to foreign countries. In our warehouses, it doesn’t work by one warehouseman to complete the order from the individual pieces. We use a very complicated optimization mechanism in order to, for example, dispatch 20 photo cameras within the next four hours and pick them all up at the same time from the warehouse location. This considerably increases work productivity. Further, we have to take into consideration in the process that some customers paid extra for express shipping and must ship the same day, while in other cases, they chose free shipping where we have two or three days for the dispatch. And then, enter the capacities and the weight or size limitations of the individual shippers. The job of the technologies is to optimize the entire process in order to maximize those options and capacities we have available. This is where we return a bit to the logistics cockpits developed in the SAP technological environment. The output of our logistics system would be lower without a perfect overview of the entire logistics process, because we can’t allow any hitches. This is why prediction analysis is a part of the solution. All this requires real-time data, which the SAP HANA technology makes possible.
Are your technologies ready for it?
While the architecture of the information system if fully scalable, in some of our logistics technologies, we’re approaching the limit of their ability. For example, we cannot we cannot complete an unlimited number of multi-piece orders in parallel. This is why we’re preparing the new logistics center next year with a considerably higher degree of automization.
What will the e-shop of the future look like? Isn’t every customer going to have their own 3D printer that will simply print whatever they ordered right on their desk?
That may be a nice vision, but of course, this won’t be possible with the majority of goods. After all, there are some technological limits and you can’t very well print a shampoo or the lens of a camera on a 3D printer. Nonetheless, I certainly have no fear about the future of online shopping. These days, together with China, the Czech Republic is the third or fourth place in the world with a six percent share of online purchases in retail turnover, following the US with 12 percent and UK with 10–11 percent. In the segments that became available online, mostly thanks to us, Alza.cz and Czech Computer, that is household appliances and electronics, we’re actually in second place according to available data, following Great Britain and ahead of the US. Still, I think there are many areas where we have to catch up. A typical example is clothing that, for example in Great Britain, is sold over the internet in much more ratio to the overall turnover. I’m convinced that in a number of segments online sales will one day be more than 50 percent of the retail market. But there is a long road ahead of us in achieving this.