Swedish fashion retailer H&M has been criticized of being slow in the digital space. With marketplace Afound the company joins the platform revolution and jumps a few lightyears ahead to a very disruptive model in the fashion industry. Afound will be the pilot market place for H&M in Europe. Testing started in the Netherlands.
Is H&M trying to become the Amazon of fashion? For that it may be too late, with Zalando in the lead. But the company is definitely thinking big and is building for scale with its new platform Afound, an off-price marketplace for circular en sustainable fashion. It shows how H&M wants to transform itself into a platform.
Platforms are driving economic change in a pace and scale that is unheard of. Airbnb crushed the business model in the hotel industry, Amazon and Alibaba disrupted online retail. Digital Commerce 360 (formerly Internet Retailer) estimated that the Top 100 marketplaces sold $2,03 trillion worth of goods in 2019, a share of 58 percent of the global ecommerce market. In Asia it's 70 percent, in Europe the UK has the highest score with 40 percent market share of online retail platforms. The impressive pace of growth is 2,4 faster than traditional online ecommerce. That's why H&M is also jumping into the game.
After the rise of big, general, business to consumer marketplaces like Amazon, who sell everything you can think of, in the second phase there is a rise of specialist marketplaces like Afound. H&M is not the only one in Europe. Department stores like Galeries Lafayette, Harvey Nichols and El Corte Inglés all started their own marketplaces, removing their inventory risks towards sellers. Even Ikea jumps into the platform space.
Off-price is new full price
There were different market trends that drove traditional retailer H&M to implement a new platform marketplace strategy. ,,We saw that the customers are becoming more and more promotion driven and they are doing a lot more searches online. It's not like it used to be, when customers were quite channel loyal. It's becoming more and more mixed, the customer is more and more aware of different alternatives and we need to cater to that," said Kimmo Jukuri, growth and business developer at H&M during the Webwinkel Vakdagen in Dutch city Utrecht.
Estimates also say that around 70 percent of all baskets from fashion sites contain some kind of a promotional item such as free delivery or a discount code. ,,So off-prices are becoming the new full price," he says.
The second big trend the brand wants to follow is sustainability, with Greta Thunberg leading the change. H&M is committed to this cause and has a 200 people strong team working on sustainability. Afound is such a sustainable concept. The marketplace only sells existing stock and therefore produces no new materials. Jukuri: ,,The sustainable consumer is aware of how the clothes are produced, how the materials are sourced and what happens to the product after the first phase of its lifecycle has been ended. We are interested in those questions as well."
One of the key drivers for H&M to start Afound is the enormous amount of fashion out there which is never sold. ,,It just sits in warehouses and brands do not dispose of it in the most ecological manner. We are a channel that gives this fashion a new life and a new possibility to find the customer," he says.
Value adding network
The modern fashion consumer is also obsessed with convenience and is looking for the maximum ease of shopping. They are looking for the maximum assortment for the best price and the fastest delivery options. According to H&M a marketplace platform model is the best way to achieve that. Especially because external sellers are responsible for the delivery and the customer care. The platform is just the host who supervisions how the partners perform. ,,We provide the space where buyers and sellers can meet. Our job as an operator is to make sure the platform works, it's safe, people trust it and there is enough traffic to generate sales," says Jukuri.
The biggest transformation H&M made is the step from retail vertical - where the brand is buying its own fashion from suppliers and selling this in its own stores and webshops - to an online marketplace where H&M is not 100 percent in control. "A market place set up is more of a value adding network. You need to think differently. We can't tell our partners what we want from them. It needs to be a mutual win-win kind of set up.This is where the market is heading more and more towards. At Afound we have two customers: the B2B partner or seller and the end consumer," says Jukuri.
All brands under one roof
The concept of Afound is to sell discount fashion of well-known and popular brands, combining great deals with sustainable shopping. H&M doesn't control pricing but has a minimal requirement that every piece sold through Afound should be at least 25 percent off from the normal price. The platform only sells existing stock and also offers a line of second hand and vintage fashion. Left-over materials like pieces of leather are refurbished to make wallets or mobile phone covers. Important to H&M is that the consumer can find all the H&M brands under one roof. On the other hand it uses the platform to test a multi brand approach.
Pilot in Europe
Afound was launched in Sweden in June 2018 and is already selling over 600 brands, from luxury brands like Gucci or Dior to high-speed fashion like H&M. After that the platform was launched in the Netherlands in October 2019, where it opened its first Dutch store in Utrecht in March 2020. New European markets will follow this year and the next year.
Because H&M is not dependent on its own logistics networks and its own assortment, it is possible to open new markets very fast and to scale the concept, expanding and testing new products at the same time.
H&M has also become a seller on Afound, offering all of its brands, and accepting it has to compete with other brands on its own platform. ,,We have become a full scale market place seller. Afound will be the pilot market place for H&M in Europe," says Jukuri.
Testing in the Netherlands
Why did H&M chose The Netherlands as the second market in Europe to launch Afound? Jukuri: ,,What we saw was that the market in the Netherlands is quite mature already. We saw that the customer adaption of this model would not take a lot of effort. When we launched in Sweden we had to educate the market about what a marketplace is, especially in the B2B and B2C space. People were not used to shopping in this way. In the Netherlands we had this advantage. We also wanted to test asizable European market. But the main factor was the language. Dutch people are great in English and are used to shopping in other tongues than their local language."
H&M's journey had some pain points. Building the platform the retailer had problems finding the right software partner, finding the right talent with knowledge of the platform space, establishing a different start-up like culture and convincing sellers to join the platform.Building Afound, H&M had to think big from the beginning, allowing the platform to grow in volume and to scale-up in the future.
Jukuri: ,,H&M is traditionally customer obsessed, but now we actually have two customers. So it has been a huge journey for us to educate the organisation about the B2B space and the needs of the B2B customer. You have to balance the needs of the B2C and the B2B customer. A platform type of business is risky, hard and it's going to be challenging, but I think the risks of not doing it outweigh the risks of trying. Because ultimately, if you are not going to take the space, someone else will do it. It's going fast, so you need to go in there and start doing this."