eTailer Letsbuyit.com has announced an alliance with German retailer KarstadtQuelle.
European eTailer Letsbuyit.com today announced a deal with German department store and mail order firm KarstadtQuelle. The German firm will supply Letsbuyit with a large proportion of its stock at special rates as an ‘affiliated customer’, and will also provide it with logistics and customer service support. In exchange, Karstadt will get the option to buy trademark rights and an equity stake in Letsbuyit.
The Karstadt deal looks extremely promising. In the short term, Letsbuyit will benefit from cheaper goods thanks to its affiliate status, as well as making savings on fulfillment and service. For a company whose costs are still around 14 times turnover, any savings will be highly welcome.
But it could prove yet more important in the longer term. Letsbuyit, which teetered on the verge of bankruptcy earlier this year until it arranged an E81 million rescue package, still suffers from serious credibility problems. Simply, its pureplay online ‘co-shopping’ business model, which involves getting groups of buyers together to get reduced price goods, hasn’t yet succeeded anywhere.
The industry consensus is that pureplay eTailers are unlikely to reach profitability. This could be where Karstadt’s options come in. The German firm has acquired the right to use the Letsbuyit brand in catalog mail order and store-based retailing, and its Internet division has the right to buy a stake in Letsbuyit.
It would make sense for Karstadt. Letsbuyit is a well-recognized Internet firm, with undeniable eCommerce expertise and consumer mindshare. While Karstadt’s eCommerce operations brought in E450 million in sales last year, that’s still less than 5% of its total revenues; such a well-recognized brand could help boost sales both in Germany and potentially in new markets.
Thanks to the rescue package, Letsbuyit is no longer desperate for a sale. But if it becomes clear that the cash injection has failed to turn the firm around, a sale to Karstadt might well be the best way for shareholders to salvage something.
