Otto Group cannot completely sidestep the negative trend overshadowing the e-commerce market, but still improves operating profitability

“In the current financial year, the focus was and is on assuring earnings quality. A drop in e-commerce revenue was therefore to be expected. In addition, business around the holiday season not as buoyant as expected, neither for us nor for the market as a whole. That said, we managed Group performance quite successfully. In the current financial year 2023/24, we will see a year-on-year improvement in our operating profitability. The Otto Group has weathered the storm and will emerge stronger from this crisis,” emphasizes Sebastian Klauke, Executive Board Member for E-Commerce, Technology, Business Intelligence and Corporate Ventures at the Otto Group.

Initially, however, the challenges remain considerable. The consumer climate and a penchant for shopping in Germany remained extremely low in 2023, a fact reflected in overall consumer spending. At the Otto Group, the negative consumer sentiment was manifested in a decline in average basket sizes and a significant drop in sales in some business models. The revenue forecast for the Otto Group’s e-commerce activities shows little difference in trend between the international and German markets. Online sales are expected to fall by almost 9 percent in foreign markets and by just over 9 percent in Germany.

The German E-Commerce and Distance Selling Trade Association (BEVH) recently reported an 11.8 percent slump in e-commerce sales for the calendar year 2023. Drawing on these figures, the Otto Group is actually performing slightly better than the average competitor in the German market despite revenue losses and has been able to gain market share in many of its business models.

Developments in the platform transformation at OTTO are pleasing. Partner sales generated on the OTTO marketplace in the 2023/24 financial year increased significantly compared to the previous year and the GMV (gross merchandise volume), i.e. the total value of purchases on otto.de, also increased slightly.

While the Otto Group's global revenues in the Electronics and Household Appliances segments remain at the previous year's level in the 2023 calendar year, the Fashion and Home and Living clusters will post an overall drop in revenue. That said, sales in the Home and Living segment in Germany were on a par with the previous year. In comparison with the BEVH figures, the Otto Group in Germany is performing better than the average competitor across all three product ranges despite the announced closure of Mytoys.de GmbH in December 2023, which had already led to a significant reticence among the toy retailer's customers even before the final closure.

Overall, the Otto Group's online revenue is expected to end the 2023/24 financial year at just under EUR 10.8 billion, still well above the figure of around EUR 8 billion before the coronavirus pandemic (2019/20 financial year).

Sebastian Klauke: “2024/25 will continue to be challenging. But we now can see at least small rays of light on the horizon. Inflation is falling and people have more money at their disposal again: This is, in part, due to recent reasonable wage settlements that have already been reached and are still to come. At the same time, the proportion of people who shop online is growing across almost all age groups. For the 2024/25 financial year, we expect the Otto Group to see e-commerce grow again. However, we do not expect a more noticeable recovery until 2025.”

The Group will continue its strategic investments in digital transformation and logistics in the forthcoming financial year. This explicitly includes investments in customer-centric services such as the Otto Group's state-of-the-art logistics centres in Altenkunstadt and Ilowa, which will be completed in the coming months. Following the successful launch of the AI-controlled robots in Haldensleben, the strategic partnership with the US startup Covariant is now being rolled out to other Otto Group fulfillment centres. Non-customer related measures may be postponed in the coming year for operational reasons.

This does not apply to the megatrend of artificial intelligence. Various Otto Group companies are piloting the use of generative artificial intelligence (GenAI) to improve the customer experience and make e-commerce more inspiring. Following the test phase of an AI wizard in the OTTO online store, Group companies Baur and Unito recently launched a GenAI search that can also understand complex queries in natural human language and recommend suitable products.

OTTO and its subsidiary OSP are also continuously developing the customer experience in live shopping: Apple TV users, for example, can now watch the interactive shows directly on their TV screens for the first time using the OTTO live shopping app. They can also use their smartphone to ask questions in the chat function, call up product information or buy the featured items directly. Generative artificial intelligence also supports the moderation of the shows. A GenAI-based chatbot formulates answers to viewers' questions, making it easier to respond to queries during the livestream.

The Otto Group is piloting other use cases deploying GenAI, and not just for retail customers. The strategic use of disruptive technology is of paramount importance for the future viability of the Group. For personal productivity and to facilitate efficient processes, the company is setting store on its own “ogGPT”, a data protection-compliant version of ChatGPT. This gives the round 26,000 employees the opportunity to gain experience in working with generative AI in a safe environment. The aim is to continuously develop the tool to meet employee needs and to connect all Group companies.

* Revenue adjusted for effects from changes in the Otto Group’s corporate portfolio (excluding My Toys) between financial years 2022/23 and 2023/24, and for currency translation effects.