Patience has produced handsome growth for Boozt
Last week’s article about Boozt, based on an interview with the co-founder and CEO Hermann Haraldsson, delved into the company's differentiation: The Nordic Department Store concept. This somewhat old-school approach to retailing has enabled the company to grow rapidly.
The article closed with another company differentiation: the conservative use of money. Boozt has been using money much less aggressively than many other online retailers. Haraldsson said that the company's management is incentivised to put ”skin in the game,” leading to more spending consideration.
This part of the interview delves into the results of this management approach and how these results have been achieved. The article also focuses on the company's future direction.
Solid growth with improving profitability
Even though some might think that Boozt's conservative management style would dampen growth, the company has reported strong growth over the last few years. Since 2015, its revenues have grown nearly tenfold, from 817 million SEK to 7.7 billion SEK.
The ”conservative” management style has enabled the company to report double-digit growth every year since 2015. Last year, it had the slowest growth, with 15% growth. More astonishing is that from the start 2016, there is not a quarter where Boozt’s growth would have declined. Not even when the company faced the pandemic-induced growth quarters as the previous year’s comparative numbers.
At the same time, as the revenues have grown, Boozt has also been very profitable. Every year since 2018, the company has reported a positive operating result. The operating margins have improved steadily, but the operating profit has grown from 70 million SEK to 300 million SEK. All the while, the company has almost tripled.
To put the growth of operating profit into context, during Q4/2023, Boozt made a more significant operating profit than during the entire pandemic year 2020.
The keyword to the growth of Boozt is balanced.
Balanced growth arises from a balanced business
Besides the patient attitude toward spending money, balance means geographical and cyclical balance. Boozt reports revenues for the Nordics and the Rest of Europe. Since Q4/2020, the Nordics have been divided into Sweden, Denmark, and the Rest of the Nordics. These three provide a relatively equally balanced entity. In Q4/2023, the Nordics generated 90% of Boozt’s revenues.
The business in the Nordics has grown robustly from 2,6 billion SEK in 2018 to 7 billion SEK in 2023.
The growth in the Nordics has continued uninterruptedly. However, it has been balanced by the newer segment of the Rest of Europe. It has grown from 165 million SEK in 2018 to 680 million SEK last year. This provides further growth and will probably balance out a plateauing growth in the Nordics.
Besides the geographical balance, Boozt is also balanced against the economic cycles. As discussed in the previous article, the core Boozt business focuses on the market’s mid- and premium price points. Boozt has been able to grow robustly, but stronger growth is coming from the newer off-price segment, Booztlet. It has grown from 100 million SEK in 2018 to 1,3 billion SEK last year—quite astonishing growth. Booztlet currently generates more than 16 % of revenues.
According to the Communications Director Ask Kirkeskov Riis, Booztlet's growth in Germany and the Netherlands stands out and are markets with significant growth opportunities. ”Germany and the Netherlands are priority markets for Booztlet while growth opportunities in the Nordics and Balticum are favored by Boozt.com. We currently see very strong performance for Booztlet in Germany and The Netherlands with triple-digit growth for Germany in Q4 2023 compared to Q4 2022.”
The more balanced nature of growth can be visualised when Boozt is compared to some of its main peers: Zalando, ASOS and Boohoo. Each of them has seen growth and profitability decline over the last years. However, Boozt is performing better than its peers.
With revenue growth, Boozt is the only one still growing. In terms of profitability, Boozt and Zalando have been able to increase their profitability after the steep decline from the pandemic highs. Boozt is quite significantly more profitable than Zalando. Boohoo and ASIOS have dropped deeply the red.
What next for Boozt: how to grow further?
When asked what to expect in the future, CEO Haraldsson does not paint a picture of a much more international Boozt with many new categories to sell. Instead he talks about going deeper into the selected countries and categories.
Multicategory customers with a lot of growth opportunities in the existing customer base
This means gaining a bigger market share in the Nordic markets and becoming a more popular destination for shopping in other categories. The other important aspect of expanding from the core fashion category is that fashion can be very cyclical. Thus, Boozt can reduce the risks associated with fashion, be it sustainability-related risks, inventory risks (fashions come and go quickly), or weather-related risks.
”Last year, 40% of everything we sold was non-fashion. I think it's just a matter of time. Probably within the next two years, it will be 50-50. That's my best guess. And I think it will eventually be something like 40% fashion, 60% other categories, which is perfect because you don't have as much fashion risk.” Hermann Haraldsson
“Last year, 40% of everything we sold was non-fashion. I think it’s just a matter of time. Probably within the next two years, it will be 50-50. That’s my best guess. And I think it will eventually be something like 40% fashion, 60% other categories, which is perfect because you don’t have as much fashion risk.”
To become a destination in other categories means going deeper into the subcategories. For example, the beauty category could be expanded into health products.
The biggest advantage is that with more depth in categories, individual customers start spending more with Boozt. This means that the average basket size goes up, and annual spending per customer goes up. Both of these provide a lot of benefits in terms of improved efficiencies.
Boozt has great potential in getting customers to buy from more categories. Image source: Boozt CMD, 2023
The category expansion provides Boozt with big growth potential. According to the Capital Markets Day in March 2023, single-category customers spend an average of 1,000 SEK annually. On the other hand, customers who buy from all categories spend an average of 7 000 SEK annually.
Most customers are still single-category customers. In March 2023, almost 55% of customers were buying from only one category, and only a bit more than 20% of customers bought from three or more categories. The loyalty program is one key element in getting customers to buy more often and more per order.
The majority of Boozt customers buy one or two categories (3/2023). Image source: Boozt CMD, 2023
Since March 2023, more customers have started to buy from more categories. Ask Kirkeskov Riis emphasises this “Multibuyers is clearly an important part of being a department store, and during 2023 more than 50% of our customers bought from more than one category. The total number of multibuyers on Boozt.com increased with around 15% in 2023.”
Club Boozt driving loyalty
One obvious area where a retailer can improve the average spending of the best customers is the loyalty program. The key to loyalty programs is to identify what kind of customers are most likely to spend more (in multiple categories for Boozt) with the company. Then, the program should be tailored to reward the activities that the company wishes from the customers.
”Big potential also here to make sure that they don't go somewhere else to buy something inexpensive. This area is obviously to build more loyalty and to drive more multi-buyers. That's the whole purpose of the club (Club Boozt). But the club also gives us some opportunities in a market that gets more tough to operate in if you are e-commerce.
Club enables us actually to differentiate the pricing towards the relevant customers and it also gives the opportunity to be in dialogue with our customers in another way simply because the app will entail a wallet and it will also entail inbox. So the dialogue will be in the Boozt and in the app, and that means a lot.” Peter Jørgensen, Co-founder & CCO
The communications director Ask Kirkeskov Riis explains the benefits of the Boozt Club: ”As a member, our customers will enjoy a bunch of benefits such as personalised shopping experiences, exclusive access to presale, discounts on favourite brands, prioritized packing, VIP customer service as well as recommendations based on individual preferences and style.
Our strategy is - the more loyal you are the better the benefits. This means focusing on the needs and desires of the customers who frequently shop with us, providing them with exceptional services and exclusive deals. Tailoring the experience to our most profitable customers is beneficial for improving both AOV, revenue and to continue to deliver best-in-industry profitability."
Image from the Boozt warehouse. Image source: Boozt
The last investment area for an e-commerce company is naturally focused logistics. Efficiency there can enable many important things for the customer (faster shipping times) and the company (more profitable growth).
”With our current projections, we can we have enough capacity in a warehouse this year and next year. We will need some more space in 2026. What we're planning is to build more capacity next door, because the cost advantages of having only one warehouse outweigh the disadvantages.” CEO Hermann Haraldsson
Boozt seems to be on a solid course to continue to enjoy the retail’s online transition. Customers in the older age groups gradually learn to buy more online. On the other hand, the younger generations are growing older and are starting to spend more. They gravitate online much more naturally in their spending. Together, these two trends will drive the long-term growth of the online channel.
