As more traditional brick-and-mortar retailers look to capitalise on the growth of e-commerce and mobile to compete against the likes of Amazon, fintech startups are reaping the rewards. In the latest development, Klarna, the payments startup out of Sweden that helps online shoppers arrange for financing at the point of sale, has picked up $20 million from H&M, the fashion retailer with 4,800 stores in 70 markets.
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The investment kicks off a partnership between the two to build an “omni-channel” payments service spanning H&M’s physical and online storefronts. Klarna says the deal will cover “frictionless” in-store, mobile and online payments across the company’s whole footprint, a better delivery and return process, and more flexible payment options, including “try before you buy” pay later services, to be delivered through H&M’s app and its Club loyalty program.
The first phase of the partnership will go live in 2019 in H&M’s home market of Sweden before a global roll out.
The companies are not disclosing the valuation with this investment, but a source close to the deal says that the $20 million equates to “much less than one percent of the company” and would place it as an upround, valuing Klarna north of $2.5 billion. The valuation was carried out in 2017, a year in which Klarna made a series of investment announcements among which Anders Holch Povlsen, Visa and Permira.
Klarna has also been eyeing up an IPO as a further liquidity event although a spokesperson declined to comment on this when asked.
For H&M, the move aims to give the company a stronger push into digital sales both to grow its business, but also to match what its competitors are doing to court the same audience of mostly-young shoppers.
Some high-street retailers have made online, and specifically mobile, a cornerstone of their sales, and there are, indeed, a number of businesses that have built presences only online such as Farfetch, Matches, and ASOS.
Added to that, there is the presence of Amazon, a retailing behemoth that has its sights on growing its share of fashion commerce both with its own labels, and via partnerships with key brands that have jumped into bed with Amazon to tap its audience, logistics prowess and more.
In that context, H&M has always put a strong emphasis on the physical store experience over the years, and so some of that wave of buying trends — including not just the most cutting-edge web experiences, but also being able to pay at a physical cash register using your mobile phone — has potentially passed it by.
“We are impressed with what Klarna has achieved to date and now we will work together to elevate the modern shopping experience,” said Karl-Johan Persson, CEO H&M, in a statement. “This strategic partnership between H&M group and Klarna is based on a joint relentless focus on creating great customer experiences.”
It is not clear how much of an impact ignoring newer sales channels and having better digital experiences has had on H&M but the company has in the last year experienced a big drop in its share price. Thus, this investment, and the fruits of it, could potentially help shore up confidence, and perhaps sales, of the business at this crucial time.
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Given that e-commerce is still a very small percentage of all retail — accounting for only around 10 percent this year in developed markets like the US, and far lower in other places — there is a long way to go tapping the market and building services for legacy brick-and-mortar businesses, an opportunity Klarna has been tackling.
“Retail is changing, and the future of fashion retail is high tech powering high touch experiences for customers. Regardless of how and when customers want to shop, we need to be there for them,” said Sebastian Siemiatkowski, CEO and co-founder of Klarna, in a statement. “Customers will no longer be forgiving of unnecessary complexity or when their retail experience does not leverage the insight available to make their engagement smart, personal and easy.”