Westwing: Business Model Design and Growth Strategy | In Practise

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Westwing: Business Model Design and Growth Strategy

Former Regional CFO at Westwing

Westwing Group

Why is this company interesting?

Westwing is a leading European DTC home furnishings retailer.  The company has a large, underpenetrated TAM, strong customer relationships and lucrative cohort economics which should allow for a long period of growth. 

As a result of its content-led marketing strategy, Westwing has very high levels of customer engagement (>85% of Westwing customers visit the site over 100x per year) and loyal customers (consistent 90%+ customer retention, while 80% of orders are from repeat customers). 

The company has also proven strong profitability, generating 16.9% EBITDA margins in its core DACH region in 2020. Westwing has set a long-term target of 15% EBITDA margins.

The company employs minimal capital (capex 2% of sales and negative working capital).  As a result of the large TAM and loyal customer base, Westwing may have a long runway for growth and attractive cash flow generation.

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Executive Bio

Former Regional CFO at Westwing

This executive has deep experience in European and Asian ecommerce and logistics. She spent several years at Westwing culminating in a regional CFO role, and remains active in the European ecommerce market.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Before we begin, I would like to remind you, please provide no information due to any agreement with your current or former employer and please provide no material that is not public information. Are you okay with that?

Yes, perfectly.

Could you tell us about your background, both at Westwing and other companies; how you ended up there and why you left?

I started my career in finance, mainly M&A, did my MBA and then got hooked to Rocket Internet. After doing several smaller startups there, I got connected with Westwing, where I stayed for five years in a variety of roles. I started off in business development which was already focused on finance. We did the entire FB&A business modeling, launching Westwing in the startup where I then transitioned to be the CFO for Germany, Austria and Switzerland, for both the club and the shop. I was at the end of my growth potential in the company because, at that point, we still had a regional CFO who was not about to leave, so there was no immediate next step for me. For personal reasons, I left Germany for Asia and worked for Lazada, which at that point was still a Rocket Internet owned company, not yet sold to Alibaba.

Excellent; it sounds as if you have a lot of good experience in ecommerce and specifically with Westwing.

I returned to Europe a year ago after spending five years at Lazada, where I was the CFO for the logistic business regionally. I now work for Vestiaire Collective, a C2C platform offering second hand luxury goods.

What were some of the strengths and weaknesses of Westwing?

They were very clever in diversifying from daily deals into a permanent assortment. Daily deals were very big in the days of Groupon but is no longer the prevailing business model. Converting to a more permanent assortment results in loyal customer cohorts. It is limited in that you cannot keep pushing extra people there because it is very niche. They have stayed ahead of the game with their curated website, as opposed to the endless browsing you would have with Alibaba, Lazada or Amazon. Their quality price ratio is also very good. On the other hand, that is also a potential weakness of their business model. If they do not do it by private label or make the furniture themselves and take inventory risk, it becomes more manual.

Is there anything else you want to discuss before I dig into some follow ups?

No, for me these are the main things, then you have the logistic part of it with furniture and online, which will also always be a weakness. It is a lot of money and big basket sizes, so inherently you have some high return rates. There are huge packages which are not very heavy, so your percentage of logistic costs eats up a very big part of your margin. There are high return rates because, unfortunately, customers do not measure well when they buy online because they know they can return.

Can I dig more into the business model because you made an interesting comment on the difference between daily deals and permanent assortment, whereby daily deals are good for engagement and customer acquisition, but is not that profitable a business. Is there a customer cohort which is daily deal only who do not do WestwingNow? How are those two businesses segmented inside Westwing?

When I was there, daily deals were very profitable, so that is not the problem, but at a certain point it becomes harder to introduce new members. There are a limited amount of customers you can actually engage to sign up, but those loyal customers can easily move over to your permanent assortment when they cannot find what they need. It is easier to engage new traffic on permanent assortment, but they will be less loyal if they cannot find what they need. If I had modeled it and set it up, I would always have two models – one for daily deals and one for permanent assortment – with the over-spill going only from the daily deals to the permanent assortment, not the other way around.

Permanent assortment is now 50% of sales and growing; does that breakdown make sense to you?

Yes, it definitely makes sense and will become the prevailing model. Business models evolve over time and the daily deals model will not necessarily remain.

You mentioned one of Westwing's strengths is high engagement and stable cohorts. Can that continue as permanent assortment takes over daily deals?

The dynamics will change, but they have a big advantage with their customer experience, how one browses through the website, the level of detail and the products on offer and how they curate them. With such a curated website, engagement and cohorts will be better than other mass websites, but your public will be smaller.

That makes sense.

They have a very big curation team which is not necessarily scalable, but it gave them the in-house knowledge of which products are desirable, which they used to set up a strong private label. I still use them, as a customer, because the price quality ratio of their private label is very strong. In Spain, they are benchmarked to a Maisons du Monde.

I would love to shift gears to the content side of the business. I know you were more on the BD finance side but I am sure you saw a fair amount of it, could you give me some insight into the process of how the Westwing content engine works? They have created this thing which consumers love to engage with, and I am curious to understand the day to day of that process.

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