Three brothers from a small German village no-one’s heard of, run one of Germany’s largest online outlets—while flying completely under the radar both at home and abroad. Outlet46
has over 10,000 articles on the site, sent over 1 million orders in 2017 and has a total customer base in excess of 2 million. In April 2018, head honcho Fatih Özdemir made the decision together with his brothers to cease paying for marketing. He told OMR about the genesis of the company in his childhood bedroom, provided details on the impact cutting off SEA, affiliate marketing, ads on Facebook and other platforms had on the bottom line and discussed the organic levers that helped make Outlet46 such a success.
“Even while we were still in high school, my brothers and I made it a point to professionally sell things at local flea market. China, for example, that we picked up from hotels for free,” Fatih Özdemir tells OMR. Along with his two brothers, Enes and Abdul Aziz, he runs German hidden champion Outlet46. For a long time, it exists completely off the public’s radar and is presumably the largest online outlet in Germany, sending over 1 million parcels per year, according to internal company figures, to its 2 million-plus customer base. On the online outlet, customers can choose from clothing, accessories and shoes from name brands like Adidas, Nike, New Balance, Asics, Montblanc, Guess and others.
It all begins on Ebay
After starting out on the flea market in their hometown of Goslar, Germany, the trio soon shift their focus to the digital marketplace. “When we were 14, back when people were still using modems, I discovered Ebay and bought a Polo shirt. The purchasing process was so easy, I thought I could start a business of my own online,” says Fatih Özdemir. “At the time we had several Ebay accounts, which were each designed to test different strategies. For example, one account also included shipping, the other sold shipping separately and the third was slightly more expensive. It helped us learn what works, and what doesn’t.”
It’s still very early days on Ebay, 15 years ago, and there is still a wild-west mentality on the platform. Initially, Özdemir simply reached out to another Ebay merchant and bought roughly 30 Polo shirts, which he then flipped at a profit. His focus later shifts to shoes because “they are easier to photograph than Polo shirts,” he says. Business is serious enough that he transforms his childhood bedroom into a mini-warehouse, where he sends out the items sold by hand.
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40 grand in 4 hours
“For the next couple of years, we concentrated on finishing school but told ourselves that once we graduated from high school, we’d really focus on building out business,” says Özdemir. “We launched Outlet46 in 2009 with a focus on Ebay. We had our own webshop, but it was a piece of junk.” So the three brothers start working on their marketplace strategy and buy bulk amounts from wholesale retailers: “Our first growth driver were the “WOW!” specials on Ebay. They attracted 40,000 to 60,000 visitors each day,” says Fatih Özdemir. The “WOW!” specials are still a feature on the Ebay homepage. According to Özdemir, Ebay had three requirements in 2010 that merchants had to fulfill to be listed as a “WOW!” offer: best price in the DACH region, revenue potential of at least EUR 40,000 in 24 hours and they had to be brand-name items.
The first time the Özdemir brothers appear on the Ebay homepage is with K-Swiss sneakers. Within four hours, they are sold-out of their 1200 pairs of K-Swiss shoes—it nets Outlet46 EUR 36K in revenue. Outlet46 lands in the “WOW!” offers every 2 or 3 days, growing company cashflow quickly.
Color manufacturers skeptical
Up until five years ago, Outlet46 conducts the bulk of its business on Ebay and other marketplaces, like Amazon. “In 2014, we made the strategic decision to move away from selling on external marketplaces longterm,” says Fatih Özdemir. “Our vision for Outlet46 was to make it the internet outlet.” The problem: in order to offer lower prices, they had to focus on keeping a few articles on hand in mass quantities. And having an inventory of 30 products does not an online shop make.
Further complicating matters for Outlet46 is also their biggest challenge “getting our hands on large-scale inventories. ‘Outlet’ and ‘internet’ were both red flags for manufacturers,” says Özdemir. Many manufacturers are particularly concerned about the environment, in which their goods are sold. This concern leads many top brands to keep their goods out of both brick-and-mortar and online shops. Luxus manufacturers repeatedly make waves with press releases stating that they would rather destroy their unsold items than damage the brand reputation by selling items at a reduced price in outlets.
So they carve out a position as first point of contact for wholesalers—which they still are to this day. Wholesalers tend to have excellent contacts and sell goods from around the world at a discount from a variety of sectors. Oftentimes, these wholesalers are nowhere to be found online, and despite millions having traded hands for goods many of the wholesalers had never seen the Özdemir brothers. Özdemir says that without having good contacts or deep cash reserves especially, they never would have succeeded in the highly competitive wholesale market. “Demand is always higher than supply.”
Is marketing too expensive?
“Today we make 70 to 80 percent of our sales through our online shop,” says Fatih Özdemir, “but for the longest time that figure was more like 5-10 percent. Nevertheless, Outlet46 is still active on Ebay (580,000 reviews) and Amazon. The shift from an almost exclusively marketplace merchant to operator of its own online shop took a gret deal of money. Özdemir says that they invested significantly in Adwords ads and in affiliate programs. On the surface, at least, the investment would appear to be a success. According to analysis tool Similar Web, page impressions to outlet46.de increased from 500,000 a month in late 2015 to over 4.6 million a month in January 2017. Throughout 2017, the average number of monthly visits remained relatively stable at 2.6 million.
“In April 2018, we decided to cease all of our paid marketing measures,” says Fatih Özdemir. “Paid channels have just gotten too expensive and I don’t see their long-term sustainability.” 10,15,20 percent commission is just too much for merchants.” At the moment, the company occasionally spends 500 euros a month for Google Adwords. In total, however, Özdemir says that the paid traffic just didn’t return a high enough yield on long-term clientele. “Lots of marketing strategies might work for agencies in a power point presentation, but not in actual business. There is a reason no one charges on a CPO basis.” As a result the traffic to the online shop drops off considerably. According to Similar Web, Outlet46 has logged approximately 500,000 visits per month since April 2018. However, the Similar Web data only displays data through November 2018. It’s hard to say exactly how much traffic the shop logged during the Christmas season.
Taking a look at their own data
While traffic is booming in 2017, Özdemir says Outlet46 ships over 1 million parcels; but after shifting their activities to their own online shop and diverting funds away from the standard marketing channels, where can he expect the traffic to come from and how does he plan on reattaining or exceeding traffic figures from 2017? “We’re now focussing on SEO, newsletters, Word of Mouth and on a couple of other channels, where we can experiment a bit,” says Özdemir. “The reason for the shift is that we want to analyze our own data and not just do what everyone else is doing.” To that end, there is an in-house department dedicated to SEO, to newsletters and content marketing respectively.
Now, nearly 70 percent of visitor traffic is direct and 23 percent comes via organic search. Boosting organic traffic is the long-term goal, as Özdemir would rather reanimate existing customers than purchase new customers for more.
To reach that goal, the newsletter is vital. His team designs it to look like a shopping club. Outlet46 sends out a daily mailing dealing with a single topic. Generally speaking, the newsletter focusses on a single brand, where the offers are placed next to a story supplementing the sale. Vouchers are not a part of the strategy and Özdemir says outlet46 hasn’t used any in six years. Customers, he says, are way too smart and that they would just wait for discounts if they ran them regularly–leaving a pretty modest margin for the merchant.
Experimenting with Social Media
Major social platforms are primarily used by Outlet46 to try out new ideas. “Facebook is dead for us as a company channel,” says Özdemir. That’s due in large part to Özdemir not wanting to engaging in an attention war with competitors by running high-loss “killer deal” campaigns. Similar story on Instagram. “If it were up to me, I would use the Outlet46 Instagram channel to run behind-the-scenes content. The channel is perfect for brand building in my view, just to show everyone what’s going on here each and every day. I think our customers would enjoy the content,” he says. Service, he says, should help them acquire new customers, and not new offers.
One experiment the company recently wrapped up: home shopping on Instagram. Here, hosts from the team showcased current products available in the shop live. While the experiment did yield some traffic gains, a slight spike in orders and additional Instagram followers, the broadband in Goslar simply isn’t powerful enough to make it a viable option long term.
The brothers are also experimenting with Youtube, where they are currently uploading several hundred product videos to the channel. The videos are more like “videos,” as they depict images of a given product that are moved slightly, while background music plays. The videos are designed with moving pictures in newsletters in mind. The team is also looking into any effects the rudimentary content has on SEO. Do not look for the content to elicit any wows or break any view records.
The black box of Influencer Marketing
The one area where Outlet46 spends more is influencer marketing, indirectly at least. “We send influencers products, but do not pay them,” says Özdemir. The company started off working with a couple of larger influencers and ever since has not had to worry about finding new partners: “We get about 20 to 30 requests a day from influencers who want to work with us. Once you’ve worked with Instagrammers with 50K to 250K followers, it doesn’t take long for the niche influencers to follow,” says Özdemir. “Our biggest problem with influencer marketing its the lack of measurability. Some try to quantify it by using vouchers, but we haven’t used any for six years, on any channel, but we will—just to be able to measure our influencer campaigns.” He says that it’s the only way his team will be able to assess if the strategy works.
The majority of content on the company Instagram channel is currently regrams of individual Influencer posts; the channel has 48,000 fans. Özdemir says that Outlet46 failed to take advantage of the initial Instagram hype. According to analysis tool InfluencerDB, their follower growth fluctuates considerably (in the past four weeks, the channel has lost 2% of its followers), and the current follower base is not entirely engaged. The like-follower ratio is a measly 0.1 percent, which is a below-average rate for company channels.
Battle for survival on the fashion market
By focussing on the essentials, Outlet46 hopes to survive on the dog-eat-dog fashion market. “There is a massive adjustment on the textile market at the moment. The aggressive price structures show that it’s not all smooth sailing on the market and many players are completely under the radar,” says Özdemir. He says that the average shopping cart, even for larger players, is shrinking, which is also a result of expensive customer acquisition cost and the use of vouchers. “We have a larger average shopping cart than Zalando does,”,Özdemir says. According to Statista that figure was EUR 57.50 in Q3 2018—a ten euro drop from Q4 2017.
Özdemir says that Outlet46 benefits from a relatively young target group, which ranges from 25 to 45 years old. Returns, even for women’s fashion, is under 25%. “It’s not only bargain hunters that buy from us, but people who are smart,” says Özdemir. In the coming years, the goal is to continue to grow sustainably. The company is financed without any outside assistance, and the brothers hope to keep it that way moving forward. The next two big plans in the works are expanding its B2B business—where Outlet46 aims to act as a wholesaler to brick-and-mortar and online shops, and in its internationalization efforts. Once you’ve established footing on the German market, says Özdemir, it’s got to work in the rest of Europe as well.