Insights

10 reasons for the H&M - Klarna strategic partnership.

H&M and Klarna announced a strategic partnership which also has an investment component involving a symbolic equity stake for less than 1% of the Klarna's equity.

Putting the equity stake aside, we listed a few possible business advantages that the two parties can draw from this.

1. Access to tech knowledge and resources - Klarna is a native tech company, with tech-first approach in its DNA. H&M is not, it is a traditional brick and mortar retailer forced to use the technology in order to reinvent its business model for remaining economically relevant. And tech knowledge is expensive nowadays, especially at this level.

benefits:
H&M: 1 point
Klarna: 0 points

2. Accelerate the online/offline business synergies - a bit related to the first point, H&M has started to have growth problems as its audience moved online for some time already. Times have changed and retail is not what it used to be, as everybody is online and H&M's biggest competitors make most of their money online. While the retail is an offline/online experience, being equally good in both is a prerequisite, and H&M is still lousy (read doesn't make enough money) in its consumer tech efforts, in spite of making small, timid bets. Or big, if you ask them, but not enough if you ask the market. It's tough that overnight you become something you're really not, and this is where Klarna comes in as a strategic partner, with a both payment tech AND ecommerce experience.

H&M: 1 point
Klarna: 0 points

3. Digital and physical stores integration = seamless omnichannel experience + H&M is a big fat customer for Klarna

H&M: 1 point
Klarna: 1 points

4. Access to H&M's markets. While H&M has a strong worldwide presence, Klarna has struggled with the international expansion, early in 2018 it restructured its operations in USA and Israel as their goto market in both regions failed.

H&M: 0 points
Klarna: 1 point

5. Better understanding and profiling of the customer from two different perspectives: purchase behaviour and financial record. Big data = huge business for retail, either banking or fashion.

H&M: 1 point
Klarna: 1 point

6. H&M's loyalty program involves financial incentives and perks, and this is aligned with Klarna's ambitions to provide banking services = back-to-back products and co-ops.

H&M: 1 point
Klarna: 1 points

7. Shared costs for Klarna's digital bank services for consumers and H&M's omnichannel payment in specific infrastructure points, in an optimistic scenario. Or, in a realistic one, just a dual play with a relatively similar infrastructure which can be significantly cheaper in terms of sharing the fixed costs (one can be a customised version of the other)

H&M: 1 point
Klarna: 1 point

8. Defensive move against Amazon in the Nordics - better prices and conditions for the Nordic consumers, and significant digital new business coming in for Klarna.

H&M: 1 point
Klarna: 1/2 point

9. Creating grounds for future opportunities for new biz, products co-ops etc

H&M: 1 point
Klarna: 1 point

10.  PR reasons - H&M has had terrible PR reactions for various media stories as well as not exactly good strategic answers for its financial results. This reflected on the market reaction and the stock price so that the rumour is that Stefan Persson, who owns 40% of the busines and is the CEO's father, wants to delist the company. This deal is a good signal for the market, even though the taking private can stand as a good idea.

H&M: 1 point
Klarna: 0 point

Total:
H&M: 9 points
Klarna: 6.5 points

The difference? An $20M equity position taken by H&M, which basically strengthens the commitment.

All in all, strategically, Klarna grabs market share and creates good premises for its future banking biz, while H&M takes yet another step in becoming more competitive in its fragile market position.

Add to the big picture that
i) Klarna and H&M invested together in Wrapp;
ii) H&M took some equity positions in startups (we counted 6 companies) that can provide further synergies and
iii) Both CEOs, Karl-Johan Persson and Sebastian Siemiatkowski, are also active angel investors in the Nordics, even though, according to our records, they didnot invest the same companies. But they can have a fika together or run into each other at lunch break every other week


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