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.
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. For some context, Klarna was last valued at $2.5 billion in 2017, a year in which it made a series of investment announcements. They included a $225 million stake from Klarna’s first fashion world investor, Anders Holch Povlsen (owner of fashion conglomerate Bestseller); a strategic stake from credit card giant Visa; and a $250 million investment from PE firm Permira. (Previous investors have included Sequoia, Northzone and IVP.)
We’ve heard that Klarna has also been eyeing up an IPO as a further liquidity event although a spokesperson declined to comment on this when asked today.
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.”
To be fair, given that online is still less than 10 percent all retail sales globally, it’s not clear how much of an impact ignoring newer sales channels and having better digital experiences has had on H&M, but more urgently, the company has seen a big drop in its share price in the last year. In other words, this investment, and the fruits of it, could also potentially help shore up confidence, and perhaps sales, at the business at a crucial time.
“We at H&M are very excited about this partnership. We want to make it possible for customers to move freely between the various channels and choose how they want to shop and experience our offering online and in store,” said Daniel Claesson, Head of Business Development H&M group, in a statement. “This partnership will bring tailor-made payment solutions to our customers and accommodate evolving shopping patterns and needs. This includes the possibility to ‘try before you buy’ which is very relevant to online fashion retail today and to pay with their mobile phone directly through the H&M app both instore and online.”
Klarna had already cut its teeth in working with retailers, including Povlsen’s Bestseller-owned range of brands, as well as Ikea and ASOS, and so it is in that regard a safe bet for H&M to try something new. Klarna itself started out focusing on financing at the point of sale, and this is still what it’s best known for, but in 2017 it also obtained a full banking license and so it’s been moving into more financial services around that (including on credit products with Visa), so this opens the door to working on a number of other services with its customers.
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.”