Counter-attack

For years, Germany's Metro Group has been trying to hop on the online train with its Saturn and Media Markt electronics stores.

With Redcoon, Metro now believes it has caught ride. The Düsseldorf-based retail giant has acquired one of Germany's leading web-based electronics retailers in move to carve out a bigger chunk of the steadily growing online retail market.

Redcoon, which was founded by a former Saturn manager in 2003, is Germany's fourth biggest online retailer for TVs, DVD players, laptop computers and other electronic gadgets after Amazon, eBay and Otto Versand.

Double digit growth

Under an agreement with founder and owner Reiner Heckel, Redcoon will continue operating as a separate Media-Saturn subsidiary. The online retailer, which operates in 10 countries, generated 402 million euros ($570 million) in revenue in its fiscal year ending in March 2011.

By comparison, Metro's Media-Saturn division had revenues of more than 20 billion euros. It is Europe's largest consumer electronics retailer, far ahead of British rival Dixons Store Group.

Redcoon operates web stores in Austria, Belgium, Denmark, France, Italy, Netherlands, Poland, Portugal and Spain. The company, which carries more than 24,000 products, claims more than three million customers.

With the online acquisition, Metro aims to benefit not only from Redcoon's customer base but also from its advanced Web technology. The online retailer recently relaunched its website with improved features such as an advanced search function and one-click shopping.

Clearly, Metro sees significant potential in online retailing. And it's not alone. The German association of retailers (HDE), for instance, expects online sales this year to rise by 10 percent to more than 26 billion euros, compared with 5 billion euros a decade ago.

Industry experts agree that it was high time for Metro to beef up its online retail activities. During the last holiday shopping season, while demand stagnated in its Saturn and Media Markt stores, online competitors posted record sales. With total revenues of 8 billion euros in 2010, online retailers for the first time nearly matched Metro's brick and mortar consumer electronics businesses.

Bold plans

Media-Saturn's online target is to catch up to European leader Amazon within five years, according to Rolf Hagemann, Metro-Saturn's chief financial officer. That means generating sales of more than 3 billion euros a year.

"That's not too ambitious - it can be done," said Thilo Kleibauer, a retail analyst with Hamburg-based private bank MM Warburg, which has been watching Metro closely for years. "Metro group's online business will profit from its strong brand names. If you order online from a Metro subsidiary, you can be sure there's a television in the box when it's delivered."

But even with Redcoon on board, Metro still plans to launch a new online retail platform for its Saturn unit by the end of the year. The group has a history of encouraging competition among its various business operations.

"This strategy is not new," Kleibauer told Deutsche Welle. "Metro's two consumer electronic market brands Saturn and Media Markt have been around for years. Saturn usually caters to the inner city crowds and most Media Markt branches are located in suburban shopping centers."

For sure, Metro's top brass will closely follow how the new online acquisition impacts the group's overall consumer electronics business. "There will be strong competition, as Redcoon's pricing is extremely aggressive," Metro-Saturn's Hagemann admitted.

Author: Thomas Kohlmann
Editor: John Blau