LOCAL e-commerce start-up Zando has landed an investment in the "three-digit million rand" band from the asset management division of the global investment powerhouse JP Morgan.
Zando co-founders Manuel Koser and Peter Allerstorfer would not reveal the exact amount, but the investment is a strong vote of confidence in the nine-month-old company, which sells local and international clothing brands online.
JP Morgan has been on an online retail business shopping spree, investing R369-million in Brazilian retailer Dafiti and undisclosed amounts in Russian retailer Lamoda and Germany's Zalando. All of these businesses, including Zando, were backed by a German venture capital firm, Rocket Internet.
"JPM was really convinced about the South African e-commerce market and especially the fashion market because of its high margins," said Koser. "Gross margins in fashion are roughly 50%."
Koser and Allerstorfer were working for the South African branches of management consulting firms McKinsey and Boston Consulting Group respectively when they realised the local online fashion market was largely untapped, promising profitable future growth.
"[There was a] booming retail market with very strong offline retail players, low e-commerce share as a percentage of retail, and no competition in the fashion vertical yet," said Koser.
Business-to-consumer e-commerce contributed the third-largest share, R11.5-billion, to the internet economy in 2011, according to a report by technology research consultancy World Wide Worx. Online retail made up R2.6-billion of this, a 30% growth on the previous year.
Boston Consulting Group estimates show online retail could account for up to 1.5% of the total SA retail market in 2016, with a value of $4-billion.
Koser said the deal came about after talks with several international, as well as African, investors over four months.
"JPM approached us and what convinced them to invest was our performance in gaining market share, increase in site visitors and the time to market. They were also very convinced with the Zando management team. The JPM team from New York was really diligent in their process and we are really excited to have such a reputable international investor on board."
Robert Cousin, a portfolio manager at JP Morgan, confirmed the investment in Zando.
"We are excited to partner with Zando as the company continues to grow its e-commerce presence in South Africa," said Cousin.
Since its launch in January, Zando has grown quickly from four staff members to a workforce of over 200, based at its Cape Town warehouse.
"We are performing better than we'd hoped for, especially [through] us introducing cash on delivery [COD] and free and immediate delivery and returns in the market," said Koser. "Most other e-commerce companies are following this route now on free delivery, COD and immediate returns."
Allerstorfer said the operation plans to keep the competition at bay by increasing product offerings, delivering orders within five days and making the Zando website more user-friendly.
"In terms of sourcing products, we are constantly working on bringing all South African brands on our web page and giving them a platform to sell their products in the online market," said Allerstorfer.
"We are also bringing new and upcoming international brands, exclusively available on Zando, into the country.
Additional reporting by Reuters
* This article was first published in Sunday Times: Business Times