September 4, 2014, 2:15 PM

Rocket combines five online fashion companies to create a $3.5 billion business

Called GFG, the new company folds into one entity several e-commerce businesses that sell in emerging markets including Latin America and Russia.

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Five is better as one. At least that’s the idea behind Rocket Internet AG’s announcement today that it will use its international footprint to create what it hopes will be a fashion e-commerce powerhouse.

Investment AB Kinnevik, an investment firm based in Stockholm, and Rocket Internet are combining five fashion e-commerce businesses to create a new global fashion e-commerce group that it will call GFG. The five companies are: Dafiti (Latin America), Jabong (India), Lamoda (Russia and former Soviet states such as Kazakhstan and Ukraine), Namshi (Middle East) and Zalora (South East Asia and Australia). Dafiti is No. 19 in the Latin America 500.

GFG will operate across the five continents with a focus on growth markets, covering 23 countries that together represent a $427-billion fashion market and a population of more than 2.5 billion, the companies say. GFG will sell international brands and local, ethnic-focused apparel and accessories in India, Indonesia and the Middle East. Together the five fashion sites are worth $3.5 billion Rocket and Kinnevik say.

“GFG will be focused on capturing the massive growth opportunity of fashion e-commerce in emerging markets,” says Oliver Samwer, co-founder and CEO of Rocket. “Each of the business units will be able to build on the original Rocket platform and continue to leverage knowledge and expertise gained across 23 countries.”

The five GFG companies have each been selling in their respective regions for two or three years and begun addressing the hurdles they have encountered to selling online. For example, in Russia, Lamoda created Lamoda Express to overcome poor infrastructure for delivery in the country. Combining all the online fashion merchants under one umbrella will help the companies source goods at more competitive prices, more quickly improve technology and attract and retain talent, Rocket and Kinnevik say.

As of June 30, GFG companies together had 4.6 million active customers and over 7,000 employees. For the first six months of 2014, GFG web sites attracted 353 million unique visitors, received 8.4 million orders and generated $564 in gross merchandise volume, the companies say. In 2013, GFG’s revenues totaled $525.8 million.

GFG will operate in a variety of ways depending on the region, including owning and selling inventory and operating e-commerce marketplaces, the companies say. GFG in the future also will explore new categories including personal care items and will also focus on mobile commerce.

Rocket Internet AG, based in Berlin, has provided the funding and strategic direction for e-commerce projects spanning much of the globe since its launch seven years ago. Last year it raised $500 million to build e-commerce brands in emerging market where web penetration and online shopping is growing at a fast clip and where Rocket says there is prime potential for players to snap up major market share.

For example, web sales in Russia, where Lamoda is based, will grow from $12 billion in 2012 to $36 billion by 2015, says investment bank Morgan Stanley. E-commerce in Russia is also highly fragmented, with the top 10 players accounting for only about 20% of online sales, according to analysts. And, Russia has the largest online audience in Europe with 61.3 million web users, or 15% of Europe's total of 408.3 million, according to web measurement firm comScore Inc.

In Brazil, Latin America’s largest economy, and where Dafiti is based, there remains plenty of room for growth. E-commerce in Brazil grew 21% to $15 billion in 2013 from $12.4 billion in 2012, according to Forrester Research Inc.  Forrester Research projects that over the next five years Brazilian e-commerce will grow at a compound annual growth rate of 20.09% and reach annual online retail sales of $31.2 billion by 2017. In 2013, online retailing accounted for about 3.8%, or $12.82 billion, of total retail sales in Brazil of $335.07 billion. (The online sales figures are from Brazilian e-commerce and information technology research firm eBit; the total Brazilian retail sales are from research firm Euromonitor.)

Dafiti co-founder Malet Huffmann told Internet Retailer earlier this year that the retailer grew sales by around 100%, in 2013. Dafiti has raised more than $275 million from investors and now sells online in Argentina, Brazil, Chile, Colombia and Mexico. It also now markets more than 125,000 apparel, accessories and footwear items from more than 2,000 brands. In Brazil alone it sells more than 100,000 products across 900 brands and has 1,500 employees. Its e-commerce sites now attract 25 million unique visitors per month on average. The merchant operates its own logistics and fulfillment network and can deliver many packages the same day to major cities like São Paulo if ordered by noon, and the next day in most cases to more remote locations. It also accepts cash on delivery for online orders, which is a popular payment method in Colombia and Mexico, Huffmann says.

The five e-commerce companies in GFG have attracted more than $1.29 billion in funding from investors including Kinnevik, Access Industries, Summit Partners, Verlinvest, Ontario Teachers’ Pension Plan, Tengelmann and a number of other investors. With the new entity direct and indirect shareholders in the five companies will contribute their shares into a new Luxembourg-based entity. The three largest shareholders in GFG will be Kinnevik, Rocket and Access Industries, with 25.1%, 23.5% and 7.4% ownership, respectively.

GFG will keep all current founders and management teams intact for each company, with the exception of a few additional leadership roles designed to help GFG expand globally and grow under the GFG umbrella.

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