Global Fashion Group (GFG), the fashion-focused holding vehicle formed by Germany-based e-commerce group Rocket Internet, raised €330m ($363m) in funding last week, but its sinking valuation serves as a warning sign that all is not well for the company’s holdings.
Formed in 2014, GFG is comprised of six e-commerce platforms: India-based Jabong, Lamoda, which targets Russia and three other ex-Soviet markets, Southeast Asia-focused Zalora, South America-based Dafiti, Namshi, which serves the Middle East, and Australian site The Iconic. The companies serve a total of 27 countries.
GFG operates as one of several holding entities for companies that have either been incubated or funded by Rocket Internet, part of a collection that includes the food-based Global Online Takeaway Group and geographically-focused entities Africa Internet Group, Middle East Internet Group and Asia Pacific Internet Group.
The funding was provided by Rocket Internet as well as the Rocket Internet Capital Partners fund it closed in January 2016, and investment firm and long-time partner Kinnevik. The round valued GFG at $1.1bn, a third of the valuation at which it raised $167m from Rocket and Kinnevik in July 2015.
Retail group Tengelmann’s Tengelmann Ventures unit and investment holding company Verlinvest had invested $34.6m in GFG in April 2015, and the entity’s earlier investors also include diversified conglomerate Access Industries, Summit Partners and Ontario Teachers’ Pension Plan.
GFG’s dropping valuation can be partly attributed to its inability to reach profitability, and although the group’s diversified geographical reach makes it easier to raise large sums, it also serves to amplify its losses.
CEO Romain Voog claimed in a statement in April this year GFG had made “significant progress” towards profitability, but at the same time reports have suggested it is in talks to divest Jabong, for between $50m and $200m, as well as Zalora’s holdings in Vietnam and Thailand.
The deal comes three months after China-headquartered e-commerce firm Alibaba invested $1bn in the Rocket-founded, Singapore-based e-commerce company Lazada, at a $1.5bn valuation. Other Rocket companies, such as Africa Internet Group and Home24 have also raised funding this year.
However, revenue growth has failed to come as quickly for many Rocket Internet companies as they have hoped, and the funding only partially masks the decline in Rocket’s own market cap. The price of the company’s stock has almost halved in the past year, and it is increasingly focusing its efforts on online food ordering as opposed to its e-commerce platforms.
The approach is somewhat understandable as e-commerce startups have begun to be seen as a riskier bet over the past few months, with Fab.com, One Kings Lane and Gilt Groupe – all ex-unicorns – being acquired for a fraction of their previous 10-figure valuations since the start of 2015. Despite its increasing ubiquity, much of the e-commerce industry has found it tricky to make profits as the sector is relatively crowded meaning businesses have to compete against each other on price.
The question is whether Rocket Internet will be able to enter profitability before it exhausts its funding options. Its companies cut their first quarter losses by 23% year on year in 2016 while sales increased by an average of 34%, but that gap will need to narrow a lot more if they are to avoid a crunch in the future.
Rocket may well look to leverage funding from its corporate backers, which include Access, Tengelmann, internet services provider United Internet and telecommunications firm PLDT, but if that help is not forthcoming it may be that it seeks investment from Alibaba or one of the other players in Asia’s internet sector. Either way, it appears as if it will need more funding if it wants to keep those companies growing and its own stock from sinking further.