Germany's Otto seeks advantage from ethical credentials

Wed May 21, 2014 7:36am EDT

* Otto online sales up 6.4 pct to 6.063 bln euros in 2013/14

* Executive pay to be tied to sustainability targets

* Otto squeezed by Amazon, Zalando

HAMBURG, May 21 (Reuters) - Germany's Otto, Europe's second biggest e-commerce player, emphasised on Wednesday to its commitment to ethical standards as it tries to face off stiff competition from Amazon and other online rivals.

The Otto Group, a family-owned mail order firm founded in 1949 which shifted into e-commerce in the 1990s and now runs dozens of websites worldwide, said executive pay would be tied to the achievement of sustainability goals.

These include increasing the use of organic cotton and hard woods certified as from a sustainable source as well as reducing emissions of carbon dioxide and improving working conditions for employees in its supply chain.

"Values are something that sets Otto apart from many other companies," Chief Executive Hans-Otto Schrader told a news conference, adding customers, employees and other partners increasingly demanded that Otto act responsibly.

He said the collapse of a garment factory in Bangladesh in which more than 1,100 workers died last April had underlined the need for the clothing industry to take such issues seriously.

Otto reported a 1.5 percent increase in earnings before interest and taxation (EBIT) to 392 million euros ($536.86 million) for the year ended Feb. 28 on sales that rose 1.8 percent to 12 billion euros.

Online sales grew 6.4 percent to 6.063 billion euros, including a 7.2 percent rise in Germany to 3.96 billion euros, albeit at a slower pace than 12 percent growth rate reported for total e-commerce by the German Retail Federation (HDE).

Consultancy Booz & Company predicts that e-commerce will grow in Germany to account for 29 percent of sales of apparel, electronics and furniture by 2020, up from 13 percent in 2012.

Otto is facing competition from Amazon, which saw German sales grow 21 percent to $10.5 billion in 2013, and online fashion retailer Zalando, which increased annual sales by 52 percent to 1.76 billion euros.

However both companies have attracted negative headlines in recent months in Germany for their treatment of warehouse workers, who have repeatedly gone on strike at Amazon over pay and conditions.

Schrader admitted Amazon was proving a formidable rival, noting it was aggressively cutting prices to win market share in some areas. But he said Otto was fighting back in others, noting Amazon had stopped selling shoes.

"We win more than we lose," he said.

However, Schrader declined on Wednesday to give a concrete forecast for the current financial year, citing the tense global political climate around Ukraine, noting that the group made around 600 million euros of sales in Russia. ($1 = 0.7302 Euros) (Reporting by Emma Thomasson, editing by Louise Heavens)