COVID-19 will permanently change how we shop, says Klarna CEO

·Senior City Correspondent, Yahoo Finance UK
·6-min read
Klarna CEO and cofounder Sebastian Siemiatkowski. (Klarna)
Klarna CEO and cofounder Sebastian Siemiatkowski. Photo: Klarna

The chief executive of $5.5bn (£4.5bn) payment company Klarna believes the COVID-19 pandemic will permanently change the way people shop.

Sebastian Siemiatkowski, founder and chief executive of Klarna, told Yahoo Finance UK: “People have gotten used to buying groceries over e-commerce, people have used even more e-commerce over this period. It’s very unlikely that people will entirely shift back to how they used to spend money before.”

Klarna is a $5.5bn ‘buy now, pay later’ company based in Sweden. It provides technology that lets online shoppers buy items with just their email and pay at a later date, with no interest charged.

Read more: Snoop Dogg-backed Swedish payment startup valued at $5.5bn

Founded in 2005, the company has raised over $1bn to date and was valued at $5.5bn in a funding round last year, making it one of Europe’s most valuable private tech businesses. Backers include H&M, money manager BlackRock, and even rapper Snoop Dogg.

Rapper Snoop Dogg gestures to fans prior to the first half of an NBA basketball game between the Boston Celtics and Los Angeles Lakers in Boston, Monday, Jan. 20, 2020. (AP Photo/Charles Krupa)
Rapper Snoop Dogg is an investor in Klarna. (AP Photo/Charles Krupa)

Consumer spending globally has plummeted since countries began lockdowns to control the COVID-19 pandemic, but Klarna has seen a boom in business in recent months. With shops shut, the little spending people are doing has shifted online.

“For Klarna, actually we have grown and seen much higher growth than we would have seen normally during this time period,” Siemiatkowski told Yahoo Finance UK over Google Hangouts this week. “We’re seeing a massive shift of people’s spending from physical stores into online.”

Speaking from his home in Stockholm, Sweden, Siemiatkowski said there had seen an uplift in both usage of Klarna and merchants signing up since the lockdowns. Retailer signups have risen 20% in the UK over the last two months, for example.

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Siemiatkowski thinks that trend will continue even as economies begin to re-open.

“There’s going to be a higher share of online versus offline and this will be a bump in the curve, so to speak, of this transformation that we’ve been seeing over the last couple of years,” he said.

It seems like a fair prediction — new health and safety requirements will limit the number of customers most shops will be able to have at any one time when they reopen, pushing more people towards online outlets.

A branch of Halfords in London. Issue dated: Thursday January 30, 2020. Photo credit should read: Isabel Infantes/EMPICS Entertainment.
Klarna works with retailers including Halfords. (Isabel Infantes/EMPICS Entertainment.)

As well as pushing more sales online, the pandemic has also changed shopping habits. Klarna has seen four distinct phases of consumer behaviour since lockdowns were imposed, Siemiatkowski said.

“First, you had stock up phase,” he said, highlighting a 75% increase in pet food sales.

“The second phase was like: I can’t see my friends but if I get an Xbox we can still hang out.”

Video game sales rose by 180% in this period.

“Third phase was: Let’s do something,” Siemiatkowski said. “I’m getting a little stir crazy in this apartment, I should start running again.”

That coincided with a 105% increase in running shoe sales.

“The final one is really stimulus season,” Siemiatkowski said, referencing the $1,200 stimulus checks sent by the US government to all its citizens.

“With this extra cash, and the fact I saved on transit and entertainment costs, I want to treat myself and my home. You can see stimulus spend levels as Christmas holiday shopping, a 60% increase week-on-week increase in jewellery sales and furniture.”

BERLIN, GERMANY - APRIL 22: The logo of Swedish payment provider Klarna is shown on the display of a smartphone on April 22, 2020 in Berlin, Germany. (Photo by Thomas Trutschel/Photothek via Getty Images)
The logo of Swedish payment provider Klarna is shown on the display of a smartphone. (Thomas Trutschel/Photothek via Getty Images)

Globally, Klarna works with 200,000 retailers and processed sales worth $35bn last year. The business already works with over 6,000 merchants in the UK, including the likes of Asos, Boohoo, Halfords, Brompton Bikes, and Charlotte Tilbury.

Siemiatkowski was quick to point out that not all of Klarna’s partners are doing well.

“It depends on category,” he said. “We have travel and ticket merchants and they’re obviously zero at this point in time more or less. You have like groceries, they’re up quite a lot.” (Klarna does not work with any grocers in the UK).

Even those who are seeing surging online sales may not be doing so well overall if physical stores are shut, Siemiatkowski said.

“A lot of people are getting unemployed, a lot of good businesses are struggling,” he said. “That should be the primary focus and that should be the thing to always keep in mind when you’re talking about these things.”

Still, as more spending shifts online, Klarna must be tempted to lean in harder and invest more in expansion.

“We obviously have debated a lot internally — is this time boxed? When people can go to stores again, will they go back?” Siemiatkowski said. “At this point in time, all the data suggests, and all the anecdotal evidence suggests, that people have really gotten to the next level of e-commerce.”

Despite the step-change, Siemiatkowski isn’t rushing to change strategy.

“We went through the financial crisis in 2007 and we’ve gone through challenges as all companies do,” Siemiatkowski, who cofounded Klarna in 2005, said.

“One of the things that I’ve learned is, at least in my opinion, you’ve got to be very careful with too big movements, especially in large companies.”

Klarna now employs 3,000 people around the world and Siemiatkowski said: “Some stability has some value to it.”

“In general, what we have tried to apply as much as possible has been to say: look, let’s not take any massive decisions — such as massively shifting investments or shifting strategies — until we’re in a position where we feel comfortable that clearly that’s the case,” he said. “We can always wait another week, if you see what I mean.”

NEW YORK, NEW YORK - FEBRUARY 12: Andy Hilfiger and Kim Hilfiger attend Klarna STYLE360 Hosts Andy Hilfiger Presents Artistix By Greg Polisseni Presentation/See & Shop on February 12, 2020 in New York City. (Photo by Thomas Concordia/Getty Images for Style360)
Andy Hilfiger and Kim Hilfiger attend Klarna STYLE360 on 12 February in New York City. (Thomas Concordia/Getty Images for Style360)

The pandemic is likely to accelerate changes in the way Klarna works internally, however. The company was already opening more local “hub” offices closer to the merchants it works with and this strategy now feels “more appropriate” given the pandemic, Siemiatkowski said.

“We opened in the UK we’ve opened an office in Manchester due to the fact there’s a lot of great retailers in Manchester and online e-commerce companies,” Siemiatkowski said.

“For Klarna, what it means is we’re going to be more distributed as a company. More people will sit over more smaller offices, so to speak, rather than having these humongous offices with thousands of people. Smaller offices with less people that know each other — those kinds of environments are more productive in general.”

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