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  • Fikas - Interviews
  • 05 October 2021
  • 6 min read
  • Words: Northzone

A Fika with... Jarno Vanhatapio, founder & CEO of NA-KD

Northzone’s Jessica Schultz and NA-KD’s Jarno Vanhatapio talk about bridging fast fashion with sustainability, surviving and thriving after the pandemic, and establishing a retail brand that customers love and trust.

Gothenburg-based retailer NA-KD has a lot to be proud of. A leader in sustainable fashion, the company is one of Europe’s fastest-growing companies. In 2020, NA-KD blew previous records out of the water by gaining 1.2 million new customers in its 5th anniversary year. It doesn’t end there. CEO and Founder, Jarno Vanhatapio, aspires to become “one of the top 1% most sustainable fashion companies in the world.” The way things are going, we have full confidence they’ll succeed.

On the back of these recent milestones, Northzone’s Jessica Schultz had a Fika with Jarno to break down the company’s secret sauce. Relentless ambition, impeccable execution, innovative compromise, and transparent communication are just some of the elements. Take a read to find out more.

Jessica: Let’s start from the beginning. What is your background, and how did it lead you to founding NA-KD?

Jarno: It’s quite known here in Sweden that I don’t have a formal education. I’m one of those organic entrepreneurs — the first in my family — who has been bootstrapping from day one. I started Nelly.com back in 2003, when only 0.5% of fashion was traded online in Sweden. We pioneered that market when nobody wanted to touch it. Between 2003 and 2007, it was an uphill battle. There was no market, and certainly no VC. At the time, I was awarded Sweden’s biggest individual trade price, Söderbergska Handelspriset, which gave me the motivation to change how fashion is consumed in the Nordics. I’ve been in online fashion so long that I’ve witnessed all the stages, the hypergrowth, the transformations. Somewhere between 2007 and 2012, we hit the sweet spot of fashion in the Nordics. Along with a few other entrepreneurs, I was one of the leading forces behind that. In 2015, I took all that experience and poured it into NA-KD with the goal of making fashion affordable, on-trend, and sustainable. 

I love your ambition. Can you expand on the NA-KD vision and how it differs from  Zara’s, H&M’s or Zalando’s?

First, we strive for operational excellence, no matter what we do. We always say, 20% is the idea, 80% is the execution. Then, it’s about building a moat, creating something unique. The vision for NA-KD is to marry a 100% sustainable brand like Patagonia with a fashionable, large-scale company like Shein. If you’re Patagonia, you’re missing the fast growth and data-driven merchandising. If you’re Shein, you’re lacking the sustainability element. I want to take the best of both — and that’s the challenge. One or the other is clearly easier than pulling off both.

Jessica Schultz, GP at Northzone

That’s for sure. Let’s talk more about sustainability. You’ve said you want to become one of the most sustainable fashion companies in the world. Why are you moving in that direction?

We’re very ambitious about sustainability. Some days, I feel like there’s no remedy or cure to the fashion industry; we will always be dirty and I should just jump ship and change industries. But I think the fashion industry has gotten more heat than other industries in that regard. If you go to any home improvement store, for example, you’re very likely to buy something with plastic. I also understand that people will not stop shopping for clothing. So the biggest thing I can do for the environment as an entrepreneur is to stay and fight. 

I tell my team that every time someone chooses NA-KD instead of another brand, or even a market in Thailand, we make the world a better place. We can’t stop the fashion train, but we can move it in a better direction. 

Making the world a better place, one step at a time. Is growing at such a fast pace compatible with reaching your sustainability goals? By the end of 2020, over 45% of all new NA-KD items were made from sustainable materials — what’s the target to hit 100%? 

Part of it is making sure that every unit we produce is leaner than the last. Because NA-KD is growing so fast, even if we reduce our carbon footprint on every single unit, in absolute terms, we’re still consuming too much. That being said, we will get to the inflection point where our absolute consumption will start going down. The other part is circularity. If we can double the lifespan of a fashion garment today, the whole industry will be able to meet its 1.5% Paris Agreement target. Our goal is to be fully sustainable and carbon neutral by 2025. Part of that will be compensation, buying emission rights, planting trees, and helping farmers so they don’t have to sell their land. 

Speaking of circularity, can you tell us a little bit about NA-KD Circle, your marketplace for “pre-loved fashion”? It’s such a cool initiative and a lot of our portfolio companies are reaching out to me to follow a similar model! 

We wanted to make sure we didn’t forget about the second-hand market, and that it would fully integrate into our site. We got inspired by Amazon Books, where if you search for a new book, you can also choose to buy a used one. NA-KD Circle removes the friction you get from selling fashion through classified ads by making it simple and smooth to recycle and re-sell your old stuff. By getting customers to both buy and sell from us, we get this wonderful flywheel where we take extended responsibility for what we sell. Our goal is for it to be an essential part of our business — about 10 to 30%. That will have a huge impact on reducing emissions.

Let’s keep talking about the future. What’s the 2-year plan for NA-KD?

Currently, we have a €250 million net turnover. So when we talk about growth drivers, we look at this horizontally: more geographic areas, expanded target groups, and new retail categories. We are growing at a rate of 300% in the UK right now, which is awesome to see and which I’d love to replicate in other countries. I’m also trying to attract older customers to NA-KD, and want to add new categories like beauty, home, and kids. 

We’re equally keen on vertical growth drivers, like retention building. Our entire customer base makes 2.2 purchases a year with us. For our active customers, it’s double. There’s no reason why they couldn’t make more of their purchases on NA-KD, especially in these new categories. Building retention on our app will be key as well. In Holland, 17% of our turnover came from our app in the span of three weeks. That brought our total turnover from the app to 9%, which is amazing to see. Even without paid media, we’re consistently in Sweden’s  top five downloaded apps in the shopping category, just organically. 

M&A is also very interesting. If you look at the most successful fashion groups out there, they are not one single brand. Inditex, H&M, Boohoo Group, ASOS even — they’re all groups of brands. I think once we master the heavy lifting, we should eventually be able to dock in other brands too.

And what are your thoughts in terms of IPOs and exits — is that something you’re considering?

I think we just need to build an awesome company and then we’ll consider all the opportunities. Is it a majority buyout, a trade sale, a merger, or an IPO? Who knows. For now, we are in a good position. We’re profitable, with both a good balance sheet and venture debt possibilities. We don’t stand to gain much from an IPO today, aside from a little attention. Staying private gives us a bit more wiggle room to think ahead and not necessarily move in a straight line.

I’d love to hear your views on the pandemic, how it affected you, the retail industry, and where you see retail fashion going forward.

On one hand, as an online retailer, we’ve benefited a lot from closed High Street stores. That money needed to go somewhere. On the other hand, there is no need to have a party dress or buy a bikini if you’re not travelling to warm places or going to parties. So there are a lot of pros and cons. The biggest downside has been the logistics mayhem with shipments and deliveries. The summer stock we were expecting in May only arrived in July, and it’s hard to sell Christmas trees in January, right?  

All in all, the pandemic definitely hurt us, but we still had a good year of growth last year which is continuing well this year.

Generally speaking for the industry, I think the pandemic actually benefited outdoor and training companies quite a lot. I think that will stay, and people will value their freedom by going out hiking and biking rather than just partying. Ultimately, I think physical retail will have a hard time coming back to pre-pandemic circumstances and a frictionless merge of online and offline shopping is the way forward. At some point, we will have to decide what that looks like for NA-KD. 

Since day one, you’ve managed to build real brand equity for NA-KD, culminating today in more than 3M followers on Instagram. Did this happen organically or did you have a clear strategy for this? 

As a retail or merchandising company, you can’t get away with not having a brand strategy. But the product is still king and queen. The truth is, if you look at customer surveys, Zara often ranks at the bottom — but ask anyone where to shop for clothes, they’ll mention Zara. This alignment between what people say and how they act is fragile. So it’s a balancing act: we need to nail our proposition — working towards a better society and cleaner environment — while making products people love. One without the other won’t work; no one is going to love an ugly dress, no matter how sustainable it is. 

Our brand communication centers around transparency. We share what we stand for: mental well-being, female empowerment, the environment. And while we are in fast fashion, which as I mentioned does get a lot of heat for being environmentally harmful, we also know that our customers need to be educated. A fast-fashion company can be better for the environment than a slow fashion company that is producing the wrong way and not taking extended responsibility. We need to stand for something and we need to be clear about what that is. We can’t be just another fashion company.

Clearly, your message and product are resonating. Thanks for your time Jarno. We look forward to witnessing your continued growth and we’re proud to be on the journey with you!