Zalando Breaks 10 Billion Euro Barrier, Presents Plans for Growth
Zalando, one of Europe’s largest online fashion retailers, saw turbocharged business during the COVID-19 pandemic.
While brick-and-mortar stores were locked down, the company, which sells around 5,800 brands in 23 European countries, continually racked up double-digit increases in sales.
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That has slowly started to change now, as the health crisis dissipates somewhat. Zalando is now returning to what it considers more “normal” rates of growth, of around 20 percent.
The German online sales giant still managed to do slightly better than expected in 2021. Revenues in the final quarter of last year grew 20 percent to hit 3.1 billion euros.
For the full year, Zalando’s revenues grew 29.7 percent to reach 10.35 billion euros. It had previously forecast growth of 29 percent and sales of up to 10.3 billion euros.
“2021 was a truly remarkable year,” said co-chief executive officer David Schneider during an online press conference announcing the results. “I think that’s quite an amazing milestone in the 13th year after founding Zalando,” he said, referring to the fact the company’s passing the 10 billion euro mark.
Market analysts from JP Morgan, the Royal Bank of Canada and UBS, among others, said the results were largely as expected. Although the stock market has reacted negatively to the fact that Zalando and other pandemic winners won’t be growing as quickly any more, analysts agreed Zalando’s business model was on solid ground.
The Berlin-based fashion platform also recorded growth in gross merchandise value, or GMV. This is one of Zalando’s primary measures of success and accounts for how much inventory the platform has moved, as opposed to income from services like logistics and marketing. GMV is generally higher than revenues and is likely to continue to be, as Zalando moves toward providing more logistics and marketing services.
In the final quarter of 2021, Zalando’s GMV rose 24 percent to 4.3 billion euros. This took GMV for the full year 14.35 billion euros, a rise of 34.1 percent altogether.
In order to keep things moving in the right direction, without the turbocharge that retail lockdowns provided the company over the past 24 months, Zalando also presented its strategy for the next period.
The strategy has three pillars: deepening relationships with customers; transitioning to become more of a platform and services provider, and progressing sustainability initiatives.
Last year, Zalando grew the number of active customers coming to buy from the platform by around a quarter. This number went from 38.7 million customers in 2020 to 48.5 million for all of 2021.
Even though beauty is a rapidly growing sector for Zalando, almost all of the company’s active customers — about 90 percent — primarily buy fashion on the site.
The amount customers were ordering increased, going from 4.8 orders per customer to 5.2. However, the value of the average order fell slightly, with average basket size over the year slipping 1.3 percent from 57.70 euros to 56.90 euros per order.
Around two-thirds of Zalando’s total GMV comes from active customers, Schneider explained, noting that they spend more than 500 euros a year with Zalando. “Our customers now buy, on average, five times a year,” Schneider boasted. “They shop 18 different brands throughout their order history, on average.”
Zalando wants to try and leverage these sorts of user numbers to become what the company describes as a “true platform business.”
There would be two parts to this, Schneider explained. A major priority was figuring out how to make buying clothes on Zalando a more entertaining and inspiring experience, while at the same ensuring it was also efficient and easy.
“Really, no single platform has figured out how to combine a transactional e-comm experience with a content-driven, inspirational experience,” Schneider explained. “They’re either content-driven experiences that are not great at enabling the customer to buy something. Or they’re an e-comm experience, where customers are not really inspired or entertained. That’s probably the biggest frontier in fashion commerce,” he argued.
Zalando planned to do this by organizing more styling tips, special editorials and activity-based product collections, as well as more video material, personalization and better online fitting services.
In the same way that Zalando created a version of Amazon’s Prime service called Zalando Plus three years ago, the company was now borrowing successful editorial ideas from other platforms and publications such as, for example, a weekly streetwear guide, early access to special product drops and content-creation collaborations with designers and celebrities. Zalando was also looking into how online gaming could be used to make more sales.
Zalando Plus now has a million members, who spend three times more than ordinary customers. The company aims to gain another million for the loyalty program during 2022.
Zalando also plans to become more of a platform by increasing sales through what it calls its partner program. The latter basically sees brands selling through Zalando, using it as an outlet and being able to establish their own branded shops on the website, then having Zalando provide logistics services. By the fourth quarter last year, the partner program made up around a third of Zalando’s overall GMV. Zalando’s ambition is to increase that to 50 percent.
Schneider explained that Zalando was also planning to open up its purpose-built fashion logistics infrastructure further, even allowing partner brands to use Zalando fulfillment centers for goods they had sold through their own direct-to-consumer channels.
Zalando’s huge growth over the COVID-19 pandemic has seen the company open more fulfillment centers. It now has 12 in seven countries and will add four more in 2023.
All this is obviously also costing the company. In particular, the push for more sustainability, that has seen Zalando transition to paper packaging and renewable energy sources, had also increased costs, the executives conceded.
But the company did not just feel a moral responsibility to become more environmentally friendly, it was also a way of winning hearts and minds of its customers and encouraging the industry in general to follow their example, Schneider and Schroeder said.
Schroeder pointed out that, despite extra expenses, Zalando’s adjusted EBIT had risen 11.3 percent to 468.4 million euros over the course of 2021.
Zalando also offered positive predictions for 2022, although it was noted this excluded any negative impact from the war in Ukraine.
Although Zalando had been expanding into eastern Europe, offering product in Croatia, Estonia, Latvia, Lithuania, Slovakia and Slovenia for the first time in 2021, the company did not employ anybody directly in Ukraine or Russia, Schneider said.
“But we do have employees who originate from Ukraine, and their families and friends are impacted. We’re focusing on helping those employees,” he told journalists.
“For 2022, we do expect a more volatile environment driven by three key factors,” Schroeder expanded on guidance for the coming year. “Weakening consumer sentiment, continued supply chain disruptions and rising inflation concerns.” Zalando won’t be able to isolate itself from this but the executives felt confident that growth would continue, Schroeder stated.
The brand now expects revenue to grow between 12 and 19 percent in 2022, totaling between 11.6 billion and 12.3 billion euros. It predicted that GMV would grow faster, between 16 and 23 percent over 2022, and that sales would be slower in the first half of this year, then rising again by the final quarter.
Zalando also said its stated target of GMV of more than 30 billion euros by 2025 was achievable.
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