Zalando brand sales increase – but revenue dips and it reports a loss as it moves further towards a platform model

Zalando operates 14 fulfilment centres across Germany

Zalando operates 14 fulfilment centres across Germany

Zalando today showed how the shape of its business is changing as sales made on its platform by third-party brands continue to grow. The fashion-to-homewares retailer and platform aims to make half of its fashion sales via its third-party brand partner business by 2025 – up from almost a third in the first quarter of this year.

The company is investing in its website and in its relationships with customers, but says promotional activity has hit its bottom line in the short term.

In the first quarter of this year, almost a third (32%) of the sales made in its fashion business were made via its partners, as measured by gross merchandise volume (GMV) – which rose by 1% to €3.2bn (£2.7bn). Zalando earned revenues of €2.2bn (£1.9bn) – 1.5% lower than last year. At the top line, it reported losses before tax and interest (EBIT) of €51.8m (£44.3m) – and at the bottom line, a net income loss of €61.3m (£52.5m), down from a net income profit of €34.5m (£29.5m) last year. Zalando says the fall in revenues mainly reflects its transition to a platform model, while losses reflect both the rise in promotional activity and increased fulfilment costs.

The business now expects full-year GMV to come in at the lower end of its predictions of 16 to 23% growth, and its revenue to come in at the lower end of a range of 12% to 19%.

Zalando co-chief executive Robert Gentz says: “Our business fundamentals are strong, and we are taking steps to improve our results. We are managing Zalando for the long term and have always used our business agility and adaptability to successfully respond to short-term challenges and consumer demand to emerge better and stronger. We remain confident that we will achieve our ambition to reach more than €30bn (£25.7bn) GMV by 2025.”

Future strategy

Zalando says it’s working to strengthen its relationships with customers as it moves the business towards a platform model. It says customers are now visiting more often and engaging with its range of services more often. But it says that macroeconomic uncertainty is leading to short-term challenges, with shoppers now buying more seasonal and trend-based items – moving either towards high-end products or from mid-market products to basic items.

It increased its active customer numbers to 48.8m in the first quarter – up from 41.8m a year earlier, and orders rose to 58m from 56m over the same period. Each customer has placed an average of 5.2 orders over the last year, up from 4.9 a year earlier, but at lower average basket sizes of €56.5 (£48.4), down from €57.8 (£48.5) a year earlier.

Zalando Plus memberships grew by 150% over the year, while third-party brand sales accounted for 32% of fashion GMV. By 2025, Zalando aims to see 50% of its fashion GMV from its partner business. Last year, 30% of GMV was from its brand partner business.

Zalando is now taking action to tailor the goods it sells to the amount that its customers now want to spend, to improve order economics and introduce most cost-efficient solutions, while investing in a “best-in-class customer experience,” through both its ecommerce capabilities and partner services. It is adding more fulfilment centres to its logistics network, with work already underway in Frankfurt in its home market of Germany, as well as in Poland and northern France. Next month it will launch into two new European markets – Hungary and Romania – following on from six new market launches in 2021.

“We are flexible and well-equipped to steer Zalando through this volatile market environment. This includes making the necessary adjustments to improve our performance,” says Dr Sandra Dembeck, Zalando chief financial officer. “At the same time we are continuing to invest through the cycle to drive long term value. We are expanding our logistics network and advancing our platform to better serve our customers and partners, enable sustainable future growth and set us up for long-term success.”

Zalando is a Top500 retailer in RXUK Top500 research.

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