Berlin-based fashion retailer Zalando had a very successful first year as a listed company, increasing revenue, customers and orders. Emma Herrod caught up with co-founder David Schneider to discover his highlights and plans for the future.
The European fashion market was worth €417bn (£330bn) in 2015, a slight increase on 2014. Of this total, online fashion retailing’s share grew by 10% to top €46bn (£36bn) and it’s predicted to continue taking bigger slices of the overall market.
Having floated on the Berlin stock exchange in 2014, 2015 was the first full year for fashion retailer Zalando as a listed company and the founders’ focus was wholly on the customer. This strategy has paid off with the firm’s revenue reaching €2.96bn (£2.35bn) for the year to 31 December 215, almost 34% up on 2014’s figures. Orders rose by 33.5%, average basket sizes were larger, site visits increased by 21.5% and the number of visitors was up, too, growing 22.4% to 17.9 million. Customer satisfaction increased as well.
These financials put Zalando’s plans in context: online fashion spend in Europe is growing faster than bricks and mortar retailing and the firm wants to grab a disproportionately large share of this online market. It currently has a less than 1% share of the total European fashion market and aims to boost it to more than 5%. This means Zalando has to grow 2 or 3 times faster than the rest of the fashion industry and double its size every 3 years. It is predicting revenue growth at the upper end of the 20-25% corridor with adjusted EBIT margin of 3 - 4.5% with the aim of becoming a €10bn (£7.9bn) revenue company in 5 - 6 years’ time.
Zalando already holds large chunks of certain markets, although not in the UK. In its home market of Germany, for example, it already has a market share of around 5% of all shoes sold online
A PLATFORM FOR FASHION
To achieve this phenomenal expansion, the company is investing €200m (£158m) in its commercial growth – marketing, speeding up delivery, driving mobile and extending assortment – and its platform strategy. Zalando’s vision for the future is one in which it is no longer simply a retailer of its own and other branded fashion but a platform for fashion as well, bringing consumers and brands together across the 15 country markets in which it operates.
“We want to connect the fashion world, developing their digital strategy while enabling consumers to have new experiences, particularly in the mobile world,” says David Schneider, Co-founder, Zalando.
The company’s ethos is already one of enabling consumers to shop a broad range of fashion brands, but it is now working on a platform strategy that covers four areas which match the needs of consumers, brands, merchants and other fashion players.
It is enabling brands to share their own stories with shoppers, interacting directly and managing their own campaigns. With content management systems and statistical analysis tools, brands such as Adidas, Gap and Nike have launched their own branded stores on Zalando Shop; they pay Zalando a commission while processing orders themselves.
The platform strategy enables Zalando to increase the opportunities for brands to sell their products directly through its websites and mobile apps. It believes that these storefronts will take many guises enabling different groups of brands to sell their products through branded or unbranded marketplaces, different kinds of production models or custom-designed tools that connect the offline world to the online world, for example.
What it provides for its partners with branded stores on Zalando Shop will change as services such as fulfilment by Zalando versus fulfilment by the brand are introduced. Zalando will earn commission depending on the service level it provides.
“The most important thing is that no one buys just one label. The brands know this too, so they need to be where the customers are, where they get inspired and where they start shopping,” says Schneider. “We are building the infrastructure, a multi-brand environment in which the brands can build their own flagship store; then we use the synergies to their own ecommerce and their brand communication to build the tools, making it easy for them to address, to drive the content on their own, and to connect the same inventory.”
When talking about opening up the platform to smaller labels, Schneider mentions Zalando’s long-term vision of making everything available to the consumer and to connect any fashion merchant to them. The focus for now is on the big partners since the company already has a close relationship with them. “It makes sense to start there and move forward,” he explains. “It’s important that it goes along with the new propositions to be built.” As the company connects more with consumers and builds new propositions, such as personalisation and the social inspiration app Fleek, it will become a platform for those players, too.
Zalando will develop new products around how people want to experience fashion while also building the platform. “In fashion you have lots of different brands and items. Europe is also a diverse landscape and you have to make things relevant for different users. You need to develop different propositions such as Fleek as well as smart technology to make things relevant to each user. Zalon, for example, is for people who want to buy from a person rather than a machine – a personal stylist who curates an outfit for you,” says Schneider.
With its consumer products, the firm is bringing fashion and people together. “Our consumers and their needs always come first, and that’s why we sharpened our customer focus with a range of innovative products and services in 2015,” says its annual report.
Zalando will remain a retailer as well, collaborating with brand partners, while also sharing its ecommerce know-how with them. The Zalando Shop sells around 150,000 styles from more than 1,500 brands. Ultimately, though, it wants to make every conceivable type of fashion available to its customers however they want to shop, thus curating product for different consumer segments.
“It’s quite clear that our main usp isn’t price,” says Schneider. “We’ll never offer something at a higher price than the market, but we realise that people come to us for the latest articles and trends. When we launch products, we’re faster to react than other people with technology trends and put a lot of data behind customers’ behaviour – how they are shopping, how they are searching or wanting to get informed on latest trends, or just to visit the site and purchase an item.”
Currently, more than 400 people are employed as buyers, trend scouts and product managers, all working to enable Zalando to keep delivering the latest trends and personalised offerings through features such as ‘Shop the Look’ or trend shops. Technology is seen as the enabler for the company’s plans and the power of mobile – along with social – is already starting to produce results with the company’s launch of Fleek. The app, which carries no Zalando branding, pulls the social feeds of fashion brands together into one place so consumers can ‘follow’ the trends of their favourites. The app offers plenty of inspiration too, which also feeds back plenty of data to Zalando on consumers’ likes, dislikes and personal preferences.
Its discount Zalando Lounge offering for price-conscious shoppers also went mobile at the end of 2015 with the launch of an app. This makes it easier for consumers to keep track of the daily sales which offer up to 75% off more than 2,000 brands.
Intermediaries have a place on Zalando’s platform with the company working towards opening it up to third-party service providers, such as fashion stylists, logistics firms and marketing affiliates. For example, the company is trying to reach fashion shoppers looking for a more personalised experience with its Zalon curated shopping service. This innovation brings intermediaries onto the platform and harnesses the new possibilities which online opens up to the fashion industry.
Zalon enables shoppers to communicate with one of 200 freelance fashion stylists for free advice on putting together an outfit from the 150,000-plus items on the Zalando platform. Based on responses to a questionnaire and a conversation on WhatsApp, the shoppers are then sent a box of up to 12 items to try on at home. “This set-up is good for everyone: stylists earn a commission on their services, customers receive free advice, and Zalando now has an offering for customers looking for advice,” explains Schneider.
The service, which is available in Germany, Austria and Switzerland, launched in May 2015.
The firm has also developed a proprietary online marketing technology platform: Zalando Media Solutions. Brands and other advertisers are invited to place their marketing content on this platform, into Zalando shop websites and apps. That content can also be placed on marketing affiliates’ websites and mobile apps.
“We give a lot of control, such as brands entering the tooling themselves and managing their brand messaging,” explains Schneider. “Zalando Media Solutions allows them to book campaigns and use Zalando data and bring their messaging to consumers directly. The brands – such as Calvin Klein and Topshop [which is among the top 10 brands on Zalando] – want to work with Zalando on creatives and we want to drive campaigns that engage consumers digitally in new ways. This is something that they’re not that used to and it works very well jointly; in the future we will further develop this.”
The company also wants to establish itself as a platform where brands ‘take place’– such as the Bread & Butter event which combines live entertainment and fashion – rather than remaining a sales channel alone, explains Schneider.
CORE CAPABILITIES & LOGISTICS
Operations have an important part to play in Zalando’s future. As the company report says: “The more products and partners join our fashion platform, the more varied and complex it becomes. Our expertise in technology and operations holds everything together and creates additional synergies.”
Schneider adds: “That’s how we actually build up for different use cases, and different interests, target groups and different products; they are based on the common platform and those core capabilities.”
The company already works closely with a multitude of logistics partners, including long-haul and best-of-breed final-mile delivery services in each of the local markets in which it operates. It also operates eight decentralised returns centres throughout Europe, mainly managed by external service providers, as well as its own warehouses.
Having introduced same-day delivery in Berlin and Cologne in September 2015, it is now looking to bring the online and offline fashion worlds closer together with same-day delivery and click and collect using brands’ own stock in their brick and mortar stores. Zalando also offers instant returns in Berlin, Cologne and Amsterdam, with customers contacting its logistics partner Liefery to arrange a convenient pick -up location.
Picking up from local warehouses or brands’ brick and mortar stores is a natural progression for Zalando, which is building a hub and spoke network for stock across Europe. Slow-selling products are held in “big boxes” centrally whilst fast-selling items and those which are sold within a certain market will be held in smaller warehouses in the sales country. Deliveries from its first international satellite fulfilment centre, in Italy, were made in January. Until then, the Zalando network comprised three fulfilment centres in Germany, with a fourth currently being developed in the south of the country. When the learnings from the pilot site in Italy have been analysed, decisions will be made as to the location of the next in-country site. “France, Spain, maybe UK [will be next], where Zalando can increase the speed of its delivery,” says Rubin Ritter, a member of the company’s board of management.
As well as driving growth and allowing Zalando to be as local as possible while still profiting from scale, these smaller warehouses will also enable additional services to be offered to customers. It is a strong believer in giving customers a localised offer, so it works with the incumbent last-mile carrier in each market. Its online stores use a local domain name, and customer care is provided in the local language so it has the look and feel of a local retailer but with the advantage of scale as a pan-European organisation.
By combining Zipcart with local inventory (and ultimately that held by brick and mortar stores), local inventory could be shown and purchased for shipping same day – or collection from store.
Localisation and being close to the consumer may not end at the store, though, since Zalando’s mobile team is considering making deliveries to customers wherever they happen to be. They believe this would be a great use of the capabilities of the mobile phone.
The company wants to do more than just join up the inventory across offline and online. The exciting step then is going into the offline world and connecting it, says Schneider. Starting with inventory and allowing customers to access this information and fulfilling orders from local stores, the next step is “bringing in new business models such as targeting local audiences”. He adds: “In the connected world there are many opportunities that come up,” he says.
Zalando sees itself as a technology company as much as anything else, so its strengths lie in innovating and transforming the industry as it works to match every type of fashion purchaser with trends, inspirations and brands in entertaining ways that make them want to buy and keep coming back for more.
David Schneider will be speaking at the InternetRetailing Summit in Berlin at the end of June.