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Zalando continues to focus on customer relationships as full-year sales slow and profits fall

Image courtesy of Zalando

Zalando says it is making progress with its strategy of growing customer numbers and strengthening customer relationships as it reports slowing sales and falling profits in its latest full year. 

The online fashion retailer and marketplace says that this has been a year in which the adoption of ecommerce during the pandemic reversed “more than initially expected, albeit at higher levels than pre-pandemic”. In response, Zalando has introduced measures such as minimum order values to improve profit margins.

Last month the Berlin-based retailer and marketplace announced plans to cut hundreds of jobs as it reduces the size of its workforce by an estimated 5%. In today’s full-year statement it describes that as a programme “to reduce complexity an embrace simplicity, pragmatism and frugality,” adding: “This involves removing several hundred overhead roles across many of Zalando’s teams.”

Today’s update comes as Zalando reports that its platform handled sales amounting to €14.8bn (£13.1bn) in group gross merchandise volume (GMV) in its 2022 full financial year. That’s 3.2% up on the previous year. Group revenues dipped by 0.1% to €10.3bn (£9.1bn) over the same period. A year earlier, GMV had grown by 34% while 2021 revenues were 29.7% up on the previous year.

Adjusted group earnings before interest and tax (EBIT) fell 60.6% to €184.6mn (£163.9mn) from €468.4mn (£415.9mn) a year earlier as profit margins fell to 1.5% from 4.5% the previous year. But while profitability fell, capital expenditure rose 6% to €351.7mn (£312.25mn) from €332.9mn (£295.6mn) a year earlier. At the bottom line, net income of €16.8m (£14.9mn) was 92.8% down from €234.5mn (£208.2mn) a year earlier.

Zalando chief financial officer Sandra Dembeck, says: “Our healthy balance sheet allows us to continue investing in our strategic priorities whether that’s driving customer excitement around relevant brands and assortment or helping partners to drive their direct-to-consumer business across a variety of channels.”

Zalando says it will focus on boosting margins through the year, while continuing to invest for future growth. It predicts adjusted EBIT of between €280mn (£248.6mn) and €350mn (£310.7mn) in 2023, and expects to achieve the higher end of its 3-6% EBIT target by 2025. 

“Our long-term ambition remains unchanged,” says Robert Gentz, Zalando co-chief executive. “We remain confident that we will return to double-digit GMV growth in the mid term, by further executing on our vision and strategy, and eventually serve 10% of the €450bn (£400bn) European fashion market.”

Focusing on customers for growth

During the year, active customer numbers grew by 6% to 51.2m from 48.5mn during the year, while its Plus loyalty programme more than doubled its membership to more than 2m, compared to last year. Over the year, order numbers rose by 3.5% to 261.1mn from 252.2m. Each customer placed an average of 5.1 orders over the year, 1.9% down from 5.2 a year earlier, with the value of the average order coming in at €56.70 (£50.34) over the year, down 0.2% from €56.80 (£50.43) a year earlier. 

The trader says that close to 20% of its customers buy from more than one of its product categories – and that these customers spend on average more than three times the amount that customers who only shop in one category do. Plus members also typically spend about three times the amount that non-members do. “There’s a lot of growth potential within our existing customer base,” says David Schneider, Zalando co-chief executive. “On top of that, we see further opportunity in increasing penetration across our markets, where huge potential lies ahead of us.”

Zalando is now working with its recent acquisition Highsnobiety to use storytelling to create a more emotionally-connected way of talking about fashion to customers. So far it has released more than 80 curated product drops through the collaboration, which have been viewed by more than 7mn unique users, whose higher click rates reflect increased engagement, says Zalando.

Fulfilment strategy
Zalando also sees a long-term growth opportunity in offering multichannel fulfilment to customers that sell on platforms other than Zalando, having previously offered this only to those selling through its own platform. Now it is extending its logistics solutions for brands selling via other platforms as well as through their own online shops. “The offering has generated a lot of interest and partners such as Pepe Jeans, a brand of AWWG Group, are already on board,” says Zalando in today’s statement.

Zalando is rated Top250 in RXUK Top500 research

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