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Zalando focuses on strengthening customer relationships as second quarter revenues and profits fall

Image courtesy of Zalando

Zalando says its work to deepen its customer relationships is paying off in higher customer numbers. But the retailer reported falling sales and profits in the second quarter of its financial year. 

It has introduced a minimum order value in all of its 25 markets in order to improve order economics, while reducing its marketing spend and focusing on making its European logistics more efficient as it looks to adapt to a volatile market environment. 

The fashion and lifestyle platform is also focusing on relationships with its shoppers and with its partners as part of its strategy to be the “starting point for fashion”. In the second quarter of its financial year it focused in particular on the customer experience in beauty, where sales grew by more than 30%, year-on-year. It launched its Plus membership programme in Switzerland and expanded sales to Romania and Hungary – taking it to a total of 25 markets.

At the same time, active customer numbers grew by 11% to to more than 49m in the second quarter, while its Zalando Plus loyalty programme grew 164% to more than 1m members.

The update came as Zalando reported gross merchandise volume was flat (+0%) at €3.8bn in the second quarter of its financial year, while revenues fell by 4% to €2.6bn. A year earlier, GMV had grown by 39.7% and revenues by 34.3%, and Zalando says this figures suffer from the comparison with an “extraordinarily strong” prior year. Adjusted earnings before interest and tax (EBIT) came in at €77.4m – down 58% from €184.1m last time. During the quarter, Zalando took a majority stake in fashion and lifestyle media company Highsnobiety, which it says will combine with Zalando’s reach to create an inspirational and engaging experience for consumers and brands. 

“We are focused on efficiency and margin improvement measures that will help us strengthen our profitability in the second half of the year,” says Dr. Sandra Dembeck, chief financial officer at Zalando. “Our healthy balance sheet allows us to continue to invest into our technology platform and logistics infrastructure to enable our long term growth trajectory.”

Looking ahead, Zalando expects full-year revenue to grow by up to 3% to between €10.4bn and £10.7bn and adjusted EBIT to reach between €180m and €260m. 

Robert Gentz, co-chief executive at Zalando, says: “We have demonstrated our agility as a team, showing that we can react quickly to adapt to the current environment while also making the experience of our customers even more inspiring and engaging. We continue to grow our customer base and are fully focused on our strategy and making selective investments across our business to ensure our long-term growth.”

Commenting, Pippa Stephens, apparel analyst at data and analytics company GlobalData, says Zalando’s sales have continued to falter since its June profit warning. “While this is largely down to the reversal of consumers’ shopping habits, with many returning to physical stores after primarily shopping online during the pandemic, Zalando also attributes its struggles to the turbulent economic environment that is severely impacting shoppers’ propensity to spend. However, rival German online pureplay About You still expects to achieve significant revenue growth of between 25.0% and 35.0% for FY2022/23. Though it is bolstered by it being less established in the market, About You is likely to continue stealing market share away from Zalando. Zalando must emphasise the affordability of its offer to stand out among price-conscious consumers amid the ongoing surges in inflation.”

She says Zalando’s partner program, which allows brands to take advantage of its platform and fulfilment infrastructure while still owning the stock themselves, has continued to experience strong growth. “This has allowed its GMV to remain more resilient than its revenue, remaining flat versus last year. Its acquisition of the majority stake in fashion media brand Highsnobiety in July will aid this segment going forwards, as the platform intends to help Zalando create a more engaging online experience for consumers and brands. Since many other online platforms like Asos and About You are also offering similar services, Zalando must ensure that it is providing it at a competitive cost to drive uptake in the future.”

Zalando is a Top500 retailer in RXUK Top500 research.

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