Zalando sees Q3 strength, adds new brands, B2B growth excels

Tuesday was a big day for international politics but the US election wasn’t the only game in town, even if it was the one attracting most attention. It was also a big day for closely-watched fashion e-tail giants to report and both the UK’s ASOS and Germany’s Zalando were in the news too.

Here, I’m looking at Zalando, which confirmed its preliminary third-quarter results, saying it saw strong growth, boosted by rising consumer demand as the industry as a whole enjoyed a strong start to AW24.

The company has both a B2C and B2B operation, the former accounting for 90% of its group revenue of €2.39 billion, which was up 5%.

B2C is clearly key and quarterly revenue from the online fashion platform rose 4.3% to €2.2 billion. Zalando’s third-quarter gross merchandise volume (GMV) rose 7.8% to €3.5 billion compared with a year ago.

Its other operation, the smaller B2B business strand, saw 11.1% revenue growth in Q3.

Adjusted earnings before interest and taxes (EBIT) climbed from just over €23 million a year earlier to almost €93 million in the quarter, representing a margin of 3.9%. The adjusted EBIT margin increased by 2.9 percentage points to 3.9%.

The number of active customers increased by about half a million quarter on quarter, bringing the total number of active customers to 50.3 million in the third quarter.

Growth opportunities

“Consumers love the quality brands we are adding, spend time with our exciting digital experiences, and embrace our expanding lifestyle offerings in areas such as Sports, Beauty and Kids & Family,” said CFO Dr Sandra Dembeck. “To capture further growth opportunities, we are investing into initiatives such as evolving our Plus loyalty program, offering more inspiring content, ramping up our tech hub in China and driving localised convenience for customers via our European logistics network.”

As mentioned, adding newness to the brands offer was seen as an important part of the company’s performance and it added new labels like Remain, A-Cold-Wall, and Marine Serre to its curated line-up. 

It also evolved its Plus program from a paid membership to a free, points-based system designed to reward customer loyalty.

In France, its new fulfilment centre near Paris shipped its first parcel at the start of October and “helps to provide customers across France and neighbouring countries with even more localised offerings and convenience”.

As Dembeck mentioned, it’s growing in Sports, Beauty, and Kids & Family. The company said it’s “working to elevate these categories into powerful lifestyle propositions with comprehensive assortments, personalised inspiration, and seamless convenience. Zalando’s partners continued to increase their own sales generated via the company’s platform, with the partner business recording double-digit growth in the third quarter”.

And it further evolved Stories on Zalando, “the content hub that engages customers around exciting fashion and culture trends. Fashion influencers like Caro Daur, Linda Tol, and Jordan Anderson are now offering exclusive content and showcasing their curated fashion selections”.

Further investment has included new tech with Zalando Assistant having been rolled out to all 25 markets recently. The AI assistant, powered by its own models and OpenAI’s large language models, offers logged-in customers personalised fashion advice in local languages. The assistant understands context – such as location, weather, and occasion – to make informed recommendations.

B2B growth 

As for B2B, it’s opening up its logistics infrastructure, software, and service capabilities “to be a key enabler for brands’ and retailers’ e-commerce transactions, regardless of whether they take place on or off the Zalando platform”.

In the third quarter, ZEOS (which is short for “Zalando E-commerce Operating System”) added ASOS as a new sales channel, “expanding the value proposition for Zalando’s partners. In total, ZEOS can now fulfil orders that were placed via nine major e-commerce platforms and brands’ own webshops”.

As mentioned, in Q3 revenue for B2B grew 11.1%. It reached €239.7 million, continuing to outpace group revenues. Adjusted EBIT fell from €12.6 million a year ago to €6.7 million but the decrease was mainly caused by frontloaded investments to support future growth.

The company also confirmed its guidance, which was upgraded on 10 October, for FY24. It expects GMV to grow between 3% and 5%, revenue to increase between 2% and 5% and adjusted EBIT to grow to between €440 million and €480 million.