Zalando had a big announcement on Wednesday, the fashion e-tail giant saying it has evolved its strategy to cover a “larger share of [the] fashion and lifestyle e-commerce market” with a “pan-European ecosystem for customers and partners”.
We’re told the ecosystem “around Business-to-Consumer (B2C) and Business-to-Business (B2B) growth vectors will further deepen customer and partner relationships”.
So what does this mean in practice? In B2C, Zalando is “differentiating through quality, expanding into more lifestyle propositions and making fashion discovery more inspiring and entertaining”.
And in B2B, it’s opening up its logistics infrastructure, software and service capabilities to become a “key enabler for brands and retailers on and off the Zalando platform”.
It expects the new strategy to drive growth through to 2028 with predictions for GMV and revenue seeing a compound annual growth rate of 5-10% and an adjusted EBIT margin of 6-8% in 2028.
Tough times in online retail
The strategy comes as online retailers in the fashion sector at all price levels have faced falling sales and tumbling profits (or even losses) in recent periods since the pandemic e-commerce boom began to wane. That has resulted in crisis situations for key names such as Farfetch and Matches, while mass-market online players such as Boohoo and ASOS have also struggled. And Zalando hasn’t been immune to the problems, so it’s understandable that the company is looking to develop its strategy.
As for that claim that’s the new strategy will help it to win a bigger share of the overall market, the company said that it aims “to cover in the long term the equivalent of 15% of the European fashion market”, which is worth €450 billion.
“Our ambition is to return to strong growth and continue our margin expansion, as reflected in our new mid-term guidance,” said Robert Gentz, co-CEO. “In B2C we will move beyond transactions by giving our 50 million customers across Europe even better quality experiences and products that fit their lifestyle and personalised content, inspiration and entertainment. In B2B, we will power the businesses of partners and merchants on and off Zalando, leveraging our unique logistics infrastructure, software and services.”
For shoppers this process has already begun. It’s offering a more seamless and tailored digital experience with tools such as size advice using computer vision and Artificial Intelligence (AI). About 60% of all items sold on Zalando already feature proprietary size advice.
As for that accelerated move into being a lifestyle destination, it’s “elevating existing categories into distinct propositions which offer a captivating experience by combining a more comprehensive assortment, advice features, personalised inspiration and seamless convenience”.
That includes Sports and Kids & Family, “where Zalando can meet more needs of families as the kids grow and develop lifestyle interests”. It plans to roll out more of its existing propositions in more European countries.
That move comes as the average European household spends more than half of its discretionary income on lifestyle products.
And in all categories, it will be “integrating content into commerce and offering personalised inspiration and entertainment”.
It’s using data and technology to “create entertaining content that will enhance engagement, a journey it already started with its acquisition of Highsnobiety in 2022 and the launch of Stories on Zalando in 2023”.
It’s also powering more personalised conversations with tools such as the Zalando Assistant so customers will increasingly get tailored offerings.
As for B2B, the company’s recently launched ZEOS business “enables Zalando to shape the European fashion and lifestyle industry beyond its own consumer business. It makes the company a key enabler for e-commerce transactions, for example via the About You, ASOS or Otto marketplaces”.
Its logistics network is made up of 12 fulfilment centres, about 20 return centres, and benefits from relationships with more than 40 local carriers. The technology is powered by its proprietary full-stack e-commerce platform and by Tradebyte, the fashion and lifestyle marketplace integrator it has owned since 2016.
It believes it’s “uniquely positioned to help brands and other fashion retailers overcome the inherent complexities of cross-border e-commerce in Europe, where they are faced with numerous languages, currencies, payment methods, delivery and returns options, as well as the need to manage multiple sales channels”.
ZEOS is already a profitable €0.9 billion revenue business today. It includes logistics, software, and services.
As for its own profitability, the firm said it met its 2023 revised guidance for GMV and revenue, and achieved the top end of its adjusted EBIT range in a challenging year for online fashion retail.
In 2024, it plans to return to growth, further increase profitability and invest in future growth. The company expects GMV and revenue to be in a range of flat to up 5% year on year on year. It expects adjusted EBIT to be between €380 million and €450 million.
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