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Zalando Charts Return to Growth, Denies U.S. Expansion

Executives at Zalando, one of Europe’s largest online fashion retailers, outlined plans to bring the platform back to growth after second-quarter revenues fell 4% to 2.62 billion euros.

The company said it expected to return to growth in the second half of the year and outlined a number of strategies to achieve this. But one move that will not be on that list is Zalando’s expansion into the U.S., mooted in the German media earlier this month.

“For sure, there is a lot of potential outside Europe,” Zalando co-CEO Robert Gentz told journalists Thursday during an online press conference. “But at this stage, I think the time is not right. Our focus remains on Europe and the markets we are already in and we think that is the right approach for the time being.”

Gentz then outlined how the online giant planned to return to growth over the next six months.

First, it faces easier comps. The numbers from the last half of 2021 were not as large as those at the beginning of that year, when there were more lockdowns. “So the base line is much less challenging,” he explained. The accounting technicalities alone meant Zalando could return to growth.

Zalando also has other strategies in play. At one stage, Zalando deliveries and returns were free but the company had now set a minimum order limit in all of its markets.

Customers had reacted differently in different countries, Zalando’s CFO Sandra Dembeck noted. “Some — in the more affluent countries — prefer to pay the delivery fee [even for less expensive orders],” she said. “Other customers are migrating to higher-value baskets. The introduction of minimum order limits has been very positive, not just financially, but also from a sustainability point of view.”

Zalando has seen customers move away from the kinds of products particularly popular during the pandemic, like leisurewear and sportswear, and turn back to occasionwear and clothing for vacations and travel.

“You see customers that are migrating upwards toward the premium brands,” Gentz said.

Zalando is trying to deepen its customer relationships and by extending its loyalty program, which had grown to 1.5 million members.

Zalando’s recent acquisition of majority stake in online streetwear site, Highsnobiety, with its ability to tell fashion stories and act as an arbiter of trends, would help improve customer relations, Gentz asserted.

Zalando’s gross merchandise value, or GMV, also remained flat during the second quarter, sitting at 3.2 billion euros for the quarter. As Zalando has expanded its platform model, moving into logistics and marketing for other retailers and brands, GMV has become one of German giant’s key indicators of success — it measures how much inventory the platform has moved and is usually higher than the company’s revenues.

Some of Zalando’s lower numbers can be explained by the fact that the platform saw unusually high growth during the same period in 2021, due to pandemic-related lockdowns. As restrictions have eased in Europe since last winter and consumers have turned back to physical stores, Zalando has not been able to maintain the same sort of momentum.

The number of active customers and orders are also key performance indicators for Zalando. Both of these figures grew over the second quarter. Zalando’s active customers increased by 10.6% and numbered 49.3 million. The company processed 67.8 million orders, a rise of 3.2%.

Additionally, the number of orders per active customer went up over the second quarter, even though the value of what they were buying, or basket size, slipped from 57.70 euros per purchase to 55.90 euros.

While all of these numbers are far from the double-digit increases the company was enjoying during the pandemic, it has still seen slower yet steady improvement in almost all of its key indicators over the past few quarters, as retailing has gone back to normal.

On the back of the second-quarter results, Zalando reconfirmed its lowered guidance for the year. Zalando had already released preliminary results for the quarter and downgraded its forecast in late June because, as it wrote then, “the company no longer assumes a rebound of consumer confidence in the short term.”

Market analysts from the likes of Goldman Sachs and Baader Bank said that although Zalando’s results were at the lower end of expectations, they were reassured by this week’s confirmation of the June release.

In fact, adjusted EBIT had even slightly exceeded some analysts’ forecasts. Over the second quarter of this year, Zalando’s EBIT fell from 186.4 million euros to 61 million euros.

However, as experts at the Royal Bank of Canada also pointed out, “the subdued growth outlook near term makes Zalando’s mid-term targets more challenging to achieve.”

Zalando’s ultimate aim is to serve 10 percent of the total European fashion market and move 30 billion euros worth of product annually by 2025. Gentz emphasized that the company was still certain of those ambitious long-term plans.

For 2022, Zalando now expects GMV to grow between 3 and 7% to up to 15.3 billion euros. Revenue should increase up to 3% and bring in between 10.4 billion and 10.7 billion euros by the end of the year and adjusted EBIT is expected to come in somewhere between 180 million and 260 million euros.

This story was reported by WWD and originally appeared on WWD.com.

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