Zalando is a massive retail phenomenon in Europe. It’s particularly prominent in Germany, where they boast 95% brand recognition amongst adult shoppers.
‘We help struggling offline retailers to stay in business:’ Zalando CFO
“We help struggling offline retailers to stay in business,” is how Zalando CFO described the platform’s support for retailers to succumb to the declining high-street footfall.
Speaking during Zalando Q2 financial results conference call, David Schröder chief financial officer (CFO) of Zalando began explaining the ‘win-win’ partnership model between the platform and retailers.
Zalando’s Partner Programme sees the platform in partnership with selected retailers. To date, more than 1,300 offline stores are connected to the Zalando platform. “It’s great fulfilment to our network which doesn’t require any CAPAX as it can be [managed] by the store owners.”
This means that physical store retailers are able to fulfil their own products without using the Zalando Fulfilment Solution (ZFS), creating a scenario benefiting both parties as retailers are able to finalise the last-mile experience for no additional cost and Zalando economise on the warehousing space but still benefit from the commission on sales percentage from retailers.
Zalando never reports on the financial success of retailers. However, from the Gross Merchandise Volume (GMV) we can track a selling rate of both the platform and their partners. Zalando’s GMV grew by 23.7% to €2.0 billion (£1.82 billion). Revenues increased by 20.1% to EUR 1.6 billion. In the same period, Zalando achieved an adjusted EBIT of EUR 101.7 million or a margin of 6.4%.
“The volume [retailers] do on the platform is already surpassing the volume they do in their stores,” admitted David. This suggests a growing trend of consumers using marketplaces as search engines to explore products, bumping into a deep range of items to discover what they desire to purchase. Retailers that happen to dominate these platforms find themselves in ‘the right place, the right time’ scenario to capitalise on shoppers’ curiosity to bag a product. This omnipresence tactic increases the likelihood of retailers converting prospects by exposing themselves to a large pool of consumers.
He says this phenomenon is “helping [retailers] to a large degree when they experience a declining frequency of footfall in their physical stores.”
“We really see this as one of the great examples of helping struggling offline retailers to stay in the business by offering them alternative channels to display their products. For our customers, it’s a big advantage of getting broader and deeper product offering.”
Zalando have always been selective about retailers and brands they invite to trade on the marketplace. David points to the platform’s pride of more than 240 environmentally-led fashion brands. Zalando’s main category focus is a fashion as it presents a chance to increase a digital wallet share. As it appears capitalising on the buying power of fashion shoppers is a “profitable” strategy as fashion orders see many cross-selling opportunities. That is, when a shopper buys a fashion item they are most likely to add in cosmetic products to build a complete look rather buy separate items.
“If we look at the high price premium brands, the main reason to target them is basket size. But also if you look at our proposition so far we sold the mid-range of the market. We look at where we put growth opportunities in the low-end we’re working with fast-fashion players like Inditex. We also see these opportunities on the high-end and the increasing willingness for premium top-selling brands to trade on Zalando.”