European e-commerce giant Zalando benefited greatly from what its executives now describe as “peak pandemic.”
During the COVID-19 health crisis in 2020 and 2021, consumers turned to Zalando’s website in their millions, giving the company double-digit increases in many areas, year-over-year.
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However, as pandemic restrictions have eased throughout Europe over the past months, Zalando and its competitors are finding that its impressive pandemic-level growth cannot be maintained.
In the first quarter of this year, the Berlin-based online retailer said revenues fell 1.5 percent to 2.2 billion euros.
But executives said they have a plan to deal with the new retail normal.
“We already knew we would see things normalize as economies reopened,” Robert Gentz, one of Zalando’s co-chief executive officers, told an online press conference. “Since the beginning of March, the world has changed really dramatically.”
Gentz also pointed out that this year’s first quarter was being compared to “an extraordinary first quarter in 2021,” when revenue zoomed 47 percent.
More challenges lie ahead. Zalando said it had already started to feel the impact of a downturn in consumer sentiment due to the war in Europe and steadily rising inflation.
This was one of the reasons that gross merchandise value, or GMV, didn’t offer the kind of numbers the company had become used to either. GMV is one of Zalando’s key indicators of success as it aims to become more of a platform than a producer — it measures how much inventory the platform has moved and is usually higher than the company’s revenues.
Instead of the double-digit percentage increases Zalando had seen throughout the pandemic, GMV rose 1 percent to hit 3.18 billion euros worth of product moved.
Zalando’s results were in line with market predictions. Analysts had forecast stagnation as COVID-19 restrictions are all but abolished in Europe, and consumers are once again shopping at brick-and-mortar stores.
Analysts from Deutsche Bank and Bank of America also expected that Zalando’s EBIT would come under pressure, given rapid growth over the past two years and the accompanying high cost of doing business, as well as new investments.
Over the first quarter of this year, Zalando’s EBIT fell 186.7 percent, swinging from 78.6 million euros in the black to 68.1 million euros in the red.
Zalando, which sells fashion and beauty products in 23 countries, is building fulfillment centers in Germany, Poland and France. It is also launching its offer in Hungary and Romania this month.
This quarter’s setback has not derailed progress toward Zalando’s long-term goals, Gentz insisted.
The platform now has 48.8 million active customers who placed 58 million orders, reflecting increases of 17 percent and 3.6 percent, respectively, compared to the same period last year. On average, customers spent 56.5 euros per purchase during the first three months of the year.
Gentz explained that Zalando would now act upon a number of trends to help the company achieve its long-term goals: Zalando wants to serve 10 percent of the total European fashion market and be moving 30 billion euros worth of product annually by 2025.
Premium segments were popular and people were “either trading up or trading down,” Gentz noted, while the mid-priced segment contracted.
Additionally, demand for occasion- and trend-based clothing had been growing faster again, as opposed to needs-based garments. During the pandemic, sportswear and loungewear had dominated.
Zalando plans to adjust its offer according to those trends, Gentz said. The company was also “laser focused” on more cost efficiencies, he added. For example, it will set a minimum value for orders to qualify for free shipping, including in Germany.
The rising costs of things like fuel for carriers would be passed on to clients that were using the platform to sell, he explained.
Of the 1.99 billion euros in sales that Zalando generated through what it calls its fashion store, 883.9 million euros came from its home territories in the German-speaking regions — Germany, Austria, Switzerland — while 1.1 billion euros came from sales in the rest of Europe, indicating success in its expansions.
The rest of Zalando’s revenues came from its off-price category — 312.6 million euros — and other sectors, which brought in 58.9 million euros and include things like Zalando’s marketing services.
Zalando also increased the number of businesses and brands using what it calls its “partner program.” This has brands and brick-and-mortar stores selling through the website while Zalando provides logistics services for a fee. Partners now make up 32 percent of Zalando’s overall GMV and the company plans to increase that to 50 percent over the next three years.
Zalando predicts that the second half of 2022 will bring better results and, as Gentz stressed, at that stage “we won’t be comparing ourselves to peak pandemic.”
Despite the lower growth this quarter, Zalando reconfirmed its guidance for the year, albeit at the lower end of its predicted ranges: It has forecast revenue growth of between 12 and 19 percent and GMV increases of between 16 and 23 percent in 2022.
