Thanks in large part to pandemic-related lockdowns, revenues at Zalando zoomed 46.8 percent to 2.24 billion euros in the first quarter, marking one of the best starts to the fiscal year for Europe’s largest online fashion retailer.
“Zalando delivered the strongest growth ever since going public in 2014,” chief financial officer David Schröder trumpeted in a statement. “We see our platform business unfolding at increasing speed.”
Over the last four years, the company had been averaging quarterly growth of around 23 percent. Even when compared to the first quarter of 2019, the last “normal” year for fashion shoppers, Zalando still managed revenue growth of close to 40 percent at the beginning of 2021.
Gross merchandise value, or GMV — how much stock Zalando has shifted, as opposed to income it has made from services like logistics and marketing — grew 55.6 percent to hit 3.15 billion euros. In the first quarter of 2019, it was 1.75 billion euros.
The company’s adjusted EBIT also rocketed forward, reaching 93.3 million euros. In the same quarter in 2020, adjusted EBIT was at minus 98.6 million euros.
Zalando revised its outlook upward yet again by several percentage points. The company now expects revenue growth of between 26 and 31 percent for the full year. It anticipates GMV growth of between 31 and 36 percent.
The results were better than expected and sector analysts from the likes of Bernstein, Warburg and JP Morgan agreed with the company’s prognosis. “Targets are ambitious but achievable,” RBC Europe’s Sherri Malek wrote in a research note.
And Zalando expects its good fortune to continue, even after life returns to a more comparative “normal.” Schröder argued that demand had been shifting from offline to online for the past decade already and that the pandemic had simply accelerated this trend.
“We expect a gradual return to the new normal in the second half as vaccination [rollouts] become more successful,” Schröder explained. “But we don’t expect that will inhibit our ability to continue to drive strong growth,” he said, adding that the company still expects revenue growth of between 20 and 25 percent from 2022 to 2025.
In the short term, Schröder pointed to ongoing increases in the second quarter and said the pandemic was not yet at an end.
In the long term, Schröder believed that Zalando’s ongoing success would come down to “improvements in customer experience.” This includes increasing the selection of products on the website, improving convenience and just generally investing in deepening the customer relationship, Schröder explained.
Over the past few months, Zalando has been busy adding a number of customer-facing measures that have already seen success elsewhere. It already has a shopping club, Zalando Lounge, and Zalando Plus, a premium membership for an annual 15 euro fee.
The latter does many of the same things that Amazon Prime does, including faster deliveries, and also offers a styling service. From this month on, Zalando will also take a cue from streetwear and high-fashion “drops” and will offer its Plus users early or exclusive access to product launches. The first will be a capsule collection of fitness gear, a collaboration between sportswear brand Puma and German fitness influencer Pamela Reif. Launches by Hugo Boss and Levi’s will follow later this month.
Zalando has also installed a “values-based browsing experience” where shoppers can buy based on ethical concerns, like animal welfare or environmental impact.
Pre-owned fashion is another area in which Zalando is working, giving customers store credit for resales and “moving the fashion industry from linear to circular,” Schröder boasted.
Zalando increased its number of active customers to 41.8 million over the quarter, an increase of 30.9 percent versus last year. Site visits rocketed 50.2 percent to hit 1.7 billion.
Shoppers were also buying more, with each active customer making 4.9 orders over the three months and spending, on average, 57.90 euros. The company described this as an “all-time high.” During the same period last year, shoppers were only making 4.7 orders and the average spend per purchase was 56.30 euros.
Return rates had dropped but, Schröder noted, that was likely temporary. Shoppers were buying more needs-based products, things from beauty or children’s wear for example. These categories have lower return rates than occasion-based purchases, like dresses, he said. Additionally Schröder thought that customer mobility in some markets was also having an impact. People were shopping more cautiously because they didn’t necessarily want to go out and return a parcel.
The Berlin-based firm’s expansion into other parts of Europe also continued. In previous years, sales in Zalando’s home markets of Germany, Austria and Switzerland had always been around the same as sales in the rest of Europe. That changed in 2020, when sales in the rest of Europe overtook those in German-speaking territories.
This trend continued over the quarter, with Zalando recording sales of 921 million euros in German-speaking territories and 1.09 billion euros on the rest of the continent. Zalando has bold ambitions to account for more than 10 percent of the continent’s entire fashion market, worth 450 billion euros, in the longer term.
As a result of all this demand, the company is also spending large: It is adding five more logistics centers to its existing network of ten. Centers in Rotterdam, the Netherlands, and Madrid in Spain will open this year and construction will begin on new centers in France, Germany and Poland. These should be up and running by 2023.
Once they come on line, Zalando plans to be able to shift goods worth up to 18 billion euros GMV by 2023, Schröder noted. The company’s ambition is to be able to process 23 billion euros worth by 2025.