Although growth at Zalando is slowing, there’s no need to worry, the company’s executives stressed at an online press conference reporting the company’s third-quarter results.
One of Europe’s largest online fashion retailers, Zalando reported revenues gained 23 percent versus third quarter in 2020 to 2.28 billion euros. The company had averaged revenue growth of 40.5 percent in the first half of the year.
The slowdown in growth is just the result of the “new normal,” the company’s chief financial officer, David Schröder, told journalists. Zalando, whose revenues grew 23.1 percent for all of last year, said it had fully expected this to happen.
From the middle of the second quarter of this year, lockdowns in Europe started to end, Schröder explained. Brick-and-mortar stores were open again and data showed that consumer mobility is almost back to pre-pandemic levels.
“In some countries, it’s even above,” Schröder noted.
“We expect the fashion industry overall to recover to pre-pandemic levels over the course of the next few quarters,” the executive continued. “But that doesn’t mean our growth will be impacted in a major way. We have strong customer interest and we have proven before we can grow at a pace of 20 to 25 percent on a consistent basis.”
Market analysts from the likes of Warburg Research, UBS, JP Morgan and the Royal Bank of Canada all concurred, writing that the company’s results were just slightly better than expected and that Zalando’s business strategy was solid.
In September, Zalando made it onto Germany’s blue-chip DAX stock market index.
The Berlin-based fashion platform primarily measures its success via gross merchandise value, or GMV. This accounts for how much inventory the platform has moved, as opposed to income from services like logistics and marketing. GMV is always higher than revenues.
For the third quarter, Zalando saw growth of 25.3 percent in GMV to 3.08 billion euros, also reflecting more usual levels of growth. While in 2020, the platform’s GMV grew 30.4 percent over the whole year, in 2019, GMV increased by 24.3 percent.
At the same time, the company acknowledged that it was facing some significant challenges and rising costs, due to the pandemic and other factors.
Over the third quarter, Zalando’s adjusted group earnings before interest and taxes, or EBIT, was 9.8 million euros. This represents a margin of 0.4 percent of revenues. Zalando also reported a net loss of 8.4 million euros.
That’s a 91.7 percent drop compared to the same quarter last year when EBIT was 118.2 million euros and represented 6.4 percent of revenue. But as the company’s statement conceded, the number is also “very much in line with the third quarter of 2019…the last third quarter recorded before the pandemic.”
In third-quarter 2019, EBIT was 6.3 million euros and also represented 0.4 percent of Zalando’s revenues.
Other challenges over the past quarter included the need to discount more heavily as brick-and-mortar stores began to reopen and discount heavily. In order to make sure their online customers were getting equally good deals, Zalando also had to cut prices more deeply, Schröder explained.
Climate change took a toll with a warmer-than-usual European autumn. This led to a late start to sales of winter product as well as consumers buying discounted summer stock for longer, he said.
Zalando also acknowledged the supply and logistics challenges that many companies have already warned about. Schröder believes that Zalando has enough inventory to deal with customer demand over winter, citing the platform’s wide choice of brands and good forward planning.
But, he cautioned, “looking ahead into spring and summer 2022, that does look a bit different. We expect some delays then, and not just for sneakers. That could impact the season start. But thanks to our platform model, we think we will find better answers to these challenges than many of our competitors.”
Other key indicators for Zalando are the numbers of site visits, active customers and orders, all of which continued to rise over the third quarter.
The number of active customers — that is, shoppers who use the platform at least once a year — rose 30.1 percent to 46.3 million. Before the pandemic, at the same time in 2019, Zalando only had 29.5 million active customers.
Zalando has also expanded into six new markets — Latvia, Croatia, Lithuania, Slovakia and Slovenia — and says that, thanks to a fine-tuned “go-to-market playbook,” it had more success there, more quickly, than with any other international launch.
Just three months after launching, “we are, as of today, the most downloaded fashion app in all six markets,” boasted Robert Gentz, Zalando’s co-chief executive officer.
Overall, Zalando’s site visits, the overwhelming majority of which come via mobile phone, continued to rocket up, increasing 91 percent to 1.7 billion in the third quarter compared to the previous year. This is almost double the number of visits the company was getting pre-pandemic, in 2019, when it recorded 1 billion site visits in the third quarter.
Zalando also recorded an all-time high in how much customers were spending per purchase and how many times they were buying via the site. The average basket size rose to 57.50 euros, from 57.20 euros per purchase at the same time last year. Average orders also peaked at 5.10 euros per active customer.
Zalando did not change its forecast for the full year.
Despite the slowdown and various logistical and seasonal issues, “we’ve since seen a strong start to the fourth quarter. That’s why we remain confident [about full-year results],” Schröder said.
Zalando had raised expectations in the first quarter and is holding firm to predictions of revenue growth between 26 and 31 percent for the year, with a target of 10.1 billion to 10.5 billion euros and an EBIT close to 475 million euros. It also forecast GMV would grow 31 to 36 percent to hit between 14 billion and 14.6 billion euros.
The two executives also reiterated the company’s bold ambitions to be shifting 30 billion euros worth of stock by 2025, serving 10 percent of the European fashion market.