Capitalizing on the acceleration of all things digital amid physical retail shutdowns, Zalando expanded revenues in Q1, welcomed 50 new brands in the past three weeks and added 330 local stores to an affiliate program.
“This crisis has many downsides, but we are trying to see it as an opportunity,” chief executive officer Rubin Ritter said during a teleconference to announce the results. “Customer behavior is changing. People are looking for a safe way to shop — and that’s online.”
Zalando grew revenues by 10.6 percent in the first three months of the year to hit 1.52 billion euros. Zalando’s gross merchandise volume, or GMV, gained 13.9 percent to reach 1.99 billion euros.
As the company has transitioned to be a platform, developing logistics and marketing relationships with suppliers rather than making its own products, it has argued that GMV is a better indicator of its success. The increase in GMV is higher than revenue because Zalando only collects commissions and service fees from partner brands, the company explained in a statement.
During the COVID-19 pandemic, Zalando’s platform model has expanded with the company trying to expedite entry to the program and payments back to partners during the pandemic.
Among the 50 new partners that joined the program are American Eagle Outfitters, Burton, Vaude and Next Group and the company said it would be extending the program to retailers in Spain, Sweden and Poland in the third quarter.
Berlin-based Zalando has also been pushing an associated program, the Connected Retail scheme, whereby local stores can sell via Zalando’s platform. Between late March and late April, around 330 stores signed onto the program, 224 of them in just the last two weeks of that period. To encourage this and “support the fashion ecosystem,” Zalando had waived fees for March and April, organized weekly payouts to participating retailers and increased participants’ visibility online.
“Some of them told us they were doing more business than when they were open,” Ritter said. “This fits well with our strategy to connect even more merchandise to our platform.”
It’s also about incorporating a more local element on Zalando, he added. Stores that are nearer the customer could potentially deliver a purchase faster than a Zalando warehouse could, Ritter explained. The program has focused on Germany so far but Zalando plans to roll it out in other European countries eventually.
The company also grew active customers and site visits. Active users grew by 17 percent to reach 32 million, and site visits rose 23 percent to 1.13 billion this year.
In March, consumers just weren’t that interested in fashion, Zalando managers explained, but there had been a much faster-than-expected recovery in April. The number of new users on the site was up 39 percent that month, compared to 2019, making it possibly the best April the platform has logged.
“Customer groups who may have been reluctant to shop online in the past have now discovered it’s a very convenient alternative,” Ritter told journalists. “That’s the fundamental trend we are seeing. This is an event that is accelerating the trend toward digital.”
Users in all age groups were growing, he noted, with the biggest increase in the under-25 age group. There was also a difference between European countries, depending on how hard a nation had been hit by the virus. Consumers in Austria, Germany, Switzerland and the Netherlands were recovering their appetite for new clothes. Ritter conceded that it would likely take southern European countries, where death tolls have been higher, longer to do so.
The average order placed by Zalando customers fell 1.5 percent to 56.10 euros per basket.
Consumers bought twice as much sportswear online as during the same period the previous year, particularly for running and yoga. Loungewear had also proven popular and Zalando had seen three times as many orders for skin, nail and hair care, as well as items such as perfumed candles. Other bestsellers included children’s wear and socks, with sales of the latter doubling during the lockdown.
Zalando said it had also seen demand for products labeled as sustainable growing over the past weeks. It is a topic that is very much on people’s minds during this crisis, Ritter suggested.
However, it was not all good news. Performance was “below expectations” due to the coronavirus, the company said. Despite ongoing growth in some sectors, Zalando has operated close to, or in the red, for several years now and only recently became regularly profitable. The company’s adjusted EBIT — earnings before interest and taxes, which show how well a company’s core operations are going — went from 6.4 million euros over the same period last year, to minus 98.6 million euros this quarter. Zalando said this was mostly due to “an exceptional inventory write down due to revised sales expectations for the current season” worth 40.2 million euros.
Unlike many other companies, that have said they cannot accurately predict the financial future due to uncertainties around the pandemic lockdown, Zalando offered guidance for the rest of the year. It adjusted guidance from February to consider the impact of the pandemic, but was still positive. Zalando is now predicting growth in revenue and GMV of between 10 and 20 percent for the rest of the year. It also forecast an adjusted EBIT of between 100 and 200 million euros.
Despite being positive, the forecast was necessarily broad, the company said, to take into account potential uncertainties over the coming months.
“The first weeks of the second quarter make us very confident for the full year,” Ritter stated.
Market analysts noted Q1 results were better than expected and that the outlook for Zalando was good. The company’s shares rose on the news and, as analyst Volker Bosse of Baader Bank put it, Zalando could be seen as one of the winners of the coronavirus crisis.