David Schneider is a rulebreaker — and he’s proud of it.
The cofounder and chief executive officer of Zalando SE, a Germany-based e-commerce company, said that when he and his partner founded the company in 2008, they had absolutely no fashion experience.
“How is it possible that two guys with bad fashion taste built the largest fashion platform in Europe,” Schneider rhetorically asked.
The answer? By breaking all the conventional rules.
Zalando started by selling shoes and quickly expanded into apparel and accessories. Today, the company offers 150,000 pieces from 1,500 brands and had sales in 2015 of 2.9 billion euros, or $3.16 billion at current exchange, last year.
“We didn’t know the unwritten rules of fashion,” he said. “And if you don’t know the rules, it’s easy to break them.”
When Zalando started, “online was considered evil,” he said, and brands were not eager to sell to the company. So, Schneider came up with “work-arounds” and told potential wholesale partners that he would open pop-ups, or fashion-meets-music parties, and they agreed to sell to Zalando. Although those parties never happened, “no one cared,” he said, as Zalando’s business took off.
The next rule they broke was the one that said “retail was quite territorial.” Instead of staying in one place, Zalando expanded into several countries, setting up local operating units but with a strong centralized operation based in Berlin. “That created problems with many brands,” Schneider said, but Zalando worked through it by being “more transparent” with its vendors.
The company also broke the rule that said returns were verboten. “But we actively promoted returns because we believed it was part of the game. Part of buying fashion is you have to touch it, feel it and try it on.” He said that while Germans are “known as having the highest return rate on the planet, for us, they became our most-profitable customers.”
So by acting as an “outsider,” who had no preconceived notions about the business, Zalando prospered. “We didn’t have much to lose and it was easy to make bold decisions.”
Fast-forward to today when Schneider is now a fashion insider and Zalando is a public company with a lot more to lose. “We have 11,000 employees and 20 million active customers” and a large infrastructure, he said, “so it’s a lot more risky.”
Since those humble beginnings eight years ago, Schneider said Zalando has learned a lot of lessons. First, “central beats local. I was kind of shocked at how inefficient fashion retailing is. You have to deal with seasonality, weather effects, sizing, inventory scattered around. It kind of sucks being a fashion retailer,” he said. “That’s why you need such high gross margins. And the smaller and more local it gets, the more difficult it is.” But by building a centralized online business, you can offer a lot more efficiency, he said.
Even so, this may soon change as local delivery options continue to make strides and technology that connects inventory data improves. One example, he said, is that an order placed on Zalando may be fulfilled by an Adidas store directly, thereby substantially cutting down on shipping time. “That opens up future opportunities,” he said.
Schneider’s propensity for breaking rules also applied to trade shows. Zalando last year bought Bread & Butter, which was the largest fashion fair in Europe, and converted it from an industry event into a consumer one. Some 20,000 people walked through the first edition in Berlin in July to buy merchandise directly from the exhibitors, attend fashion shows and events during the market.
The fashion shows, which were live-streamed, reached over 6 million people, Schneider said, and user-received content over the three days of the show reached 800 million impressions.
“I came in as an outsider,” Schneider said, “and now as an insider, it gets a lot more difficult. For me, it means we have to rethink all the time, but we cannot get into trying to defend what we built.” Instead, the company is concentrating on creating strong partnerships with companies on the cutting edge that can help Zalando to improve its model.
Two years ago, Zalando went public and while Schneider said that things have changed dramatically at the company since then, there are some advantages as the larger size allows the company to think more strategically.
That doesn’t mean Zalando will make an appearance in the U.S. anytime soon. In response to questions from the audience, Schneider said, “There’s so much for us still to do in Europe. We’re focused now on investing in technology and building innovative mobile experiences and more scalable solutions.”
And finally, he addressed the issue of whether Amazon has impacted Zalando’s business. Schneider said it “hasn’t kept us from growing,” and in fact, has even helped the company expand as it “created a great path for e-commerce as a whole.”