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Zalando

Zalando is Europe's leading online retailer of shoes and fashion, with operations in fifteen different countries in Europe.

Zalando started operations in 2008 in Germany and today operates online fashion shops in fifteen European markets. The company has grown rapidly and is today the largest standalone pure online fashion player by net sales in Europe. Key drivers for Zalando’s success include its expertise in fashion, retail and technology. Over the past five years, Zalando has focused on building up this expertise and continuously improving operational excellence. Examples of these accomplishments include:

  • Establishing strategic partnerships with over 1,500 leading third party brands and building up private brands in-house at the same time
  • Insourcing of warehousing operations, with Zalando now handling more than 80% of all fulfilment in-house
  • Expanding technology team to more than 400 employees to manage workflow of planning, buying and fulfilment while improving its shop platform and entering mobile commerce.

2013 was another year of strong growth for Zalando. Based on preliminary figures, net sales rose by 52% to EUR 1,762m (1,159), despite the challenging year that the European fashion retail markets faced. In absolute terms, sales growth was over EUR 600m, at a similar level as in 2012, despite the fact that Zalando did not launch new country shops in 2013 (Luxembourg was launched during 2013 but is run via the Belgian store). Growth was primarily driven by the continuing trend towards online shopping, and the company saw strong growth in its new markets as well as the more mature regions Germany, Austria, and Switzerland (DACH). The company gained market share in all regional markets. Geographic and category diversification continued: Zalando’s core DACH region achieved net sales of more than one billion Euros for the first time, and all international regions showed high double-digit net sales growth. Apparel has become the largest category of the assortment for the first time.

Zalando reported an EBIT margin slightly better than -7% (-7%). Two factors put pressure on margins. First, Zalando as well as the fashion industry in continental Europe overall faced challenging market conditions in 2013, caused by a late start of the summer and a mild winter. This lead to high discount levels in the market, putting pressure on margins. Second, the company decided to continue strategic initiatives in 2013 as the basis for continued future growth and improved customer experience, which led to ramp-up costs in areas such as fulfilment and technology. Examples of Zalando’s strategic initiatives in 2013 include:

  • Total warehouse capacity more than doubled curing the year, enabling the company’s future growth. The first units of the self-designed fulfilment center in Erfurt are fully operational and the extension units are expected to be finished in 2014, making Erfurt the largest e-commerce facility in Europe. Operations at the new center in Mönchengladbach have started to ramp up, and Zalando decided to invest in an extension of this facility in 2014.
  • To drive brand awareness and customer acquisition in the new markets, Zalando continued to invest in its consumer brand; average aided brand awareness in these new markets at year-end was around 75%, compared to around 90% in the more established markets. Overall marketing efficiency improved, as total marketing spending as a percentage of net sales decreased.
  • To further strengthen its leadership position in a fast  changing online environment, Zalando actively manages the transition to the growing mobile usage patterns of its customers. Mobile-enabled shops are now available in all fifteen markets, and German apps have been released for Android and iOS devices. At year-end 2013, over 35% of the traffic in Zalando shops came from mobile devices, including tablets.

Despite these effects, Zalando maintained EBIT breakeven in the DACH region, combined with continued strong growth. The average return rate remained stable at approximately 50%. Zalando’s customer base continued to grow, and ended the year at over 13 million total active customers that have shopped at Zalando at least once during the past 12 months, as compared to over 9 million at the end of 2012. 

Zalando is well capitalised to fund future growth with a net cash position of over EUR 350m at year-end 2013.