Although Zalando served 5 % more customers last quarter, the fashion marketplace lost sales and incurred a loss. Suddenly, sales plummeted and the German fashion e-tailer found itself unable to react.
Plunge into the red
Zalando is increasingly becoming a fashion platform where brands and consumers find each other, rather than being mainly a retailer itself. In the first quarter of the company’s financial year, the number of affiliated brands and retailers rose again sharply, making sure Zalando already owes 32 % of all sales to platform vendors.
The number of active customers rose by 5.2 % last quarter, but turnover stagnated at 2.2 billion euros, accounting for only 1 % more sales (gross volume) and even a drop of 1.5 % in net sales. The German fashion retailer also slipped back into the red with an adjusted EBIT of – 51.8 million euros, or a profit margin of – 2.4 %.
Sudden crash in demand
At the beginning of the quarter, Zalando suddenly saw demand plummet, co-CEO Robert Gentz said in a press call. The company then ramped up marketing expenditure, but even that proved futile. So since then, promotions have been cut back again.
The high energy prices and labour shortages have also led to higher fulfilment costs. Each order now costs Zalando 10 % more than a year ago. Gentz therefore wants to impose a minimum order volume, which is already in place in nine countries, to other markets as well.
The co-CEO also confirms that the assortment his company offered, was not adapted to the return of employees to the office. Zalando now has a lot of overstocks of “casual” clothes and quickly had to buy other products via wholesale.
“E-commerce can still grow”
However, the figures should not come as a surprise after the exceptional peak during the Covid pandemic. Lockdowns and Covid restrictions meant that consumers had to resort to e-commerce, but now there is more choice again. The market is also extremely volatile, Gentz stresses: the war in Ukraine left people with other things on their minds and supply chain problems are playing a part.
However, the company does not expect any long-term impact. Zalando is sticking to its ambitions of reaching over 30 billion euros in sales volume by 2025 and is expanding into Hungary and Romania this year. “As a platform, we are more agile”, Gentz still sees a lot of potential to remove inefficiencies from European fashion retail and firmly believes that e-commerce is still not mature.