The German fashion e-tailer sees the pandemic, which has forced most stores to close across Europe and North America, as an opportunity to turbocharge its sales platform, which handles e-commerce operations for third-party brands.
This model, which operates like an online version of the concessions luxury brands operate inside department stores, is popular in China on sites like Alibaba’s Tmall. It has been slower to take off in the West because most brands operate their own e-commerce and sell through several multi-brand retailers. However, companies like luxury marketplace Farfetch has pursued it with some success and Amazon has long-standing ambitions to provide a similar service to fashion brands.
Zalando has spent years building a commission-based sales platform, but gross merchandise volumes — a measure of sales — via the service made up only 15 percent of the fourth-quarter total of €2.5 billion ($2.8 billion).
Zalando’s long-standing hopes to raise that share to 40 percent by 2024 stand to receive a boost as the pandemic forces e-commerce holdouts to invest in online shopping.
“Over the past years, there was always this kind of, ‘OK, how do I invest? And how much is it a threat?’ And now it’s the most reliable channel,” Zalando’s co-CEO David Schneider told BoF.
If ever there was a time to turbocharge digital, it is now.
The number of new partners signing on to the programme more than doubled from February to a total of 28 in March, and existing partners have stepped up plans to expand into new markets, the company said. Each new partner may bring with it multiple brands. Over Easter, the company said more than 1 million items were sold through the initiative, more than double the volume last year.
To be sure, the company is still suffering. Sales growth has slowed and it’s expecting to make a loss before interest and tax of between €90 million and €110 million in the first quarter, down from a profit of €6.4 million a year ago.
The decline reflects a sharp drop in sales from March 9 to the end of the month as the wider market in Europe suffered from tight government restrictions to prevent the spread of Covid-19. Zalando also took a €40 million writedown on the value of its inventory as a result of revised sales expectations for the current season, the company said in preliminary first quarter results published Thursday.
To manage the crisis, Zalando said it cut costs by €350 million this year. It’s slashing €250 million from its marketing budget and overheads and will cut capital expenditure by €100 million. The measures are intended to help it avoid layoffs or taking advantage of state loans.
To be sure, the company’s revenue and profit figures for the period are unlikely to be pretty. Zalando’s already warned that sales will come in significantly below forecasts as a result of a slowdown in discretionary spending through March. It has also warned of an “exceptional write-down of inventories” because of lower sales expectations for the current season and flagged that it will cut costs by €350 million ($388 million) this year in response to the crisis.
According to The Business of Fashion and Mckinsey & Company’s coronavirus update to The State of Fashion, online sales have declined 5 to 20 percent across Europe. But physical retail is completely dead.
“If ever there was a time to turbocharge digital, it is now,” the report said. “The global pandemic’s shutdown of offline retail channels has pushed digitally inept fashion companies to the brink.”
Zalando is hoping to reap the benefits and said it is already seeing positive signs of a rebound, with sales beginning to grow again in April.
The company’s active customer base is up 17 percent compared to a year earlier and certain market segments have grown at pace. Demand for beauty products has tripled compared to the same period a year ago and the number of existing customers buying sportswear for the first time has doubled. Sales of socks have also been surprisingly popular.
There are signs of a broader recovery in e-commerce too. “At our end, demand has recovered and Easter was quite successful,” Schneider said.
Such support may prove a lifeline for small brands struggling to survive.
Consumers faced with a protracted economic downturn may remain cautious, but looking ahead, Zalando is preparing to capitalise on its relatively strong position. The company has put in place a number of incentives to aid retailers and entice them to its site. It has waived commission fees until May 31 for brands using its connected retail platform. The service allows companies to use their retail stores as mini distribution centres, an appealing prospect at a time when many brands are scrambling to move inventory stuck in their shops.
Zalando has also committed to speeding up payments to cash-strapped partners until the end of June and is planning a €5 million fund for small and medium-sized participants in the programme to take advantage of its marketing services to boost their online profile through the end of the year. It’s planning a dedicated sales event at the beginning of May to ease overstock for partner brands.
Such support may prove a lifeline for small brands struggling to survive, particularly as traditional partners cancel orders and extend payment terms or refuse to pay altogether. For Zalando, it could turbo-charge years-long ambitions to build out its platform business.
“It’s an acceleration,” Schneider said. “We’re now focusing even more on how immediately we can work closer with our partners.”
Editor’s Note: This story was updated on April 16, 2020 to reflect Zalando’s preliminary first quarter results.
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