Zalando Charts Return to Growth, Denies U.S. Expansion

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The executives of Zalando, one of Europe’s top online fashion stores, announced plans to restore the platform to profitability after its second quarter revenues dropped 4 per cent up to 2.62 milliards euros.

The company has stated that it is expected to see a growth return in the second quarter of this year and outlined several strategies to accomplish this. However, one thing that might not be included is Zalando’s expansion to America. The U.S. mooted in the German media earlier in the month.

“For sure, there is a lot of potential outside Europe,” Zalando co-CEO Robert Gentz told journalists Thursday in a live press conference. “But at this point, I think the timing isn’t right. We focus on Europe and the markets we’re already in, and we believe this is the best approach for the moment.”

Gentz explained how the internet giant planned to increase its growth in this next period.
It first has to face more comps. The numbers for the second quarter of 2021 weren’t so large as those from the start of the year, which was when it was more locked down. “So the baseline is much less challenging,” he said. Accounting technicalities alone suggested Zalando could be able to return to its growth.

Zalando also has different strategies to consider. At one point, Zalando deliveries and returns were free, but the company has now set a minimum purchase limit across all its markets.

As the CFO of Zalando, Sandra Dembeck, noted, customers have reacted differently to different countries. “Some — in the more affluent countries — prefer to pay the delivery fee [even for less expensive orders],” she explained. “Other customers are shifting to baskets with higher value. The introduction of the minimum order limit is very beneficial and not just from a financial point of view; however, from a sustainability point of view.”

Zalando has seen consumers move away from items used during the outbreak, such as sportswear and leisure wear but then return to casual wear and clothes for travel and vacation.
“You see customers migrating upwards toward the premium brands,” Gentz stated.

Zalando is working to strengthen its relationships with its customers by expanding its loyalty program, which has been growing to 1.5 million participants.

Zalando’s recent acquisition stake in the streetwear site, Highsnobiety, with its ability to share fashion stories and serve as an authority on trends, could enhance customer relationships, Gentz asserted.

Zalando’s Gross Merchandise Value or GMV was also unchanged in the second quarter, which was 3.2 milliards euros. Since Zalando has extended its platform model, expanding into logistics and marketing for brands and retailers from other companies, GMV has become one of the German giant’s primary indicators of its success. It measures the amount of inventory it has moved and is generally more significant than the company’s revenue.

A portion of the lower numbers could be explained by the fact that the site experienced a tremendous growth rate during the same time frame in 2021 due to the pandemic-related lockdowns. While restrictions have eased across Europe in the last few months and people have reverted to physical retailers, Zalando has not been in a position to sustain the same kind of momentum.

The number of active customers and orders is an indicator of Zalando’s performance. Both numbers grew during two quarters. The active customers of Zalando increased by 10.6 per cent and reached 49.3 million. The company fulfilled 67.8 million sales, an increase of 3.2 per cent.
In addition, the number of orders per customer increased in the 2nd quarter even as the price of what they bought (or the size of their basket) dropped from 57.70 euros for each transaction to 55.90 euros.

Although these numbers aren’t the double-digit gains the company saw during the epidemic, it has experienced slow but steady growth in all of its significant indicators over the last few quarters, while retailing is back to normal.

Following the second quarter results, Zalando reconfirmed its lowered forecast for the year. Zalando had previously announced its preliminary quarterly results and reduced its projections late in June because it stated that “the company no longer assumes a rebound of consumer confidence in the short term.”

Market analysts from companies like Goldman Sachs and Baader Bank said that although Zalando’s performance was lower than expected, They were encouraged by the confirmation this week of the June report.

In reality, adjusted EBIT had slightly surpassed sure analysts’ expectations. In the second quarter of this year, Zalando’s EBIT dropped between 186.4 million euros to 61 million euros.

However, analysts from the Royal Bank of Canada also stated, “the subdued growth outlook near term makes Zalando’s mid-term targets more challenging to achieve.”

Zalando’s goal is to provide 10% of the European fashion market and to move $30 billion worth of products each year until 2025. Gentz stated that the business was unsure about those ambitious long-term goals.

In 2022 Zalando anticipates GMV to increase between 3 and 7%, upwards of 15.3 billion euros. Revenue could increase by 3.3% and amount to the range of 10.4 billion to 10.7 billion euros in the year’s final quarter. EBIT after adjustment is expected to range somewhere between 180 and the 260 million euro mark.

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