UPDATE 2-Germany's Zalando set to join online flotation rush
* Zalando announces plans for IPO in Frankfurt
* IPO to have volume of more than 500 mln euros - source
* Pricing to be set during week of Sept. 29 - source
* Seeks premium to British rival ASOS (Adds details on valuation, background, rivals)
By Emma Thomasson and Arno Schuetze
BERLIN/FRANKFURT, Sept 3 (Reuters) - Europe's biggest online fashion player Zalando plans to raise more than 500 million euros ($657 million) to fund expansion by listing a stake, joining a flurry of e-commerce flotations set to be crowned by Chinese giant Alibaba IPO-ALIB.N.
The Berlin-based firm said on Wednesday it wanted to list a 10-11 percent stake on the Frankfurt stock exchange this year, which would value the company at at least 4.5 billion euros in what would be one of Germany's biggest technology flotations for years and Europe's top tech listing since France's Worldline in June.
Zalando has spent heavily on marketing to establish itself as the leading online fashion site in its core markets Germany, Switzerland and Austria where it makes 60 percent of sales, but is now investing more in its own fashion labels and the latest apps for smartphones to keep customers coming back.
Zalando is hoping it will be valued at a premium to its closest competitor Britain's ASOS, advisors say. It boasts that it is ahead of its rival in Europe in terms of total revenue, website traffic, brand awareness and active customers.
Buoyant capital markets have encouraged a raft of e-commerce flotations this year. Although a recent sell-off in tech stocks has dampened investor appetite, Alibaba is still expected to raise more than $15 billion, making it one of the biggest tech initial public offerings (IPO) in history.
Consultancy PwC said the second quarter of 2014 was the busiest for technology IPOs for two years, with 43 companies listing worldwide with a total value of $12.3 billion.
Zalando is set to price its IPO the week of Sept. 29, according to a source familiar with the transaction. German venture capital firm Rocket Internet, which helped launch Zalando and many other start-ups, is also expected to announce plans to float next week or the week after, sources said.
Zalando, which unveiled a new advertising campaign, website, packaging and apps at its first news conference last week, said the offering would consist solely of new shares from a capital increase. Zalando said none of its existing shareholders planned to sell any shares as part of the offering, although they would in theory be able to buy the new shares when it takes place.
Zalando, which began selling shoes in 2008, now ships 1,500 brands to customers in 15 countries in Europe, gaining widespread visibility with its "scream for joy" slogan and ads showing delighted customers tearing open Zalando packages.
PREMIUM TO ASOS?
ASOS, which targets a younger clientele than Zalando and also operates outside Europe in markets like China and Australia, has had a meteoric rise since it listed in London at only 20 pence in 2001 and is trading at 1.8 times sales with a market capitalisation of 2.4 billion pounds ($4 billion).
ASOS shares peaked at more than 70 pounds but they have fallen more than 50 percent this year after a profit warning and a warehouse fire, although they jumped on takeover speculation last week.
Zalando laid the groundwork for the IPO last week by posting a 29.5 percent gain in first-half sales to 1.047 billion euros and announcing its first-ever operating profit - 12 million euros compared with an operating loss of 72 million a year ago.
Zalando board member Rubin Ritter said the IPO was the next logical step for the company's development as it gave it flexibility to pursue its long-term growth ambitions.
The retailer sees huge potential to grow further in its existing markets given that it has just half a percentage point share of a European fashion market worth 420 billion euros, but is also considering expanding further into eastern Europe.
Zalando expects to further improve profitability by reducing the cost of sales through strong partnerships with brands like TopShop and Diesel, improving efficiency at its logistics centres and reducing marketing costs as a percentage of sales.
It said its current logistics infrastructure is designed to handle about twice the revenue it generated in the first half.
Sweden's Kinnevik, Zalando's biggest investor with a 36 percent stake, welcomed the listing plans.
"We look forward to continuing to work with Zalando's founders and management team, and to support their future growth ambitions after the listing," Kinnevik Chief Executive Lorenzo Grabau said in a statement.
Zalando now has a total staff of 7,000 people, with an average age of just 29. More than 40 percent of its traffic comes from mobile devices and its total number of active customers rose to 13.7 million from 11.6 million a year ago.
Morgan Stanley, Goldman Sachs and Credit Suisse are coordinating the IPO, while Deutsche Bank and JP Morgan are joint bookrunners. Jefferies and Stifel Nicolaus Europe are Co-Lead Managers.
($1 = 0.7612 euro) (1 US dollar = 0.6065 British pound) (Additional reporting by Alexander Huebner; Editing by Maria Sheahan and Louise Heavens)
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