Zalando back in style as it bids to be Netflix of fashion

BERLIN (Reuters) - Zalando, Europe’s biggest online-only fashion retailer, set itself a target to triple the value of goods sold on its site in the next five to six years as it seeks to become the go-to app for fashion.

A fitting model checks out sizes for a shoe which goes on sale at the online shop of fashion retailer Zalando in Berlin, Germany, December 17, 2018. Picture taken December 17, 2018. REUTERS/Fabrizio Bensch

Shares in the German company surged as much as 17.5 percent after it reported on Thursday that sales rose by 25 percent in October-December to 1.7 billion euros ($1.9 billion), while adjusted operating profit came in at 118 million euros, both ahead of average analysts’ forecasts.

“We find this long-term guidance uncompromisingly brave but nearer-term metrics are encouraging,” said Credit Suisse analyst Simon Irwin.

Zalando shares had plunged 44 percent in the last year after the company cut its outlook twice, blaming slower sales growth on the unusually long, hot summer in Europe, with profits squeezed by rising competition from the likes of and H&M.

For 2019, Zalando said it was targeting growth in gross merchandise volume (GMV) - the value of products sold on its site - of 20-25 percent, and an adjusted operating profit of 175 million euros to 225 million euros.

Revenue growth slowed in 2018 to 20 percent from 23 percent in 2017, and is set to come in at 15-20 percent in the coming years, co-chief executive Rubin Ritter told a news conference.

But Zalando said GMV would become a more important metric in future as it expands its “partner” program, charging brands a commission to sell directly to consumers via its site and offering them logistics and marketing services - also a booming business at Amazon.

Zalando said it wanted to triple GMV to 20 billion euros by 2023/2024 from 6.6 billion in 2018, with the partner program set to account for 40 percent of the total by then, up from 10 percent now.


“There are only a handful of apps that make it to being part of a customer’s life,” said co-CEO David Schneider, citing the examples of Netflix for movies and Spotify for music.

“We aim to be this one fashion destination where the customer can fulfill all of their fashion needs,” he said, speaking at the group’s brand new headquarters in Berlin, built to house 2,500 staff with an on-site childcare facility and a roof-top basketball court.

Zalando’s site already had more visits than top fashion retailers like Inditex, H&M, ASOS and Adidas, Schneider said.

Morgan Stanley warned this week that the European online fashion market was more mature than previously thought, cutting its price targets for both Zalando and British rival ASOS.

In December, ASOS cut its sales growth forecast for the 2018-19 year to 15 percent from a previously cited 20-25 percent and its operating profit margin target to around 2 percent from 4 percent.

Zalando’s average order size fell again in the fourth quarter, but Ritter said he expected that trend to slow as the firm takes steps like introducing a minimum order threshold in Italy, helping to increase orders without negative feedback from customers.

Zalando’s sites had close to 1 billion visits in the quarter and attracted 1.3 million new active customers, the biggest quarterly increase in five years.

In the next few years it will roll out a membership program called Zalando Plus to more markets. The program offers extra convenient delivery for an annual fee - Zalando’s answer to Amazon Prime - and will be introduced in Switzerland and Italy this year.

Zalando is shaking up the responsibilities of its co-chief executives, with Robert Gentz adding marketing and sales, Rubin Ritter taking on responsibility for strategy, and operations head David Schroeder joining the top team as finance chief.

It is also promoting Jim Freeman, who joined from Amazon last year, as chief technology officer.

Reporting by Emma Thomasson; Editing by Sherry Jacob-Phillips and Susan Fenton