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May 5, 2022

Zalando confident on 2025 target despite Q1 loss

Co-CEO of German fashion e-tailer Zalando, Robert Gentz says the company remains confident it will achieve its ambition to reach more than EUR30bn (US$31.8bn) Gross Merchandise Volume (GMV) by 2025, despite the impact of macroeconomic factors in the first quarter.

By Beth Wright

Reporting its results for the first quarter today (5 May), Zalando said the period was impacted by macroeconomic factors, following strong growth from last year.

Berlin-based Zalando pointed to rising inflation and increasing costs for households which it said contributed to a more cautious consumer sentiment, while an eased pandemic environment prompted changes in consumer preferences.

Customers are shopping for more seasonal and trend-based items, and, depending on preference, they are veering towards either high-end assortment or shifting from mid-market towards entry prices, it explained.

The company’s gross merchandise volume rose slightly by 1% to EUR3.2bn compared to what it called “extraordinarily strong growth” in the first quarter of 2021. Revenue fell by 1.5% to EUR2.2bn, mainly due to the transition of the business to a platform model. According to Reuters, the decline marked the business’ first-ever sales drop.

Meanwhile, Zalando reported an adjusted EBIT loss of EUR51.8m compared to an adjusted EBIT of EUR93.3m a year prior, corresponding to a margin of -2.4%, mainly due to reduced gross margin as a result of more promotional activities to attract customers and increased fulfillment costs.

“Our business fundamentals are strong, and we are taking steps to improve our results. We are managing Zalando for the long term and have always used our business agility and adaptability to successfully respond to short-term challenges and consumer demand to emerge better and stronger. We remain confident that we will achieve our ambition to reach more than 30 billion euros GMV by 2025,” Gentz said.

Despite what it called a challenging quarter, Zalando hailed substantial progress to deepen customer relationships and transform the business to a platform model. Customer engagement continues to grow, it said, adding its platform services saw strong engagement.

While macroeconomic uncertainty continues, Zalando noted is managing its short-term challenges by refining its offering to adjust to the changing spending patterns of its customers; improving order economics and implementing cost-efficient solutions; and continuing to invest to provide best-in-class customer experience, partner services and e-commerce capabilities. 

“We are flexible and well-equipped to steer Zalando through this volatile market environment. This includes making the necessary adjustments to improve our performance,” said Dr Sandra Dembeck, Zalando CFO. “At the same time, we are continuing to invest through the cycle to drive long-term value. We are expanding our logistics network and advancing our platform to better serve our customers and partners, enable sustainable future growth, and set us up for long-term success.”

In order to offer customers faster delivery times, Zalando is adding more fulfillment centres to further strengthen its logistics network. Construction has already begun in Frankfurt, Germany, and Bydgoszcz, Poland, and, most recently, in Paris. Zalando will also be launching in two new markets, Hungary and Romania, in May.

While the company confirmed its full-year 2022 guidance, it expects sales to come in at the lower end of its 12-19% range, while GMV growth is forecast at the lower end of 16-23%. Zalando expects to achieve an adjusted EBIT at the lower end of EUR430-EUR510m.

Unsurprisingly tough quarter for Zalando

Pippa Stephens, retail analyst at GlobalData, notes Zalando’s performance echoes the trend being seen across the wider apparel market, whereby after experiencing extraordinary growth during the pandemic, online specialists are now struggling to sustain momentum now that they are up against such tough comparatives.

“While consumers favoured its superior digital proposition throughout the lockdowns in early 2020 and 2021, the reopening of physical retail has caused some spend to shift. Despite this decline, Zalando still maintains the revenue growth outlook outlined in its last update of 12-19%, a slightly more optimistic view than competitor Asos, which expects growth of around 10-15% for the year to the end of August. However, Zalando is likely to lose further market share to fellow German online fashion multi-brand retailer About You, which saw sales rise between 30.2%-38.4% for the three months to February 2022, so must find ways to maintain its leading proposition in Europe.

“Zalando’s performance has also been notably impacted by the recent surges in inflation, with consumers now cutting back on discretionary spending, focusing more on essential purchases rather than apparel. While the retailer has not yet specified whether it will be passing price increases onto consumers, it is likely to have to do so in line with its third-party partners, which will lead some consumers to trade down to more affordable alternatives.”

In March, Zalando said the company grew significantly faster than expected in 2021, positioning it well on track of its mid-term growth ambition to reach more than EUR30bn GMV by 2025.

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