Fashion and lifestyle etailer Zalando has unveiled ambitious plans to double in size by 2020. Drapers takes a closer look at how it expects to achieve this growth.
Founded in Germany in 2008 as a footwear retailer, Zalando reached a gross market value of €5bn (£4.4bn) in 2017. It wants to double this to €10bn (£8.8bn) by 2020 by focusing on global expansion, new categories, payment flexibility, personalisation and delivery.
Zalando is launching into Ireland and the Czech Republic for the first time this summer, giving it a presence in 17 countries to build on its existing 23 million active users with a potential additional reach of 15.4 million customers in “adjacent countries”.
Kantar Consulting ecommmerce specialist and senior analyst Alvaro Morilla Villanueva says a focus on Ireland could be a smart choice: “Zalando’s presence in the UK is relatively small. By focusing its strategy on the Republic of Ireland, the company mitigates any issues it could face in the future as Brexit negotiations proceed.
“What’s more, Asos has a stronghold over the UK and players such as Missguided and Boohoo already have a significant business in the British market. The Republic of Ireland is far less saturated and Zalando has a much better chance of competing in this market, particularly when it comes to reaching under-served regions.”
Morilla Villanueva says Zalando’s popularity in these new regions is likely to be boosted by its ability to take new brands, such as H&M groups’s Monki and Cheap Monday, to customers in locations that do not represent significant investment opportunities for the brands themselves: “In some cases, Zalando may wind up being the exclusive distributor of some of these brands simply by dint of being the only accessible platform that sells them.”
Growing new categories
Zalando highlighted beauty as an “under-developed market and potential growth opportunity”, as the category is currently dominated by traditional offline players. It cites cross-category purchasing as offering huge potential to increase basket size. It currently offers 142 beauty brands – from Max Factor and L’Oréal through to lesser-known brands such as Verso and Ellis Faas – and 1,900 new items are “activated” every day.
Retail analyst Richard Hyman tells Drapers: “Zalando’s [beauty] offer is relevant and tight, and it has a handwriting that its stick to. As a business, it has scale and momentum in this market, and that’s very powerful. A few years ago, no one had heard of Zalando in the UK. It’s all about building a momentum and maintaining it.”
Zalando says its ambition is to offer customers an “unmatched level of convenience, tailored to fashion”. A key part of this strategy is the range of payment options, which includes “try now and pay later”, along with a 100-day returns policy.
Shoppable content and personalisation
In Germany opinion leaders’ and influencers’ level of awareness of Zalando on Instagram increased from 8% in February to 20% in April. Conversion rates of customers who interacted with Zalano’s “Discover outfits” feature were double (101%) those who did not in the same period. It says it uses inspiring, shoppable content to connect with its customers emotionally, driving both engagement and retention.
Morilla Villanueva says: “In terms of Zalando’s brand image and appeal, it has been quick to embrace digital trends in the fashion space, becoming one of the best-in-class examples for personalisation. Its mobile app is easy to use and full of tools and content. This focus on mobile makes perfect sense, considering its mobile order share is over 50%.
“Zalando is great at what it does – the ease of the platform, selection and personalisation tools are best in class. However, it will have a tough time beating Asos, which is not a novice in any of these areas.”
Delivery and logistics
Zalando operates eight international warehouses, 17 domestic carrier integrations and two express carriers, and has 14 same-day destinations. It has expanded its European delivery network to increase speed and has trialled a premium delivery service in Berlin, which includes same-day and express. Its basket size increased by 16% as a result. It is now scaling this delivery service as part of its premium membership programme, Zalando Plus, to reach 13 more cities across Germany.