The German fashion giant’s co-founder explains how the Berlin-based etailer has gone from start-up to grown up and reveals its ambitious plans to expand even further
Berlin-based etailer Zalando has passed some significant milestones in the past 12 months, reporting sales of €2.2bn (£1.6bn) for 2014 and making its first group-wide EBIT profit of €83m (£58m), as well as floating on the Frankfurt Stock Exchange in October.
But the company’s co-founder David Schneider believes Zalando has now entered its most exciting phase yet.
“Before the IPO, we built up a great retailer that worked, and worked profitably, but now we are working on how to strategically develop that over the next five years,” explains Schneider, the 31-year-old business graduate who wants to break down the barriers in fashion and open the “closed” industry to the public.
It seems fitting that he was speaking to Drapers at Zalando Fashion House, an event the company held alongside Berlin Fashion Week (6-10 Julys), which was open to fashion industry professionals and the general public. The week-long event at former department store and design space Kaufhaus Jandorf showcased new talents in fashion and art, with live music and talks.
“Now we are looking at what is happening [in the market], asking how will consumers in the future want to experience fashion and what will drive innovation, to create that strategy and work towards it.”
The two-pronged strategy involves improving the experience of online shopping for both customers and suppliers. “We want to innovate to get to the next stage in customer experience as well as providing a great platform for suppliers, which is why we invest a lot in technology,” he says.
Zalando, which employs more than 8,000 people at six locations across Germany and a small international buying team of around 20 people in Paris, opened its first technology hub outside of its home country in April this year, with a 6,450 sq ft Fashion Insight Centre at Dublin’s Silicon Docks.
The company employs around 15 data scientists and engineers at the site, with a target of 50 by the end of the year and 200 in the next three years, focused on building systems to quickly identify trends driven by bloggers, online content and social media and then promote relevant products on the site.
“Our goal is to create that personal boutique for each one of our customers and give them exactly what they’re looking for,” says Schneider, explaining the company can also harness a wealth of data gathered from consumers that can feed into these wider fashion trends.
“If you look at fashion ecommerce, it is still at the very beginning of its journey and there is so much you can do,” he says. “Fashion is so emotional and social but up until now, people have been creating retailers which are all about transactions. What we want to do is somehow democratise fashion and make it really transparent.”
It is this desire that led the company to agree to buy Bread & Butter - the once-grand dame of the Berlin trade show circuit that limped to its bitter end last month - out of insolvency for an undisclosed amount in June.
Although Schneider is tight-lipped about details until the insolvency proceedings are complete later this year, he says Zalando will open the event to consumers in 2016, as a kind of “festival of fashion”.
“Usually with these big fashion shows and fashion weeks, they have a very ‘closed’ concept, while stores always direct consumers to an opinion of what you should wear. Our idea is to open [the fashion industry] up and give everything to consumers to let them decide and choose.”
In another testament to this open philosophy, the company launched a free personal shopping service called Zalon in April that uses stylists employed by Zalando as well as those who aren’t. A standalone site (Zalon.de) launched initially in Germany and is linked to the main Zalando site featuring its brands and retailers.
Vice president of fashion Claudia Reth explains: “The cool thing is that it allows external stylists to log on so you can have stylists sitting in Paris or Milan logging onto our system, creating an assortment and then curating it for their personal circle of customers, and customers can choose which stylist they want.
“We have just got started with it but we got more than 1,000 requests for it before it was launched, so it looks like something for which there is big demand,” adds Reth, a Zalando veteran who joined the firm in 2009, just a year after it was formed.
Zalando currently works with more than 1,200 brands and retailers, many of which are from the UK, including Whistles, Topshop, Religion, LK Bennett, Oasis, New Look, Wallis, Vivienne Westwood, Rocket Dog, Gloverall, Zatchels, Glamorous and Gant.
The company prides itself on allowing brands and retailers to “steer their own course”, allowing them to log in and manage their own campaigns.
Mark Ashton, chief executive of women’s fast fashion label Little Mistress, who has been working with Zalando for three years, says: “Working closely always brings results, our sell-through and demand in Germany is almost unbelievable as they have allowed us to make our stamp on their market. They backed and welcomed us to ‘do what we do’ and it’s really paid off.”
Maureen O’Brien, buying and creative director at contemporary womenswear label Louche, echoes the sentiment: “They have big plans globally and thanks to the way they operate, they have a lot of supplier support, which definitely helps and so often gets overlooked.
“When we first started working with them [three years ago], the photography left a lot to be desired and the styling was pretty dreadful but it has totally turned around in the last year and I’m really proud to be on the site.”
In May this year, Zalando bought a 20% stake in UK integration technology firm Anatwine for a seven-figure sum, to allow brand partners to integrate their systems quickly and easily into its platform. The sales analytics and trend prediction service officially launched in June, providing real-time data on what brands are selling directly in order to allow retailers (both Zalando and others) to stock the most popular items.
“Customers are limited at the moment, either by what inventory is available in a store or what Zalando has in its warehouse, so the idea in the future is to be able to connect to all of that,” explains Schneider, who now sits on the Anatwine board.
“The Anatwine software can connect to the whole inventory of the brand so we can offer the customer a broader range. In the future, we might even be able to extend that stock availability to plug into what is in local stores and we could explore ways to deliver very quickly so we don’t always have to rely on a warehouse location,” he says.
An ardent online shopper, Schneider believes there will always be a place for bricks-and-mortar shops, but stresses they will function in different ways.
“It is not about having a store as an island that is only open to the circle of customers that walk by that store, and only showing the inventory that is actually in a store – the future is about connecting it all.”
He says it is unlikely Zalando will open standalone stores but working with other retailers could be a possibility, adding: “We want to be a platform – we could partner with all other players in the fashion industry chain, be it content partners, experts, logistics providers or other retailers because they all do a great job and could do their parts of it better than we ever could.”
Not surprisingly, Schneider says the company has “grown up a lot” since he and his university friend Robert Gentz began selling flip-flops from a rudimentary website in 2008. With a shared apartment in Berlin’s Torstraße that acted as both warehouse and office and a customer service line running to Schneider’s mobile phone, his first challenges were not how to gain sales – “we were surprised how you could get 30 orders a day with relatively little effort” – but rather, how to carry all the packages to the post office.
The company quickly grew “through a lot of trial and error” and in September 2009, Zalando launched its first television advertising campaign, which thrust the company onto the domestic stage.
“It was all directed by us and I was writing the script, which was really bad to be honest,” says Schneider, laughing and cringing when he recalls that someone in the office recently found the early clips on YouTube.
“We got a really good deal because it was during the financial crisis and, within a couple of months, we grew twenty-fold. After that was a really strange time because we didn’t have enough budget to cover all of it and we were fighting all the time to get stock in; it was like a trading floor with buyers on the phone all the time saying buy, buy, buy.”
In a fast ramp-up phase between 2011 and 2013, Zalando expanded to trade in the 15 markets it operates in today. While the DACH region of Germany, Austria and Switzerland makes up almost half of sales, he says the UK market, which launched in 2011, remains “very small” in terms of customers and cannot provide a specific country breakdown.
Zalando does looks to the UK, however, as a nearby talent pool to tap into for its ongoing growth. Vice president of womenswear Dalbir Bains, known for her five-year stint until 2005 at BHS where she was buying director, joined the firm earlier this year and says almost 10 people a week are moving to Berlin from the UK, in all areas of the business.
Schneider says one of the major challenges of the rapid expansion in headcount is keeping the entrepreneurial spirit that allowed the company to flourish in the first place, which is why he maintains the need to be able to act quickly. It helps to have a noticeably youthful team, where the average age has just reached 30.
“We brought in a lot of people, a lot of international people, to grow the teams like that but we gave them a lot of responsibility and we have to have a culture that allows people to live to their potential.
“For example, if you look at the office in Dublin, we had our first meeting at the end of January and we launched our first office there together with the Taoiseach Enda Kenny at the beginning of March.
“There’s so much speed in this market and if we don’t keep up then we’ll have a problem. Most companies that have failed in the last couple of years have done so because they didn’t keep the pace.”
Zalando: The milestones
2008: Zalando is founded in Berlin by David Schneider and Robert Gentz, initially as Ifansho before quickly changing its name, selling flip-flops and other footwear online
2009: Starts selling to Austria and develops first TV advertising campaign
2010: Rubin Ritter joins as managing director, expands into apparel and introduces ecommerce sites in the Netherlands and France
2011: Launches in the UK, Italy and Switzerland
2012-13: Starts selling to Sweden, Belgium, Spain, Denmark, Finland, Poland, Norway and Luxembourg, and opens a 1.4m sq ft warehouse in Erfurt
2014: Floats on the Frankfurt Stock Exchange
2015: Acquires a 20% stake in UK technology company Anatwine, opens technology hub in Dublin, launches exclusive sportswear collaboration with Karl Lagerfeld, agrees to buy Bread & Butter out of insolvency, and launches shopping platform Zalon