Fashion

Zalando sales fall as inflation dampens non-essential fashion spend


Berlin-based fashion e-tailer Zalando has published its second-quarter results:

  • Q2 Gross Merchandise Volume (GMV) flat compared to Q2 2021 at EUR3.8bn (US$3.87bn).
  • Revenue down 4% year-on-year to EUR2.6bn, mainly due to the transition of the business to a platform model.
  • Adjusted EBIT of EUR77.4m, resulting in a margin of 3%.
  • Zalando expects improved profitability and a return to growth in the second half of the year, confirming its outlook for the full year.
  • The company expects GMV to grow 3-7% to EUR14.8-EUR15.3bn, and revenue to grow 0-3% to EUR10.4-EUR10.7bn with an adjusted EBIT of EUR180-EUR260m in the same period.

Robert Gentz, co-CEO at Zalando, says: “We have demonstrated our agility as a team, showing that we can react quickly to adapt to the current environment while also making the experience of our customers even more inspiring and engaging. We continue to grow our customer base and are fully focused on our strategy and making selective investments across our business to ensure our long-term growth.”

Commenting on the numbers, Pippa Stephens, apparel analyst at GlobalData, notes Zalando’s sales have continued to falter, falling by EUR110.1m to EU2.62bn in Q2 FY2022, after becoming the latest in a spate of online fashion retailers issuing profit warnings in June , revising its revenue growth guidance for FY2022 from 12-19% to just 0-3%.

“While this is largely down to the reversal of consumers’ shopping habits, with many returning to physical stores after primarily shopping online during the pandemic, Zalando also attributes its struggles to the turbulent economic environment that is severely impacting shoppers’ propensity to spend. However , rival German online pureplay About You still expects to achieve significant revenue growth of between 25.0% and 35.0% for FY2022/23. Though it is bolstered by it being less established in the market, About You is likely to continue stealing market share away from Zalando. Zalando must emphasise the affordability of its offer to stand out among price-conscious consumers amid the ongoing surges in inflation.

“Despite experiencing a mid-single-digit percentage uplift in the number of orders it received, Zalando reported that the average basket size after returns decreased by 3.0% in Q2 FY2022. This is likely due to consumers becoming more cautious about their purchases to reduce non-essential spending. Its introduction of a minimum order value in 15 additional countries will help to drive up basket sizes, as well as making its fulfilment more profitable as prices continue to soar. As increasing returns rates are beginning to harm its profits, it should display its products on models in a range of shapes and sizes and offer personalised size guidance to make it easier for shoppers to find the right fit. The retailer has also reduced its marketing spend to tackle the impact of inflation on its margins, however, it must now ensure that it focuses on obtaining new customers through its social media channels instead, to prevent it from losing out to rivals.

“Zalando’s partner programme, which allows brands to take advantage of its platform and fulfilment infrastructure while still owning the stock themselves, has continued to experience strong growth. This has allowed its GMV to remain more resilient than its revenue, remaining flat versus last year. Its acquisition of the majority stake in fashion media brand Highsnobiety in July will aid this segment going forwards, as the platform intends to help Zalando create a more engaging online experience for consumers and brands. Since many other online platforms like Asos and About You are also Offering similar services, Zalando must ensure that it is providing it at a competitive cost to drive uptake in the future.”

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