Zalando’s sales have fallen as inflation cuts down on non-essential fashion expenses

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

• Q2 gross merchandise volume (GMV) was flat compared with Q2 2021 at €3.8 billion (US$3.87bn).
• Revenue fell 4% year-on-year to €2.6 billion, mainly due to the business transitioning to a platform model.
• Adjusted EBIT of €77.4m, 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 by 3-7% to EUR14.8-EUR15.3bn, and revenue by 0-3% to EUR10.4-EUR10.7bn with adjusted EBIT of EUR180-EUR260m.

Robert Jens, CEO of Zalando, said: “As a team, we’ve demonstrated our ability to adapt quickly to the current environment and make our customers’ experiences more inspiring and engaging. We will continue to grow our customer base and remain fully focused on our strategy and will make selective investments in our business to ensure our long-term growth.

Commenting on the figures, Pippa Stephenson, fashion analyst at GlobalData, said Zalando’s sales had slowed, falling by €110.1m to EU2.62bn in Q2 FY2022, the latest among online fashion retailers to issue a profit warning in June. Revising earnings growth guidance from 12-19 percent to just 0-3 percent in 2022.

“This is mainly due to a reversal in consumer shopping habits, with many returning to physical stores after shopping online mainly during the pandemic,” Zalando said. However, competitor German online preplay About You still expects strong revenue growth of between 25.0% and 35.0% for 2022/23. Even though it is gaining ground in the market, About You may continue to steal market share away from Zalando. Zalando needs to highlight the potential of its offering to stand out among the increasingly price-conscious consumers.

Despite experiencing a mid-single-digit percentage increase in the number of orders received, Zalando reported that its average basket size after returns decreased by 3.0% in Q2 FY2022. This is because consumers are more careful about their purchases to reduce unnecessary expenses. Introducing a minimum order price in 15 more countries will help increase basket sizes, while also making the bottom line more profitable while continuing to raise prices. As rising return rates begin to hurt profits, models should display products in different shapes and sizes and provide personalized sizing guidance to make it easier for shoppers to find the perfect fit. The retailer has reduced its marketing spend to offset the impact of price inflation on its margins, but must now ensure that it focuses on acquiring new customers through its social media channels to avoid losing out to rivals.

“The Zalando Partner Program, which allows brands to use its infrastructure while also owning the stock, continues to see strong growth. This allowed GMV to remain more resilient than revenue, remaining flat compared to last year. The platform’s acquisition of a stake in fashion media brand Highsnobiety in July will help drive this segment forward as the platform aims to help Zalando create a more engaging online experience for consumers and brands. As many other online platforms such as Asos and About You are also offering similar services, Zalando needs to ensure that it is offering it at a competitive cost to encourage future adoption.