Yahoo Finance Amid Dip in Q1 Revenues, Zalando Touts Validity of ‘Ecosystem’
Even though first-quarter revenues at Zalando slipped 0.6 percent to 2.24 billion euros, the company’s executives pointed to increased profitability and said its new “ecosystem” business strategy is bearing fruit.
Earlier this year, Zalando said it planned to move from being a simple platform for fashion sales to a dual focus on consumer shopping and business-to-business activities. The latter includes fulfilment and logistics services, having brick-and-mortar retailers use Zalando’s platform to sell, or having big brands set up their own online shops-within-a-shop at Zalando.
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“Our updated strategy … is allowing us to cover a larger share of the fashion business,” Zalando’s chief financial officer Sandra Dembeck told an online press conference Tuesday. “2024 is the first year of our updated strategy, where we will return to growth while we continue to improve profitability. With a solid Q1 performance, we made a first step towards delivering these updated goals,” she said.
Last year, Zalando saw revenues decrease by low single digits almost every quarter, underscoring anemic demand in online channels after the end of the COVID-19 pandemic.
In its first-quarter accounting, Zalando split its revenues into consumer and B2B activities, the latter logging double-digit growth, Dembeck said. Although B2B remains far smaller than the consumer business — it sits at about 215 million euros currently compared to over 2 billion in consumer-related revenues — it had increased 13.4 percent in the first quarter, Dembeck pointed out.
Zalando’s profit picture improved in the first quarter as it cut back on budget lines like logistics costs and improved inventory management. Earnings before interest and taxes stood at 0.7 million euros in the first quarter. In the previous year’s first quarter, the company had been 26.2 million euros in the red.
On the consumer side of the ledger, the e-commerce giant’s gross merchandise value, or GMV, rose 1.3 percent to 3.27 billion euros.
Active customer numbers fell 3.3 percent to 49.5 million. Customers Zalando gained during the pandemic, when online shopping was their only option, have gone back to brick-and-mortar stores, Dembeck explained, adding that there was also less discretionary spending in general right now.
The number of customer orders also dropped 2.6 percent to 55.2 million. Average orders per customer and the value of the average purchase, or basket, also decreased slightly.
However, Zalando said that current customers were driving GMV, spending 296.70 euros on average in the first quarter versus 290.50 euros per customer last year.
“We do not want to compete in the ultra-fast fashion, ultra-low price point segment,” Dembeck said, responding to questions about whether other online retailers like China’s Shein were cutting into Zalando’s customer base.
“With our customer research, we saw a large part of our customer base telling us: ‘We want to continue shopping quality, but less thereof, so less frequently,’” she explained. “That doesn’t mean we won’t offer low price points as part of our assortment. But it’s the quality that differentiates us. We are working with branded product, sustainable product. So it’s really about those aspects that feature in our assortment and that’s how we differentiate ourselves from the other players.”
Part of leveraging the customer base includes making the online shopping experience more entertaining, convenient and interesting, Dembeck added. This includes new collaborations and brand ambassadors as well as a Zalando voice assistant for more convenient and personalized apparel searches. It also includes a new weekly trend-spotting feature that will use Zalando sales data to show customers emerging fashion out of six European cities: Paris, Berlin, Milan, Antwerp, Copenhagen and Stockholm.
Analyst reaction to the first-quarter numbers were mixed. At Baader Bank and the Royal Bank of Canada, analysts considered the better-than-expected EBIT praiseworthy, while at Bernstein, there were concerns about inflation and lowered customer metrics.
Zalando confirmed its full-year guidance. It expects revenue growth and GMV to be anywhere from flat to 5 percent over the course of 2024. EBIT is expected to come in somewhere between 380 million and 450 million euros.
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