Following today’s release of Zalando’s figures for Q1 FY2023; Pippa Stephens, senior apparel analyst at GlobalData, a leading data and analytics company, offers her view: “Zalando exhibited muted growth in Q1 FY2023, with revenue rising by just 2.3% to €2.3bn, as inflationary pressures across Europe continued to dampen fashion demand and a return to physical stores hindered online spending. Its fashion store revenue fell by 3.5%, with the DACH region performing particularly poorly, falling by 5.7%. This is compared to a decline of 1.8% for the rest of Europe, which was partially supported by entry into new markets like Hungary and Romania in the prior financial year. Zalando’s growth was purely driven by its off-price proposition which soared by 32.9% to €415.5m, boosted by the relaunch of Lounge by Zalando in January 2023, a dedicated website and app providing limited time offers and discounts on premium brands, which will have had high appeal among consumers seeking ways to save money. As a result, Zalando has maintained its full year guidance of revenue growth between -1% and 4%.
“After experiencing significant losses in the comparative period of Q1 FY2022, and despite rising costs amid inflation, Zalando’s adjusted EBIT this quarter almost broke even, with a loss of only €0.7m. It attributes this improvement to bigger basket sizes, which have allowed it to lower fulfilment costs, alongside an 8ppt increase in share of its partner program to reach 39% of fashion store GMV. This program allows brands to take advantage of Zalando’s platform and fulfilment infrastructure while still owning the stock themselves, ultimately minimising the risks for Zalando. The platform has also reportedly been scaling back the number of brands available on its website to provide a more curated range, which should allow for better sell through of its remaining offering and result in improved profitability.
“Zalando has also invested considerably in technology to enhance the shopping experience, including its virtual fitting room which pilot launched last month, where shoppers can try items on digital avatars created by entering their height, weight and gender. While this new technology is currently only available across 22 styles of jeans, it has potential to notably improve returns rates if rolled out for more options in the future, since customers can see how items will look on their own body shape before committing to a purchase. In April, Zalando also announced that it is developing a virtual assistant powered by ChatGBT. This will allow customers to search for items based on their specific fashion needs or criteria, making it much easier for shoppers to find suitable products within its extensive assortment.”
