The German company’s share price has come under pressure as Amazon’s big push into fashion has prompted Zalando to increase investment in logistics and technology to keep pace, forcing it to trim profit forecasts.
But Zalando sees its new business line giving it an edge over its U.S. rival.
Launched in Berlin in 2008, Zalando has grown fast to sell almost 2,000 brands in 15 countries via a classical e-commerce model, buying in stock to be sold online and shipped from its vast warehouses.
It started complementing that with a partner programme two years ago to increase choice, charging fashion labels a commission for selling additional stock through the Zalando website and shipping the goods direct to customers. The brands, meanwhile, can keep control of pricing and presentation.
After a pilot with Adidas, Zalando has signed up 700 brands and the programme now accounts for nearly 10 percent of the total value of goods sold on its site, with a long-term target of 20-30 percent.
Carsten Keller, Zalando’s managing director of partner solutions, expects the scheme to support profitability and cement relationships with brands, some of which remain wary of listing on Amazon, where third-party sellers compete on price.
“The brands are put in the driving seat. They keep control over the assortment, prices and brand representation. It is a very different environment to other market places like eBay or Amazon,” Keller told Reuters.
PROFITABILITY
German shoe brand Birkenstock is withdrawing from Amazon because of concerns over counterfeit products, while luxury brands last week won the right in Europe to stop retailers selling their products on online platforms.
Zalando says the partner scheme’s expected profitability should help the company to reach a long-term target for an operating margin of 10 percent. But analysts have their doubts, on average forecasting 5.9 percent by 2020, up only slightly from the close to 5 percent Zalando expects in 2017.
British rival ASOS, by comparison, forecasts a stable operating margin of 4 percent but is growing sales faster than Zalando and is seen as better insulated from Amazon’s advance thanks to a focus on fashion-mad youngsters.
“We think expectations look demanding, as does the company’s longer-term margin guidance, given Zalando’s desire to push for market share, more intense online competition and expansion into lower-margin regions,” said RBC analyst Richard Chamberlain.
Keller, a former McKinsey consultant who joined Zalando last year, says the partner programme was born because Zalando realised it was losing millions of potential sales when it ran out of stock on top-selling items.
“It is growing with very high momentum. We doubled it over the past 12 months,” Keller said. “It adds substantial value and has a positive effect on the bottom line.”