Understanding the growth of Zalando

Zalando is the leading online fashion marketplace in Europe. Currently Zalando is active in 15 countries and is on track to generate sales of €2 billion in fiscal year 2014.

At Kinnevik’s capital market day 2014, they shared some insights on their growth story which I would like to share with you.

But let’s start with the product offering which ranges from shoes, fashion to accessoires. This makes Zalando the go-to fashion destination in Europe.

Zalando product offering

By looking at the investor presentation, we can gain interesting insights on how Zalando expanded its business.

  • First, they focused on building an online marketplace for shoes in Germany and thereby validating the general business model.
  • Then, they expanded into more products (category expansion) and more countries (geographic expansion) in order gain market leadership.
  • Lastly, they now focus on improving efficiency so that sales will transform into profit somewhen. :-)

Zalando milestones

Zalando’s expansion can be easily understood when looking at its sales development. In 2013, more than 60% of Zalando’s sales was generated outside of its core region (Germany, Austria, Switzerland).

Zalando sales development

One facilitator for improved efficiency is the setup of own logistic centers in Mönchengladbach, Brieselang, and Erfurt. This will be key to improve the profit contribution an order will make.

Zalando logistic center

In the past Zalando did not even generate a positive EBIT. Of course, partly this can be attributed to its tremendous growth. On the other hand, Zalando needs to show investors that they can earn a profit on their sales. From my point of view, they should now focus on decreasing logistic costs (setting up own logistic centers is a good signal), automizing processes as much as possible by using IT tools, and decreasing the return rate. If they succeed on all three factors, then having €2 billion in sales will translate into a nice profit. But I think, this will be a very very hard task given Zalando’s branding (“free shipping and you can return the products within 100 days for free”). At least the EBIT has improved over the last years. :-)

Zalando profit development

It will be very interesting to see how Zalando will improve its operational efficiency as Zalando is one of the biggest success stories from European entrepreneurs.

Please find attached the whole presentation.

Zalando_Kinnevik Rocket CMD 2014.pdf

Now, we would love to learn about your experience