Europe’s biggest fashion retailer Zalando is betting that the current slump in online shopping is just a fluke and can avoid the kind of massive job cuts being undertaken by rivals, it told the Financial Times co-founder and co-CEO Robert Gentz.
Consumer-facing tech groups including Amazon, Klarna and Shopify have cut thousands of jobs this year as the online shopping boom that began in the first two years of the pandemic has stalled.
Berlin-based Zalando has also been hit hard, with revenues falling in the first half of the year for the time in its 14-year history as it suffered a €668m cash outflow and generated a €7m operating loss.
However, the group is confident it can avoid massive cuts. “Our plan is to hold employment steady through the end of this year,” Gentz said. As of the end of 2019, its workforce grew by a quarter to more than 17,000 employees.
“But we’ve become much more careful in hiring,” Gentz said.
Gentz describes market slippage as a temporary blip that won’t have a lasting impact on the retailer.
Zalando listed in Frankfurt in 2014, but its share price has fallen 68 percent over the past year to leave the group with a market capitalization of less than 8 billion euros. “Two years of extraordinary growth are behind us. When I think about the fashion industry, my [optimism] it hasn’t changed at all,” Gentz said.
He said revenue was still 60 percent higher than in 2019, the last year that was unaffected by the pandemic. He noted that just over 3 percent of all clothing purchases in Europe are processed by Zalando, which counts 10 percent of Europe’s population as active customers.
Gentz is convinced that Zalando’s market share can triple in the long term. “What has changed a little bit is the trajectory to get there.”
He admitted that Zalando initially struggled to grasp the scale of the crisis in consumer confidence caused by the war in Ukraine and rising inflation, but said the group has gone into damage control mode. “We just have to play a little bit more defensively,” he said — not an easy change for a company that has grown about 25 percent every year since 2014.
Zalando has been able to offset the carrier and packaging cost inflation it has faced so far, Gentz said, adding that the company was focusing on its profitability. It has reduced marketing expenses and postponed the construction of new logistics centers. It also reduced free shipping offers to limit small orders at a loss.
It also argued that the 29 percent drop in net cash this year, to 1.6 billion euros, was driven by temporary factors such as a surge in inventory caused by a sudden drop in demand.
This stands in contrast to late last year, when damaged global supply chains hampered the industry.
The runoff from higher inventories will ease in the second half of this year, Gentz said, while deferred investments will also help preserve cash. “Cash is not a concern for us.”
