Zalando’s sales fall as inflation cuts into non-essential fashion spending

Berlin-based e-fashion company Zalando has released its second quarter results:

  • Second quarter gross merchandise volume (GMV) flat compared to second quarter 2021 at €3.8 billion ($3.87 billion).
  • Revenue fell 4% year-on-year to €2.6 billion, mainly due to the business transitioning to a platform model.
  • Adjusted EBIT of 77.4 million euros, resulting in a margin of 3%.
  • Zalando expects improved profitability and a growing return in the second half of the year, confirming its outlook for the full year.
  • The company expects GMV to grow 3-7% to EUR 14.8-15.3 billion and revenue to grow 0-3% to EUR 10.4-10.7 billion with an adjusted EBIT of EUR 180-260 million in the same period.

Robert Gentz, co-CEO at Zalando, says: “We have demonstrated our agility as a team, showing that we can react quickly to adapt to the current environment, while also making our customers’ experience even more inspiring and engaging. We continue to grow our customer base and are fully focused on our strategy and making selective investments across our business to ensure our long-term growth.”

Commenting on the numbers, Pippa Stephens, apparel analyst at GlobalData, notes that Zalando’s sales have continued to fall, falling by €110.1 million to €2.62 billion in the second quarter of 2022, as it became the latest in a string of of online fashion retailers that issued profit warnings in June. , revising revenue growth guidance for FY2022 from 12-19% to just 0-3%.

“While this is largely due to changing consumer shopping habits, with many returning to brick-and-mortar stores after having mainly shopped online during the pandemic, Zalando also attributes its difficulties to the turbulent economic environment which is severely impacting shopper attitudes to spend. However, German online rival Pureplay still expects to achieve significant revenue growth of between 25.0% and 35.0% for FY2022/23. Although boosted by the fact that it is less established in the market, Around You is likely to continue to steal market share from Zalando. Zalando needs to emphasize the affordability of its offering to differentiate itself among price-conscious consumers amid continued increases in inflation.

“Despite experiencing a mid-single-digit percentage increase in the number of orders it received, Zalando reported that the average basket size after returns decreased by 3.0% in Q2 FY2022. This is likely because consumers become more careful about their purchases to reduce non-essential spending. Its introduction of a minimum order value in 15 more countries will help increase basket sizes as well as make fulfillment more profitable as prices continue to rise. As rising return rates begin to hurt its profits, it must display its products on models in a variety of shapes and sizes and offer personalized sizing instructions to make it easier for shoppers to find the right fit. . The retailer has also reduced marketing spend to tackle the impact of inflation on its margins, however, it now needs to ensure it focuses on acquiring new customers through its social media channels to prevent losing out to rivals.

“Zalando’s partner program, which allows brands to benefit from the platform and fulfillment infrastructure while still owning the shares themselves, has continued to experience strong growth. This has allowed its GMV to remain more resilient than its revenue, remaining flat compared to last year. The acquisition of a majority stake in fashion media brand Highsnobiety in July will help this segment move forward, as the platform aims to help Zalando create a more engaging online experience for consumers and brands. As many other online platforms such as Asos and About You are also offering similar services, Zalando needs to ensure it is offering it at a competitive cost to drive future usage.”

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