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Zalando Breaks Records in Q2 as Digital Surges

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The pandemic has seen Zalando rapidly accelerate various aspects of its business as it moves toward becoming Europe’s “Amazon of fashion.”

The company’s adjusted EBIT rocketed 108 percent during the second quarter to 211.9 million euros. Revenues during the quarter rose 27.4 percent to 2.03 billion euros.

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Zalando had previously found it difficult to turn any large profit due to the high costs of its business model. This had been changing slowly, but was accelerated by the coronavirus crisis.

“We have come out of the first wave of this pandemic stronger than we went into it,” Zalando’s chief financial officer David Schröder said in a statement. “Many of our partners have intensified their business on our platform in the last months, and we have managed to successfully grow together. We are all very happy, especially given the extraordinary circumstances.”

The company’s numbers for the first half of 2020 were not quite as stunning, due to a drop in sales in the first quarter as consumers adjusted to the pandemic. However after they resumed online shopping, Zalando benefitted.

In particular, outside the German-speaking countries – Germany, Austria and Switzerland, also known as DACH – in which Zalando first established itself and where it traditionally does the best business, sales fell to negatives.

But as Schröder also pointed out, “if you Look at the two quarters, we see two very different pictures. So, in the first quarter, as we reported, the margin in the rest of Europe was pretty negative. However, we also saw very strong rebounds in the second quarter [in non-DACH areas], with a margin of more than plus 7 percent, which brings us close to break-even.”

Schröder argued that countries like Spain and Italy had been hardest hit by the coronavirus, so it was no surprise that those countries were struggling during the first weeks of the pandemic. “However,” he added, “they were also among the countries that saw the strongest rebound and that have contributed, to a very strong degree, to our new customer acquisition.”

Zalando recorded 1.29 billion site visits during the second quarter of the year, an increase of 31.4 percent from the previous year, and 34.1 million active shoppers, an increase of 20.4 percent. Schröder confirmed that the 3 million extra active shoppers made up “the biggest increase, in absolute terms, that we have ever recorded [in one quarter].”

Shoppers spent an average of 56 euros on their baskets over the first six months of the year. That spend has remained fairly steady over the past year.

Zalando ended H1 with revenue of 3.56 billion euros, an increase of 19.6 percent. Adjusted EBIT for the first half of the year was 113.3 million euros, indicating a rise of 4.7 percent.

With stores closed during the lockdown, more brands flocked to the platform to enhance their own digital offerings and keep selling. As a result, Zalando gained 180 further brands for its partner program.

One of these was the Arket label, part of H&M Group, which will be available on Zalando from Aug. 21, joining other H&M brands Weekday and Monkl. All of the H&M Group brands have their own brick-and-mortar stores as well as successful websites and the fact that the giant Swedish retailer is willing to pay to move some of its lesser-known products via Zalando can be seen as a sign of Zalando’s increasing efficacy in this area.

Zalando now also has 1,800 stores attached to its Connected Retail Program; the latter allows brick-and-mortar stores to sell their assortments on Zalando’s platform.

The business, which raised 1 billion euros in additional cash in July after launching two tranches of convertible bonds, is also planning a number of other new measures during the latter half of 2020, including the launch of a second-hand sales area. Most recently, it has tried to streamline interactions with partner brands via a new system, Zalando Direct.

As a result of the increase in partners, the volume of goods shipped through Zalando’s own logistics services, Zalando Fulfilment Solutions, or ZFS, grew 180 percent over the second quarter.

The company saw a reduction in return rates over the quarter, something that had a positive impact on Zalando’s revenues. But this effect is only likely to be temporary, Schröder noted. Customers didn’t send as much back because of the kinds of goods being ordered during the European lockdown. There were more beauty products and loungewear being ordered, as opposed to formal or occasion wear, like dresses, where an exacting fit was more important, the executive explained.

Gross Merchandise Volume, or GMV, which indicates how much stock has been sold via Zalando, rose 33 percent to 2.69 billion euros. The company has argued that as it transitions to a platform and stops selling its own products, GMV is a better indicator of its success or failure.

Market analysts, including at JP Morgan, Baader Bank and RBC Europe, reported that Zalando’s results were much as expected and that key indicators were positive. In particular, they praised the Berlin-based firm’s ongoing and speedy transition to a platform model.

Zalando raised its guidance for the year. The company now expects revenue to grow between 15 and 20 percent over the year, with an adjusted EBIT of between 250 and 300 million euros.