Zalando puts physical retailers’ digitalisation at heart of growth strategy
The enforced shop closures caused by the pandemic have highlighted how Europe is lagging behind in terms of physical store digitalisation. German fashion e-tailer Zalando has already positioned itself in this field, and is keen to snap up the opportunity. Zalando’s Connected Retail solution, a tool to digitalise physical stores, is active in nine European countries and will be introduced this year also in France, Belgium, Switzerland and Italy.
Zalando’s objective is to account for over 10% of the European fashion market. The e-tailer launched Connected Retail in October 2018 (read the article here), after a test in 2016 with the Adidas Originals and Performances flagships in Berlin. After Germany, the tool was successively deployed in the Netherlands, Denmark, Poland, Spain, Sweden, Norway, Finland and Austria.
Connected Retail is based on the concept of stock harmonisation, and makes it possible to verify in real time the inventory of connected physical stores. The benefits are two-fold: retailers are able to sell their existing physical inventory to a broader, web-based public, while e-tailers are able to limit the risk of running out of stock, and also to offer consumers the ship-to-store option, redirecting orders to shops that have availability of the requested products. Technically, this is a sophisticated solution, but one whose benefits have been emphasised by the pandemic. Several e-tailers and service providers have already adopted it.
These considerations have led Zalando to make Connected Retail one of its three main growth drivers for the future, in addition to customer loyalty and the sustainability of the site and its product range. Increasingly so after lockdowns in Europe have, according to the German group, massively prompted physical fashion stores to turn to its services. By the end of 2020, some 2,400 physical stores had linked up their inventory to Zalando’s website via the latter’s Partner Programme. Numbers burgeoned at the start of this year, with an extra 3,400 stores joining the programme by the end of February.
Connected Retail isn’t a novelty, but until last year its success and growth rate had been limited. However, according to figures presented by Zalando on Tuesday March 16, the number of shops connected via the tool multiplied by a factor of no less than 4.8 in 2020. Crucially, sales for the stores linked to Zalando via Connected Retail have reportedly multiplied by a factor of 12.7 between 2019 and 2020. Connected Retail is one of the areas where Zalando’s growth potential is highest. In the presentation, Zalando underlined how the solution could potentially enable the site to tap a market of 300,000 European fashion stores, currently accounting for 75% of fashion retail sales in Europe. While preparing to extend Connected Retail to four new countries, Zalando has set itself the objective of trebling the number of shops adopting the solution by the end of 2021.
“The expansion of Connected Retail highlights the value retailers can unleash by combining offline and online [resources],” said Zalando’s co-CEO David Schneider on Tuesday. “Last year, the sector was faced with a number of challenges, and we have seen Zalando’s partners engage [with us] more than ever. We are determined to be part of the solution, and to support our partners as they seek ways of expanding their online business,” he added.
On March 16, Zalando indicated that its business volume grew 30.4% in the 2020 financial year, generating sales worth €10.6 billion. The e-tailer’s revenue grew as a result by 23.1%, reaching €7.9 billion, while EBITDA improved by 61.3%, to €581.5 million. The health emergency has contributed to a 29.1% rise in site visits in 2020, up to 5.3 billion, of which 86.3% were made via mobile devices. Like many other e-tailers, Zalando observed that consumers have both bought more frequently and boosted their average purchase basket.
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