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Zalando Idea Proposal (ZAL.DE)

Zalando Idea Proposal (ZAL.DE)
 

Are Zalando’s partner brands expanding their use of Zalando Fulfillment Solutions?

Report Available: October 2, 2019

 

Blueshift’s initial research found Zalando with a solid Q2, growing revenue and Gross Merchandise Volume (GMV), and expansion of its Zalando Fulfillment Solutions (ZFS) as it transitions its logistics platform to have a stronger presence with its partner brands while expanding its product assortment available for customers. Yet not all partner brands are going to embrace ZFS as the cost savings and efficiencies may not be significant enough to offset concerns about inventory control, products losing value sitting in warehouses, and certain products that may not perform well on the platform.

 

Observations

  1. Zalando’s GMV increased nearly 24% year to year in Q2 driven by a 9.2% increase in average orders per active customer and a customer base which grew 15% from a year ago. Revenue climbed 20% year to year. The increase in GMV was higher than in revenue because of strong growth in Zalando’s Partner Program, and the resulting increase in product assortment, which is fully reflected in the GMV metric. Zalando raised its profitability outlook for the second half of the year and expects full-year GMV growth of 20% to 25%.
  2. The Partner Program enables independent brands to integrate directly with Zalando, resulting in a broader assortment of products Zalando has to offer its customers. Brands maintain control over their products and prices, shipping directly to customers or using ZFS. About 10% of Zalando’s GMV is through its Partner Program and the rest is wholesale.
  3. Zalando Fulfillment Solutions partners with brands to warehouse their products and help them benefit from Zalando’s scale and logistics infrastructure to lower the cost of shipping. This summer, Zalando announced that more than 100 partner brands have signed on with ZFS. Zalando takes care of order processing, packaging, and everything from shipping to returns. Instead of small retailers shipping their goods independently, Zalando can combine shipment of these products with others in its warehouses, allowing retailers to split the costs so brands can expand their offerings through Zalando and the company can entice more brands to come on board. About 30% of Partners are using “Fulfilled by Zalando” and the company expects it to grow to 75%.
  4. Zalando’s fulfillment costs in proportion to revenue decreased by 1.0 percentage point year to year in Q2 because of lower logistics costs from a more favorable assortment mix and greater warehouse efficiency. It announced in July plans to build a 140,000 meter fulfillment center in the Netherlands with a capacity for 16 million items to help growth in Western Europe. The center will be online in the summer of 2021.
  5. Zalando Fulfillment Solutions is not for everyone. Brands may not want to use Zalando for all their products, if at all. Luxury brands get less cost savings from being in Zalando warehouses given the expense of their items and shipping costs which are small by comparison. Apparel companies may not like Zalando warehouses because their products can lose value if they sit longer than a month or two, to say nothing of the cost of returning unsold items back to the retailers. Companies may not want to split their inventory into multiple Zalando warehouses, making inventory management more difficult in having the right inventory in the right location, which could lead to more discounting than desired.

 

 

What do brands really think of Zalando Fulfillment Solutions offering? Are more retailers in the Partner Program switching to Zalando Fulfillment Solutions? How realistic is it that Zalando will have 75% of its Partners using Zalando Fulfillment Services? How much of a retailer’s product mix are they placing in Zalando’s warehouses? What benefits are retailers getting from using Zalando Fulfillment Solutions? Are these benefits convincing brands to make more products available in Zalando’s warehouses? Which products are best for Zalando Fulfillment Solutions? Which are not? What are the most common concerns from retailers regarding Zalando Fulfillment Solutions? Are these concerns big enough to discourage brands from using Zalando Fulfillment Solutions? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Retailers using Zalando’s Partner Program.  

 

 

Companies: Zalando SE (ZAL.DE), Amazon (AMZN)

 

Research Begins: September 16, 2019

 

 

To see other ideas Blueshift Research is currently working on, please click here.

 

 

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