Europe’s largest online fashion retailer bets sales slump is just a blip

Europe’s largest online fashion retailer Zalando is betting the current slump in internet shopping is just a blip and it can avoid the kind of mass job cuts being undertaken by rivals, co-founder and co-chief executive Robert Gentz told the Financial Times.

Consumer-facing tech groups including Amazon, Klarna and Shopify have cut thousands of jobs this year as the online shopping bonanza that kicked off in first two years of the pandemic has ground to a halt.

Berlin-based Zalando has also been hit hard, with revenues declining in the first half of the year for the time in its 14-year history as it suffered €668mn in cash outflows and generated €7mn of operating losses.

However, the group is adamant it can avoid mass cuts. “Our plan is to keep employment by the end of this year steady,” said Gentz. Since the end of 2019, its workforce increased by a quarter to more than 17,000 employees.

“But we have become much more cautious in hiring,” said Gentz.

Gentz describes the market ructions as a temporary blip that will not have a lasting impact on the retailer.

Zalando listed in Frankfurt in 2014 but its share price has fallen 68 per cent over the past year to leave the group with a market capitalisation of less than €8bn. “Two years of enormous growth lie behind us. When I think about the fashion industry, my [optimism] has not changed at all,” said Gentz.

He said revenues were still 60 per cent higher than in 2019, the last year that was unaffected by the pandemic. He noted that just above 3 per cent of all of Europe’s clothes purchases are processed thought Zalando, which counts 10 per cent of Europe’s population as active customers.

Gentz is confident that Zalando’s market share can more than triple over the long term. “What has changed a bit is the trajectory of getting there.”

He acknowledged that Zalando initially struggled to grasp the magnitude of the crisis in consumer confidence triggered by the Ukraine war and surging inflation, but said the group has switched into damage-control mode. “We just need to play a bit more defensively,” he said — not an easy change for a company that has grown by about 25 per cent each year since 2014.

Zalando has been able to offset the carrier and packaging cost inflation that it has been facing so far, said Gentz, adding that the company was focusing on its profitability. It has scaled back marketing spending and postponed the building of new logistics centres. It also scaled back free shipping offers to limit lossmaking small orders.

He also argued that the 29 per cent slump in net cash this year, to €1.6bn, was driven by temporary factors such as a surge in inventory triggered by the sudden drop in demand.

That stands in contrast to late last year, when gummed-up global supply chains hampered the industry.

The drain from higher inventories will peter out in the second half of this year, said Gentz, while the postponed investments will also help to preserve cash. “Cash is not a concern for us.”