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Why Zalando Expects Double-Digit Growth This Year

As fashion retail spirals deeper into the red amid the ongoing coronavirus crisis, one store expects to exit the pandemic with double-digit growth because more of its customers are buying sustainable clothing online.

Zalando, an apparel e-tailer based in Germany, says it expects to grow both its gross merchandise volume (GMV) and its revenue by 10 percent to 20 percent in 2020, exceeding not only market expectations but also the anticipated trajectory of the overall fashion industry, where losses of 30 percent are predicted in the wake of shuttered storefronts, rampant unemployment and plummeting consumer confidence.

The company says it’s poised for a profitable earnings before interest and taxes (EBIT) of between 100 million and 200 million euros ($180 million and $217 million) for the current fiscal year—compared with an EBIT of 224.9 million euros ($244 million) in 2019—and plans investments of between 230 million and 280 million euros ($249 million and $303 million).

This growth, Zalando says, will be driven by the accelerated shift in consumer spend from brick and mortar to online, plus its continued onboarding of partners such as Vaude, American Eagle Outfitters and Next Group brand Lipsy London, which have surged by the dozens to join the platform in the past three months.

Through its platform, brick-and-mortar retailers in Germany and the Netherlands shipped nearly 350,000 items to Zalando customers in April alone.

“We are confident that we will grow double-digit and at a clear profit in 2020. This will allow our partners to grow and gain market share in a challenging economic environment by building their business on Zalando,” co-CEO Rubin Ritter said in a statement. “Many of them have significantly increased their activities on our platform in the past weeks, and we will continue to make it easier for them to reach customers across Europe.”

In the first months of 2020, Zalando saw “significant growth” of categories such as children’s wear, athletic wear, and accessories and beauty products, the last of which tripled year over the year as customers sought to “bring the spa to their home.”

The e-tailer also saw a growing number of customers shopping for more sustainable fashion. In March, nearly 30 percent of customers bought into this category, which makes up roughly 10 percent of Zalando’s GMV but is set to grow to 20 percent by 2023. Its customers, Zalando says, can find nearly 35,000 more sustainable fashion items—from brands like Nudie Jeans, Patagonia and Veja—made from better-for-the-planet materials such as recycled polyester and organic and fair trade cotton, which are flagged with a “green” label.

In February, Zalando announced that Zign, its private label collection, will contain a minimum of 50 percent more sustainable materials (such as cotton sourced through the Better Cotton Initiative) or at least 20 percent recycled content as it seeks to become a “credible sustainability player” in the field. It’s also been testing a fleet of electric delivery vehicles to whittle its transportation footprint.

“These recent developments are testament to the resilience of our business model and the agility of our team, and generally make us confident for the full year,” said chief financial officer David Schröder.

Zalando serves more than 27 million customers in 17 countries, including Belgium, Denmark, France, Poland, Spain and the United Kingdom.

A recent report from Boston Consulting Group, the Sustainable Apparel Coalition and Higg Co. noted that sustainable companies will have an edge over their business-as-usual counterparts once the world emerges on the other side of the pandemic.

“Prior to COVID-19, sustainability was gaining momentum as an important consideration for consumers, companies and investors,” the report’s authors said. “The companies that succeed in maintaining their sustainability programs and commitments as they manage the crisis will gain a durable business advantage once it ends, and rebuild a more sustainable fashion industry after COVID-19.”

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