Zalando | E-commerce retailer
Zalando is one of Europe’s largest fashion retailers. In this article we will look at 1) what is Zalando?, 2) products, 3) business model and key components, and 4) learning from Zalando’s success.
WHAT IS ZALANDO?
Zalando is an ecommerce retailer in the fashion industry that sells shoes, clothes as well as other related fashion and lifestyle products. The company has operations in several countries across Europe including Germany, Austria, Switzerland, France, Belgium, the Netherlands, Italy, Spain, Poland, Sweden, Denmark, Finland, Norway, and the UK.
The company was created in Germany in 2008 by Robert Gentz and David Schneider. The founders received guidance from Rocket Internet, one of the world’s largest e-commerce centric venture capital firms and a startup incubator. Rocket was founded by the Samwer brothers in 2007. The company identifies and replicates successful ecommerce businesses from other countries in emerging markets. A similar situation was the basis for the creation of Zalando’s which is often thought of as a European version of the successful and popular US online retailer, Zappos.
With Zappos as an inspiration, the Zalando founders created a company called fliptops.de and sold shoes from a Berlin basement. Fliptops eventually turned into Zalando with a $70,000 investment from Rocket. By 2010, the company had moved well beyond shoes into many different categories or products and started to achieve annual revenues of close to $200 million.
Zalando began as a German company in 2008. It began its international expansion with deliveries to Austria in 2009. By the following year, the company launched local language websites in France and the Netherlands. In 2011, the company was well on its way to cementing its place as a multinational by expanding into the United Kingdom, Italy and Switzerland, as well as a separate site for Austria. The company further expanded to Belgium, Spain, Sweden, Denmark, Poland, Finland and Norway in 2012.
The company shifted focus in 2013 to slow down entry into new markets and focus on growing in the existing ones. The company also aims to further improve its processes, systems and infrastructure to ensure that customers continue to receive the best customer service possible.
The company has announced plans for its anticipated initial public offering on the Frankfurt Stock Exchange in the second half of 2014. The company has plans to sell ten or eleven percent stake and with its continued strong performance, it is expected that no current investors will sell out during the IPO. Instead, the IPO is expected to consist of only new shares. The IPO is set to be the biggest in the German technology sector since 2000, when Deutsche Telecom was listed on the stock exchange.
Currently, the largest stakeholder is a Swedish Investment firm, Kinnevik with a share of 36 percent. Kinnevik remains convinced on Zalando’s promise.
Zalando, arguably the largest online fashion retailer in Europe, offers over 1,500 labels and brands including sports brands, high street stores, accessories brands and home textile suppliers. Some of the popular brands include Calvin Klein, Escada, Pier One, Warehouse, Max Factor, and Agnes b makeup. Sports brands include Adidas, ASICS, and Nike. There are also some brands that sell exclusively on the website including Apepazza and Femme.
BUSINESS MODEL & KEY COMPONENTS
The Zalando business model is obviously hugely successful and continues to be the right way to do business for the company. Any business model is made up of several components that interact with each other. The Zalando’s business model has the following components.
Business Model Components
Since the company manages its own customer service and logistics, its key partners are investors who have provided the required funding to grow and expand the business and the suppliers who stock their products on the online store.
Zalando has many investors who have been with the company long term. These include:
- Rocket Internet (1%)
- European Founders Fund (Possibly 17%)
- Kinnevik (36%)
- Danish billionaire businessman Anders Holch Povlsen (10%)
- Investment firms DST Global (8%) Holtzbrinck Ventures (8%) Tengelmann Ventures (6%)
- Another 15 percent of the company is owned by ‘other’, unnamed shareholders, but these are likely to include J.P. Morgan and Quadrant Capital
These partners include both high end brands as well as high street labels that sell their product to Zalando to be sold in turn to the customers.
Any business performs hundreds of activities in their daily operations. However, the key activities are those that form the core of the company. Key activities for Zalando include:
- Marketing – Promoting the webpage and products to the current and new target customers
- Sourcing – Buying from existing suppliers and identifying new ones, as well as the logistics or acquiring these products
- Fulfillment – Managing all logistics associated with getting the products to the buyer
- Customer Service – Zalando prides itself on its excellent customer service that is available at all times
- Platform (IT) Management – The webstore is the only sales channel for the business and needs to be constantly maintained and updated to keep it functioning smoothly.
The key resources that support the business include:
- Strong brand
- Loyal investors
- Efficient logistics
- Marketing expertise and experience
The value proposition or the unique selling point of a company is what sets it apart from competition. Though inspired by its United States based counterpart Zappos, Zalando has managed to leverage its value proposition successfully in a very different market. The key elements of the Zalando value proposition are:
- Excellent customer service
- Free Shipping on all orders
- Free returns
- Immense variety within and among product categories
Since strong customer relationships and support are a core element of the business, this aspect of the business model is extremely important for the company. There are anecdotes from the founders where they have spent time personally taking feedback from clients over the phone and using this feedback to make the business better. Key channels of communication with the clients include:
- Call centers
- Online chat and email
- Social media communication and interaction
Though the website stocks for men, women and children, their primary market segment is female. Within these three segments, there are further divisions according to the nature of the brand. Some of Zalando’s broad market segments can include:
- High End Brands
- High Street Brands
The company’s primary sales channel is the online store. The web based store needs to be remain clean, focused, easy to navigate and browse through. It also needs to be updated in real time and continue to work smoothly at the back end to ensure that customers face no hassle in navigating through while making purchases.
Costs associated with the running of the business include the following:
- Human Resource
- Platform (IT)/Website Development & Maintenance
- Inventory Management
- Acquiring Inventory
The primary source of revenue for the firm is sales and hence margins from product sales from the online store.
The Zalando USP
Much like its inspiration, Zalando has built excellent customer service into the core of its business model. The company offers free shipping on all kinds of orders, as well as free returns. The reason behind this move is to encourage those shoppers who may be apprehensive about making purchases online because of potential extra charges or the inability to try a shoe or clothing item before buying.
Zalando is also focused on making a complete shopping experience its priority. The website offers a range of items to customers including shoes, clothes and accessories according to the latest trends and fashion for women, men and children from a variety of brands and labels. The website also offers sports items, home and living products and beauty products making the shopping experience a holistic one.
The European markets require a truly multinational brand to offer customized stores, products and service according to local sensibilities and preferences. Zalando has been successfully doing this with individual websites in all its markets. Items are curated perfectly to fit the requirements of that market’s customers.
LEARNING FROM ZALANDO’S SUCCESS
Lessons for Entrepreneurs
Finding the Niche
Entrepreneurs are increasingly advised to disrupt an industry and make this disruption the basis of their success. The disruption can be a new idea, a new product or a new way of doing things. This disruption questions the conventions of a particular field and hence allow a start up to achieve success.
The Zalando story, however, is a different one. Rather than disruption, the company went down the more traditional business path of identifying a gap in the market, finding out the best way to fill this gap and then designing business practices to do this well. In addition, the company took its time with the investors’ money and slowly built up the business on the basis of a sound core principle of continued excellent customer service. From the very beginning, both the founders gave due importance to customer feedback and used this to design the business to where it stands today. This paid off when the company was awarded a “Best Grade A” in customer satisfaction and service by a German rating standard service just once year after it officially launched.
The lesson Zalando teaches any startup is that disruption or not, the focus needs to be kept on the end goal or the consumer whose satisfaction will eventually form the basis of any company’s long term success.
Tips from Oliver Samwer
Oliver Samwer is one of the somewhat controversial brothers behind the ecommerce venture capital giant and startup incubator, Rocket International. Zalando is among the many iconic businesses that the incubator has supported and funded. Samwer’s views are often polarizing and he often faces criticism but there is no doubt about his success and brilliant business acumen. There are a few things entrepreneurs can learn from Samwer however. These include:
- Know Your Numbers: It is vital for any new business owner to know all their facts, figures and numbers down to the very last digit. Samwer is known for demanding micro level figures relating to any businesses that he is involved with and shows a good understanding of these no matter what the industry.
- Focus on Details: Beyond the numbers, there is no detail that the business owner should miss. Whether it relates to marketing or recruitment, PR or procurement, it is vital to have all the information to make sure any potential changes and their effects are understood in time.
- Don’t be Afraid of Trial and Error: No one is born knowing the right or wrong way of doing things. There should always be a willingness to try out an experiment or a new strategy. The important thing is to adjust quickly if an experiment does not work and make sure that a viable plan B exists to ensure that the situation is controlled. Samwer believes that the key to innovation lies in its implementation.
- Don’t be Afraid of Making Tough Decisions: Whether positive or negative, all decisions must be approached with a proactive mindset and there should never be any avoidance of a difficult situation. Quick decisions can save a business and make the difference between success and failure. This often means being ruthless and disliked as an unpopular decision may not be taken well. The key here is to make sure that all decisions are strategic and based on rational thought and logic.
- Be Creative and Innovative: Oliver Samwer is known for his ingenuity and innovation. From marketing campaigns to other aspects of his businesses, he uses the methods that work and create successful outcomes.
- Be Persuasive: An entrepreneur wears many hats in a single day. These different roles mean different interactions and the need to convince different people of the right things. These people could be partners, suppliers, customers or new employees. A persuasive person will get things done and be able to assess immediately what the person in front of them wants.
- Be Flexible: A startup owner needs to know when to push, when to pull back and when to hold steady. Sometimes there may be a need to be aggressive and demanding while other times a more polite and personal approach is the way to get things done.
- Multitask: Given the roles that an entrepreneur needs to take on, it is vital to be particularly apt at multitasking. This means being on top of all aspects of the business.
- Work Hard: It is important to work hard yourself and then expect those around you to follow suit. A successful entrepreneur and leader is one who practices what he preaches and this often means being the first one in to work and the last one out.
- Be Stubborn when Needed: Though flexibility is a vital trait in an entrepreneur, it often needs a counterpoint in stubbornness. If you have a logical reason for a particular decision or action, then go ahead with it and convince others of its viability rather than giving in easily.
- Stay Away from Pointless Discussions: It is often a good idea to keep your head down and focus on the task at hand while ignoring the multitudes of opinions and conversations happening all around. It usually has more impact when you let success do the talking rather than just doing the talking with no results.
- Be Strategic: Sometimes, parts of whatever you are working on need to be let go rather than held on to. This sort of strategic thinking is vital for an entrepreneur when often scope may need to be narrowed to be successful.
Using these tips smartly and taking the very best insights from how the company began and how it grew can help an entrepreneur glean best practices. These can then be applied to any type of business venture.
Image credit: Zalando.
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