Zalando, which is also a major client for sports apparel and footwear brands in Europe, suffered one of its worst days of trading in more than two years, with the share price dropping by 8.2 percent, as the German-based e-commerce giant reported an unexpectedly strong slowdown in its growth.
In a preliminary statement, Zalando said that its sales grew by between 21 to 22 percent in the first half of this year, down from the increases of 24.4 percent recorded in the first half of 2016 and of almost 32 percent in the comparable period of 2015. Operating profit margins (Ebit) were also weaker, falling from 8.8 percent of sales in the first half of last year to between 7.3 and 7.8 percent.
In the second quarter alone, Zalando generated sales of about €1.1 billion, corresponding to an increase of 19 to 21 percent - slower than in the first quarter and at the low end of Zalando's medium-term target growth rate of 20 to 25 percent. Zalando blamed the slowdown on public holidays and constraints at warehouses with new facilities that are yet to run at full capacity.
Comparatively, Amazon raised its global sales by 25 percent to $38 billion during the second quarter, beating analysts' estimates of $37.2 billion. However, its net profit fell to $197 million from $857 million in the year-ago period, sending the stock market value down sharply.
Observers feel that Zalando is facing increasing competition from Amazon, which set up five new local language sites and added 350 new brands to its European fashion offerings last year. In an evident reaction to an initiative of its big American competitor, Zalando has announced the launch of a premium membership service similar to Amazon Prime Wardrobe, which allows customers to try up to 15 different garments before ordering one, or Ebay Plus. Amazon's program is currently being tested in the U.S. with a variety of brands including Adidas and Lacoste.
The service part of the Amazon Prime program is already available in Europe for the sale of books and music. It is available for other goods too, for an annual fee. It offers free delivery on the same day in some areas, and other benefits.
The Amazon Prime Now service, which guarantees free deliveries within two hours, is now available in 50 cities around the world, including Berlin. First introduced in New York at the end of 2014, it is now being launched in Singapore, opening the door to the Southeast Asian market for the U.S. company.
A German specialist online sports retailer, Keller Sports, also offers a premium program of benefits for €9.99 a year, including pre-sales and access to limited editions of new products.
Called Zalando Zet, the German e-tailer's new program is designed to draw consumers closer to the Zalando universe and get them spending more, a strategy that's a cornerstone of the growth strategies of pure e-tail giants globally. Zalando Zet offers customized premium services like faster delivery, pick-up of returns on demand and other benefits such as personal fashion advice or early access to sales for €19 per year.
The move adds to Zalando's existing services, which include the ability to try goods on at home before buying. In the first phase, customers in four German cities (Berlin, Frankfurt, Hanover and Leipzig) will be able to test the new premium service for three months, after which they can become members for €19 per year.
However, Zalando is gaining market share and the slowdown in its sales growth may be partly attributed to its strong position in the German market, where sales of apparel and shoes over the internet are not growing as fast as before.
In the first half of this year, the gross revenues from online sales of clothing rose by only 2.8 percent in Germany to €5.2 billion, according to the German federation of e-commerce and distance retail operators (BEVH), and those of shoes went up by 8.6 percent to €1.74 billion. In the first half of 2016, the corresponding data were increases of 11.2 percent and 9.3 percent.
Higher rates of growth were registered for online purchases in some other categories such as home decoration, computers and games. The biggest increases in the digital space have been taking place in the online marketplaces and among multi-channel retailers, BEVH indicates.
Amazon remains the biggest overall e-tailer in Europe, with a total turnover of €38 billion in 2016. Nine out ten German online customers buy products through Amazon, according to a recent study by PricewaterwhouseCoopers, but we have no details on its European sales of shoes and apparel, where it is competing with Zalando, In the U.S., its sales of clothing alone rose last year by 30 percent to €28 billion.
