Zalando Continues Growth Focused on the European Market

At the beginning of 2024, Zalando changed its approach and announced that they are developing a strategy to build a leading pan-European e-commerce ecosystem for fashion and lifestyle around two growth vectors: Business-to-Consumer (B2C) and Business-to-Business (B2B). Daniel Roginski, Zalando's General Manager for Central and Eastern Europe, pointed this out in an interview with ICTbusiness and added that Zalando has been using artificial intelligence and machine learning for a long time, especially to offer customers a more personalized experience and improve the overall shopping experience.

According to him, the takeover of About You will have several benefits for customers from the benefit of different and special shopping experiences, improved logistics, software, and service capabilities, and an improved overall shopping experience. They will enjoy a richer shopping experience through personalized inspiration, and they will have a greater choice of product categories and the combined strength of Zaland's quality offer and the ABOUT YOU platform, which uses influencers to discover new products, explains Roginski.

How is Zalando becoming a pan-European platform - what does it mean and how does it work so far, what does it mean for the customer?

In March, we updated our strategy. We announced that Zalando is evolving its strategy to build the leading pan-European fashion and lifestyle e-commerce ecosystem around two growth vectors: Business-to-Consumer (B2C) and Business-to-Business (B2B).

In B2C, Zalando is differentiating itself through quality to offer the best possible shopping experience in fashion and lifestyle, enhancing its role in customers’ lifestyle journeys by elevating existing categories such as Sports and Kids to distinct propositions, and offering personalized inspiration and entertainment.

Quality relates to every part of the customer journey: assortment, digital experience, sustainable and inclusive choices, as well as personalized convenience. Zalando also offers a more seamless and tailored digital experience with tools such as size advice, which uses computer vision and Artificial Intelligence (AI). The second growth pillar of Zalando’s B2C strategy is to expand further as a lifestyle destination, following people’s lifestyle choices and building out more areas that address their lifestyle needs.

The third B2C growth pillar is based on integrating content into commerce and offering personalized inspiration and entertainment. For example, the company is powering more personalized conversations with tools such as the Zalando Assistant, which we’ve recently launched in Croatia as well. Customers will increasingly get tailored offerings to help solve the challenge of overwhelming choice and information overload.

In B2B, Zalando is opening up its logistics infrastructure, software, and service capabilities to be a key enabler for e-commerce transactions of brands and retailers, regardless of whether they take place on or off the Zalando platform. In the mid-term, Zalando sees the B2B growth vector developing into a multi-billion-euro business.

The company has decided on a special solution in the logistics segment. The ZEOS platform has been created. What are the experiences so far and in what direction will the development go, how is the attraction of other web stores to the platform progressing?

ZEOS is more than just logistics solutions because with ZEOS we are building a European e-commerce operating system for the fashion and lifestyle industry. We are working on a suite of solutions, that enable brands and retailers to manage their multi-channel business across the continent within one unified platform. The benefit: They can use our logistics infrastructure, software, and service offerings, regardless of whether the transactions take place on or off Zalando. ZEOS builds on Zalando’s technology and infrastructure, comprising a pan-European network of 12 logistics centers, around 20 returns centers, and more than 40 local transport service providers.

Since the launch, we have added more than 30 merchants, and are now available in 12 markets. We are serving 9 marketplaces with ZEOS (incl. Zalando), plus the merchants’ webshops. As an example, in October, ZEOS signed an agreement with the British retailer Next to become their partner of choice to fulfill their entire online direct-to-consumer business in continental Europe from summer onwards – as part of this partnership, we will enable more markets and it is planned to make Croatia available via ZEOS.

How do you see the potential of the Croatian market and how did you see it on the market (does it meet your expectations, is there room and where for improvement, what do Croatian customers want and look for, how do they differ from their "neighbors", and in what specific ways, how is the offer intended for a specific market created (how are market trends monitored)?

Zalando has been in Croatia since June 2021, and we are very happy with the dynamics of the whole business in Croatia. Please understand that we cannot disclose specific numbers per market. We see a lot of traction and great performance in the Streetwear and Kids categories.

How and to what extent does Zalando engage in innovation and new technologies, especially the use of artificial intelligence?

At Zalando, we have been using AI and Machine Learning for many years, especially to offer a more personalized experience to our customers and improve the shopping experience overall.

Personalized advice

As part of our efforts to offer a more personalized experience, we also use AI to make fashion suggestions. Our Algorithmic Fashion Companion makes suggestions to customers for outfits that match the products they have recently purchased or those they have previously been interested in. With this solution, we inspire customers to discover styles, accessories, clothes, or colors they might not have thought of on their own before.

We are also using Machine Learning and Computer Vision to give personalized size advice to help customers find the right size on the first try. With this, we could already decrease size-related returns by 10% compared to items of the same category that don’t have size advice yet.  Furthermore, we also introduced size recommendations with body measurement in the summer of last year. This allows customers to receive personalized size recommendations for individual products based on their actual body measurements, rather than just relying on the feedback we receive from them. We are also working on a virtual fitting room where customers can see how an item of clothing fits their personal 3D avatar.  With one of our recent virtual fitting room pilots, we saw a decrease in returns of 40%. Although this result comes from a pilot (to obtain representative data, we need a larger sample), it clearly shows a tendency that we want to keep exploring.

Last year, we launched the beta version of our AI-powered Zalando Assistant in English and German to enable customers to have a conversation with us and navigate Zalando’s assortment using their own words. We added Croatia and all our other markets two months ago. Today, over 1 million Zalando customers already had a conversation with the assistant.

Logistics

In our logistics, we are using automation and AI-powered technologies, both to make the work of employees easier and to provide customers with first-class service. Sorting machines and robots take over physically demanding or monotonous tasks from employees in the fulfillment centers. Concrete applications are, for example, the optimization of paths: in which order which robots perform which tasks, and thus also the prioritization of activities.

AI also helps us to optimize our logistics processes, for example, to reduce lead times and calculate optimized delivery routes to fulfill an order. One example of this is our specially developed merchandise management system, which controls the flow of goods and processes for handling orders. As a result, we are always able to adapt our processes quickly and flexibly.

What is new, what is next, and how are new solutions and features developed on the online shopping platform?

When looking at the fashion industry, there is a clearly visible shift in customer expectations, particularly among the younger demographic. We know that 70% of GenZ customers are making a purchase decision while looking for inspiration and 72% of this inspiration happens online.

Over the past months, Zalando has developed different pilots and experiences to entertain and engage with customers in an inspiring environment. One example of this is the launch of Zalando Trend Spotter which offers customers weekly inspiration on what’s trending in Europe’s fashion capitals. After the initial launch in six markets, Trend Spotter has been recently rolled out to all markets with four additional cities. Another development was the integration of Gen AI into our content production, making these images more engaging and inspiring for our customers.

We are also testing a new discovery journey in the UK and Czech Republic offering customers a whole new way of discovering Zalando. A selection of customers can use the Zalando mobile app and browse through a discovery journey that focuses on visual-first experiences. These leverage the existing content Zalando and partnered creators have produced, making it much more prominent. Another particularly exciting new feature that is part of this in-app pilot is the Style It experience. Style It enables customers to generate outfits displayed on an avatar of their choice. Once their outfit is created, customers can add the products directly to their wishlist or share with friends/family/ or to their socials.

How do Croatian customers in Croatia but also in the EU and the region use AI? What are the specificities of Croatian users when it comes to AI, what are the user reactions? How many Zalando customers use AI and in which market is it currently most successful?

AI is giving us the opportunity to further personalize the experience to our customers and also, provide them with functions we couldn’t offer just yet, such as a conversational interface with our assistant. We have been using AI for many years at Zalando, and we continue iterating and improving our features as the technology advances.

We see there is a strong interest in using AI-supported services. I’ve mentioned the AI-powered Zalando Assistant, which over 1 million Zalando customers have already had a conversation with. Many customers also benefit from AI-supported services, such as Size & Fit advice discussed earlier.

Is there room for improvement and stronger positioning of Zalando in the Croatian market? What are you doing or need to do to attract even more Croatian customers to Zalando?

For our Croatian customers, we focus on elevating and expanding our multi-brand platform. We are focusing on three strategic pillars: First, differentiation through quality. Second, lifestyle expansion. And third, entertainment and inspiration.

Like many customers, Croatians are looking for value for money. With an assortment across all price categories on our platform we meet their needs, and that is shown, for example, by interest in our Private Labels, such as Anna Field and Pier One. At the same time, we observe high demand for visibly branded products, ranging from sports brands to more premium ones. With our comprehensive offer, whatever preference or needs customers may have, they can always find a wide variety of items to choose from.

A key building block for a quality-driven experience is close collaboration with high-equity brands. Brands that have a rich heritage, desirable products, and inspiring stories to tell. We have been working with such brands for over 15 years and know how to match their offering with our customers. Our strategy therefore focuses on quality, brand relationships, and personalized engagement with customers.

How does the EU's Digital Service Act (DSA) work in practice and affect business?

Navigating the internet can be tricky. As online users, we face many challenges: from exposure to misinformation and harmful content to illegal or potentially dangerous products. This is why the European Commission decided to provide a common set of rules for intermediaries – meaning platforms hosting content from third parties, like posts on social media or product information from sellers on marketplaces. The European Commission aims to foster a safe and trustworthy online environment for consumers in the European Union.

At Zalando, the EU’s goal is our goal too. And because we share the same values, we are and always have been active promoters of the DSA. We offer high-quality products from well-established brand partners so that our customers can enjoy a convenient and safe shopping experience at all times. This means that no one can sell on Zalando: we have strict protocols and policies in place that all brand partners have to comply with and adhere to. Bottom line: at Zalando, nothing goes online unchecked. In fact, customers only see content produced or screened by Zalando before it’s uploaded by us.

This is one of the main reasons we disagree with our designation as a Very Large Online Platform (VLOP) under the DSA: we do not pose a systemic risk in the dissemination of harmful or illegal content, as presumed to VLOPs in this legislation.

We’re proud to be a European digital company, founded and headquartered in Europe, embracing European values and promoting technological progress and innovations. But to us, being a responsible player also means pointing out where a regulatory framework has been applied incorrectly.

Do you think e-commerce in general can continue to grow or have we reached a current peak, or is it now facing a slight decline as people return to physical stores?

We operate in a massive and structurally growing EUR 450 billion European fashion market. Building the ecosystem for fashion and lifestyle e-commerce opens up a new growth chapter, allowing us to serve customers and partners more holistically and capture a larger share of the market. With both B2C and B2B, we target to cover a larger share of the total European fashion market in the long term.

More and more retailers are eliminating free returns. Will you do the same? What do you do with the goods that customers return to you?

Consumers highly value the ability to try on fashion items in the comfort of their own homes and then keep and pay for what they really love and what fits. This is a central benefit of shopping fashion online and free returns have therefore been an integral part of our service promise to customers since day one.

Items returned directly to Zalando are checked and sorted in a standard quality process. We can offer around 97 % of all fashion items returned to us directly via the Zalando Shop or our shopping club “Lounge by Zalando”. This figure includes all returns processed in our returns centers. Returned items that we can no longer offer via the Zalando Shop, for example from the previous season, we sell via Zalando Outlets, physical stores we have in 15 German cities. We donate the remaining stock to organizations such as Humedica or sell it to wholesale partners. Only in exceptional cases, we are required to discard articles, for example, if this is necessary for health or legal reasons or if products are broken.

We are constantly working to reduce avoidable returns – for example, because an ordered item of clothing does not fit properly or looks different from what is shown in the store. This is the type of experience that we want to minimize. As stated earlier, we give personalized size advice to help customers find the right size on the first try. With this, we could already decrease size-related returns by 10% compared to items of the same category that don’t have size advice yet.

You often emphasize the importance of sustainability in the fashion industry. How do shopping platforms fit in and how do you see sustainability in the future?

We believe that Sustainability will be a competitive advantage in the long run and we know our customers value quality. Thus we are prioritizing quality: we focus on delivering a highly relevant assortment, a tailored and innovative digital experience, more sustainable and inclusive choices, as well as a localized and relevant convenience proposition. With this wide-range offer, customers can make well-informed purchasing decisions in line with their personal values.

What exactly does the takeover of About You mean for customers in Croatia and the region?

Customers will benefit from distinct and separate shopping experiences, enhanced logistics, software, and service capabilities, and improved overall shopping experiences. They will enjoy a richer shopping experience through personalized inspiration, elevated product categories, and the combined strengths of Zalando’s quality offerings and ABOUT YOU’s influencer-driven discovery platform.

The combination brings together two founder-led teams with a strong track record. Customer focus and entrepreneurship are key for the teams at both Zalando and ABOUT YOU. The joint commitment to teamwork, innovation, and excellence provides a great foundation for success and growth.