The humility of superstars: hard times for Zalando, About You & Co.

Ands is more of a disillusionment. “We can erase the hope that we have all made a quantum leap in e-commerce following the pandemic,” says the head of the fashion mail order company About You in Berlin. He hits the mood at the K5 e-commerce conference, which ended on Thursday. Because the industry, spoiled by growth, is going through its first real crisis, with sales from stagnating to falling.

This is not only due to the mathematical effect that comparative values ​​from a year ago were particularly high due to the crown restrictions of the time. Above all, online consumption is also suffering from the consequences of the war in Ukraine. With inflation, consumer sentiment in Germany is worse than ever.

“The past two years have been like a roller coaster ride for us, which ended up moving at a very high speed,” says Marc Oppelt, head of Otto.de. Now follows the hangover: “Just like our customers, we are worried.”

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Convenience store

There’s a solid background to this: On Thursday, the Federal Statistical Office recorded a 14.1 percent decline in overall online commerce in May compared to the previous year. Sales also fell slightly from the previous April. Consumer electronics, DIY items and flowers are particularly affected, according to a study by the BEVH e-commerce association. But fashion has also sold far less online.

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The decline of the e-commerce sector is therefore much more serious than expected and also affects the industry giants. Just last week, Berlin-based fashion mail order company Zalando lowered its forecast for 2022. Sales may even stagnate after the usual double-digit growth rates of recent years. In the first quarter, Zalando had to report for the first time that there was no quarterly growth. The hoped-for recovery in growth rates has been canceled for the time being. At the same time, fashion mail order companies are sitting on high stocks.

Source: WORLD Infographic

“Based on the significant rise in yields, it is now clear that inflationary pressure is increasingly affecting buying behavior,” said Mat Dunn, chief operating officer of British fashion retailer Asos. Also in this case, in the quarterly balance up to the end of May, sales grew by only one percent with declining margins.

In Berlin, slowing growth has prompted the question of how far the redistribution of fashion sales can go from brick-and-mortar retail to purely online retailers. They are finally approaching the symbolic 50 percent market share, which e-commerce professor Gerrit Heinemann of Niederrhein University of Applied Sciences believes is the long-term limit. At the same time, established chain stores are significantly expanding their online channels. With Peek & Cloppenburg, the luxury chain around KaDeWe and Breuninger, three major German players presented plans corresponding to K5.

This does not bode well for shares of pure fashion mail order companies, which have been severely affected since the start of the year. The loss in value particularly affects Hamburg-based supplier About You. A few years after starting Zalando, the company, unlike the big reference model, continues to experience startup losses. Since it went public a year ago, the stock has lost nearly three-quarters of its value.

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The valuation of the Otto Group company is only slightly above the symbolic mark of one billion euros, minus its cash reserves from the IPO also significantly lower. However, About You still expects strong growth of 25-35% to a whopping 2.3 billion euros in sales for the current financial year.

To become profitable as expected in the near future, About You has stopped further internationalization beyond Europe, co-founder Müller said at the Berlin conference. Thanks to its main shareholder, the Otto Group, for the moment it can calmly see the decline in valuations, unlike other suppliers who have to fight for their independence. “The current crisis will accelerate consolidation,” Müller predicts. He expects there will be numerous mergers in the fashion industry.

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Otto-Chef Alexander Birken

He is not alone in making that prediction. “There will be endless acquisition opportunities,” says conference founder Jochen Krisch. This is also due to the lenders in the sector, who have been wanting to limit their risks for several months: they could simply stop offering money to loss-making suppliers who are no longer growing. After all, nearly all ecommerce retailers are currently falling short of their investors’ high expectations – some, however, particularly badly. “There are suppliers who have let their business slip during the pandemic because they have traded Corona’s push for the success of their own shares,” Krisch analyzed.

Investors’ austerity path is now further slowing the growth of affected suppliers. This is currently also affecting online retailers outside of fashion. The chief operating officer of super-fast food delivery service Gorillas says he has slashed his marketing expenses by a whopping 40 percent in the past few weeks. At the same time, the Berlin start-up is going out of business in several countries. This is based on the hope of being able to make do with the venture capital raised before the crisis until the operating profit zone is reached. It is unclear whether this will be successful.

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Even the much older and older e-commerce veteran eBay has had to sell parts of the company over the past two years under pressure from activist shareholders and is therefore generating fewer sales than before the pandemic. Germany boss Oliver Klinck now wants to focus more on used goods: “All consumers are currently considering: how much money can I still spend?”, Explains the project.

One thing already seems clear: the current consumer crisis will change the e-commerce sector at least as much as the pandemic.

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