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Case Study: Zalando

Solution Draft

Question 1
How do the various features of the online store improve the online
shopping experience for Zalando customers?

Zalando’s online store is not just a place where customers search for and buy
clothes, shoes and fashion accessories. The online store developed into a
fashion themed world including several features and tools strengthening a
convenient and inspirational shopping experience of fashion-conscious
people.

The inspiration section on Zalando’s online store features extensive

information about the fashion world including for example a fashion blog,
newest styles and products as well as seasonal must-haves. In the fashion
glossary customers find important information about shoes, fashion,
accessory, brands and explanations of fashion terms. The fashion glossary
and the inspiration section are regularly updated according to current
fashion trends and refer to offers on Zalando’s online store. This intensive
information combined with links to products offered in the online store
foster an emotional shopping environment and the engagement of
customers who always want to be updated on fashion topics. They get
inspired and are able to buy presented styles and garments simultaneously
via the online shopping platform.

Another important issue to foster a customer’s purchase decision is the

structure of and given information on each product site. When a customer
finds a product and opens the product site a section for customer opinions
and product ratings from other customers who already bought a product
appears. Here a customer has the option to interact with other customers
and to find further advice and information on product quality or the fit of a
chosen clothing item. The size guide is a tool to counter customers’
uncertainty regarding size and can be accessed via a product site. The tool
offers instructions for measurement of different parts of the body to identify
the right size for gloves, trousers, shirts, shoes and so on, as well as a
conversion chart for US and continental sizes. In total this leads to a more
carefree online shopping experience in the knowledge that the clothes most
probably will fit and of what quality they are, which can improve customer
satisfaction and prevent disappointment.

Probably one of Zalando’s most inspirational and assisting tools started 2014
in Germany: Zalon. It is a tool for personalized online style advice which

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can be accessed through Zalando’s online shopping website. Customers

choose their personal fashion expert proposing several outfits according to
the customer’s look and occasion which can be ordered subsequently. It is
also possible that a customer arranges an appointment and speaks directly
to his assistant via telephone. With this tool Zalando offers very
personalized and interactive style guidance according to specific customer
needs comparable to professional advice in a traditional specialty store. This
adds a component of social interaction to the mainly technically mediated
online shopping experience.

Question 2
What are the advantages of Zalando’s online retailing strategy compared
to traditional retail store outlets?

Zalando is an online retailer presenting and selling its fashion products via
an online store. This offers several advantages for the retailer which are
listed in the following.

n Start-up and operating costs: In comparison to traditional retail store

outlets the costs for setting-up a website for an online store may be less
than for expanding a traditional store-based business. Zalando for
example started in 2008 with an online store which was based on a
standard operating system that served its purpose and didn’t cause high
costs. Furthermore, the operation costs in terms of rents, personnel and
infrastructure may be lower for online retailers. However, in the case of
Zalando’s online store, which focuses by now on emotional and
experimental shopping environments, it should be mentioned that the
costs for operating the individualized tools and high-performance
technology online platform are becoming much higher.

n Range of customers: Especially if you try to reach a broad range of

customers an online store offers several opportunities. Running a
traditional retail store is limited by a comparably little geographical
catchment area whereas an online store can be accessed from everywhere
and widens the geographic market. It is also much easier to target new
customers via online marketing tools.

n Expanding into new markets: It is also much easier to expand into new
markets. Zalando for example started in 2008 in a shared apartment in
Berlin to sell shoes via a relatively simple online store to customers in
Germany. Already in 2009 Zalando expanded its offer to customers in
Austria and from 2010 on the website was translated into other
languages and adapted to local needs to start the business in several
other European countries.

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n Customization of the marketing: What traditional retail stores try to fix
with loyalty customer cards is much easier for online retailers. The
customization of marketing act ivies based on past sales, interests and
preferences is much easier due to information of customer accounts.
Website analysis tools help to gain insights into customers’ needs and
improve a customer’s on-site experience. This also helps Zalando to
tailor its offer to customer’s requirements and to display cross-selling
and product recommendations.

n Business hours: An online retail website can be run and accessed all
time. The added convenience and 24/7 availability make customers more
likely to make a purchase at any time of day or night they want.

n Range of assortment: Through easy and intuitive site navigation it is

possible to present much more clothes, shoes and accessories in a clear
and structured way in an online store than it is possible in a traditional
retail store where the sales area is restricted. This is especially relevant to
address the needs of different customer segments. With the
implementation of Zalando’s brand platform there is even a much
broader range of assortment and brands available than before.

Question 3
Discuss the opportunities and risks of Zalando’s transformation to a
brand platform.

A detailed description of Zalando’s brand platform is given in the case study

in Chapter 4. A brief summary is provided again in the following section:

Zalando’s assortment includes over 1,500 international brands ranging from

popular global brands, fast fashion brands, local brands, premium brands,
outdoor and sport brands as well as private label brands to address as many
target groups as possible. One special feature of Zalando’s shopping website
are the included brand stores. In 2015 Zalando started its transformation to a
sales platform. In addition to the existing brand assortment offered by
Zalando, well-known brands which have great revenue potential in Europe
can get their own store and start selling their own products online via a
separated brand store within the Zalando online store. With this sales
platform Zalando offers access to its existing markets, customers and the
entire technical infrastructure to its brand partners. The opportunities and
risks of Zalando’s brand platform and brand partnerships are listed in the
following section.

Opportunities:

n Addressing new target groups: With the offer of a wide range of

products and brands, Zalando can reach several target groups, for

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example luxury shopper, customers seeking for sport clothes or young

shoppers. Moreover, the brand platform helps to engage loyal customers
of cooperating brands to Zalando’s online store. This also offers Zalando
the opportunity to market its private label brands which are very
important for the success and revenue of the company.

n Customization of the assortment to different markets: Because of brand

partnerships with local brands and the wide brand portfolio Zalando is
able to customize the assortment of its online store to local markets and
customers’ needs.

n Expansion outside of Europe: Zalando already cooperates with well-

known global brands and offers their products. Based on this it is
possible to expand the business into other countries outside Europe as
the firm already has developed its own proprietary technology platform
ZEOS and profound knowledge about online retailing. This technical
skills and knowledge can be transferred relative easily to platforms for
further countries.

Risks:

n Disregarding of service policy by brand partners: Brand partners

operating their own stores within the Zalando online store have to
comply with Zalando’s service policy as well as terms and conditions:
free delivery and returns, 100 day returns policy, support through
customer service team, fast delivery. So especially for this brand partners
Zalando has to control the consistent compliance of the agreement. If
brand partners do not follow this policy, this can lead to customer
dissatisfaction and have negative effects on Zalando’s online store.

n High capital tie-up: When the products are not sold directly by
Zalando’s brand partners in their own brand stores, Zalando buys the
fashion products and stores them to sell them in the end to the customer.
Therefore, a broader product and brand offer leads to a higher amount of
tied-up capital because more products need to be bought. If customers
don’t buy those products, Zalando loses money.

Question 4
Discuss the strengths and weaknesses of Zalando’s business model.

Zalando buys most of the fashion products for preferably cheap prices,
stores them and sells them to the customer. Likes most online retailers
Zalando generates most of its revenue streams from the sales of its products.
Due to its market position Zalando offers by this time a good value
proposition for strategic and brand partners: Zalando is a steady buyer of
large quantities of fashion products and provides access to a wide range of

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customers to its brand partners. For Zalando’s Internet-savvy fashion-
conscious customers the value is quite obvious: The shopping platform
offers an inspirational online shopping experience, extensive information on
products and fashion trends, several services such as fashion advice or free
delivery and return of products and of course about 150,000 fashionable
products to comparably cheap prices.

In the following the strengths and weaknesses of Zalando’s aforementioned

digital business model are discussed:

Due to high growth rates Zalando made it to a market leader for fashion e-
commerce in Europe. Meanwhile Zalando’s business model is profitable and
offers high revenues, which is not guaranteed due to high return rates in
online retailing, with which Zalando also has to struggle. Especially as
Zalando offers free delivery and return the company suffers from return
rates of about 50% on average. To counter this problem, Zalando improves
product presentation and provides a size guide so that the probability
increases that customers order a product they like and that fits.

Through the innovative platform offering an emotional and inspirational

shopping experience and a wide range of products Zalando has been able to
build a solid and large customer base which is a basic requirement for
Zalando’s successful online retailing strategy. Due to frequent large order
quantities the company manages to purchase the products at discounted
prices which are passed to the customers. As customers can easily compare
prices on the Internet with product and price search engines, competition in
online markets migrated more towards prices. Zalando is able to offer its
products for quite competitive prices which provides a competitive
advantage.

One of Zalando’s key success factors to engage customers is the innovative

technology platform including several tools (see answers given for
question 1). However online technologies inhere a significant weakness:
High investments in research and development are necessary to further
improve the shopping website and to set the company apart from its
competitors. Especially in a fast developing e-commerce market,
technologies and ideas are difficult to keep proprietary from new entrants
and replicated rapidly and applied easily to other platforms. Therefore, it is
just a matter of time until further competitors will enter the market whose
online shops provide a comparable virtual shopping experience. This can be
seen on the Russian shopping website sapato.ru, which offers similar tools
and opportunities to its customers as Zalando does. In this context Zalando’s
high brand awareness and creation of a strong and unique retail brand are
competitive advantages in developed markets. This makes Zalando less
vulnerable and raises market entry barriers for competitors.

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References
Porter, Michael E.: Strategy and the Internet. In: Harvard Business Review,
79. Jg., March 2001, pp. 63-78.

www.zalando.com

Zalando Annual Report 2014