Zalando, Europe’s largest online fashion retailer, has recently announced a cut to its sales forecast for 2023 due to the weakening demand for online shopping. The third-quarter revenue of the company was weaker than expected, and it expects further sales decline throughout the rest of the year. This news comes amidst a dip in online shopping for the e-commerce industry as a whole, following the end of the pandemic-era boom.
Similar to other online-only retailers like ASOS and Boohoo, Zalando has been affected by the decrease in online shopping. The company now anticipates a decline in revenue for 2023, ranging from 0.5% to 3%, compared to its previous guidance of a possible 1% decline or a 4% gain. In the third quarter, Zalando’s sales reached €2.275 billion ($2.41 billion), falling short of analysts’ estimates and representing a 3.2% decrease compared to the same quarter last year.
Zalando attributes the decline in sales of autumn and winter clothes to an unusually warm September. Additionally, weak consumer sentiment has also significantly impacted the company’s performance. The worst-performing region for Zalando was Germany, Austria, and Switzerland, with sales experiencing a 5.6% decrease during the quarter.
Not only Zalando, but online retailers in Germany as a whole have witnessed a decline in apparel sales. The e-commerce industry association BEVH reported a 17.5% decrease in online apparel sales during the third quarter compared to the previous year. This further solidifies the observation that the online fashion segment has been one of the weakest for German retailers and even beyond.
To tackle the challenges brought about by heightened competition, especially from emerging rivals like Shein, Zalando is concentrating on expanding its luxury brand offerings. The company intends to introduce a new “boutique-style” space specifically dedicated to designer brands. Furthermore, despite a reduction in the number of orders, Zalando has noticed an increase in average basket size, implying that consumers are purchasing more high-value items. This suggests that inflation may not be dissuading shoppers from buying fashion products.
The lowered sales forecast has had a significant impact on Zalando’s stock price. Since the beginning of the year, shares in the company have decreased by a third. This decline in market value reflects the shift in consumer behavior as pandemic restrictions ease and shoppers revert to physical stores, resulting in fewer online clothing purchases.
Overall, Zalando’s revision of its sales forecast indicates the challenges faced by online fashion retailers in the current market. The company is navigating through a landscape of weakened demand and mounting competition. Nevertheless, Zalando aims to adapt by expanding its luxury offerings and catering to consumer preferences.
