Zalando : A Case Study in Cross Border E-Commerce

 

June 21, 2016

Zalando

Cross border e-commerce. It’s one of the trickiest fields to navigate, owing not only to both legal, tax, and shipping restrictions, but also a general apprehension on behalf of consumers to favor anything other than their own native countries. So what to make of a business model that was able to expand into fifteen separate European countries in just four short years after its inception?

The International Footpath

Inspired by the successful business model of Zappo’s, Zalando was founded in 2008 by David Schneider, Rubin Ritter and Robert Gentz, with an early loan of €75 thousand from German venture capital firm Rocket Internet SE. Initially specializing as a distributor of footwear that was both casual and fashionable, the company soon expanded its product line to include accessories, and eventually a full scale line of men’s, women’s and kids clothing. And with this expansion of product offerings, came the need for the German-based retailer to increase visibility in other geographic markets. Initially starting in 2010 by expanding presence in France and Holland, by 2012 the company expanded its operations to include fourteen different hubs in Europe (including the UK, Sweden, Italy, Belgium and Spain) as well as acquiring numerous auxiliary spin-offs and subsidiary companies, proving just as successful of market penetration in the EU as Zappos was in the US. By the end of 2015, Zalando’s annual revenue was predicted to be just over €3 billion.

Cross Border and Local Partnership

Key logistics are a primary dilemma when it comes to any sort of cross border e-commerce concern, and it certainly was no different in terms of the successful establishment of Zalando. But by taking the lead of the omnipresent monolith of Amazon, Zalando was able to to meet the necessary predicament of supply and demand facing any thriving retailer by establishing multiple separate order fulfillment centers, including Europe’s largest e-commerce distribution warehouse to date. More importantly, by implementing partnership to address differences in purchasing habits, marketing and payment options in each of the fifteen European countries it operates in, Zalando has been able to create a unique online experience for each specific locale. “Zalando is the archetypal ‘machine of war’ in cross border e-commerce,” said Michael Koch, president of the Global E-commerce Award panel, in discussing the company. “Zalando clients, wherever they are in Europe, feel like they are shopping on a national website. That is the key to cross-border success.”

 

Supply and Controversy

Of course, the aforementioned issues of supply and demand for any thriving retailer are riddled with disadvantages; and not even the likes of Zalando have been immune to this quagmire. When in November 2015 a consumer right’s advocacy group, the Centre for Protection Against Unfair Competition, filed suit against the company, claiming it deliberately misled customers towards the availability of products it had in stock, the distributor was quick with an answer; not only had they suffered a wave of fraudulent orders, they had changed its marketing practices, and had begun monitoring invoices with ever-increasing scrutiny to ensure accuracy of product lines. Despite this attempt to save face, the suit coincided with a market share of Zalando falling below 2.2 percent, suggesting a need for other e-tailers to take careful monitoring of both marketing and inventory practices in the future.

The Future

Currently, Zalando operates with a staff of some 10,000 employees and plans to establish another fulfillment center in Italy to meet its increasing demands outside of the Northern and Central European regions. Yet, still this may not be enough for the European giant, which recently acquired the Berlin-based Bread and Butter fashion trade show. Speaking to the Financial Times, co-founder Rubin Ritter recently stated, “We believe Zalando is still quite small compared with what it can be… Currently, we have a market share of 1 per cent in Europe. We think this share can be 5 to 10 per cent.”

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