April 25, 2013 / 6:16 AM / 5 years ago

RPT-Germany's Zalando eyes profitability in core markets

By Mia Shanley

STOCKHOLM, April 24 (Reuters) - The co-founder of German online retailer Zalando said on Wednesday the firm will focus this year on getting its core markets to profitability amid mounting speculation the fashion site could be ready for a listing as early as 2014.

Online retailers have been giving their brick-and-mortar rivals in Europe a run for their money, taking advantage of what has been a slow shift by high street shops to the Internet.

Zalando has been extending its lead over British rival ASOS Plc as Europe’s largest online fashion site, expanding from shoes to clothes and now selling over 1,000 brands. It doubled 2012 net sales to 1.2 billion euros ($1.6 billion).

But the growth-oriented fashion site, founded in 2008, is still loss-making as it spends to boost brand awareness to get its name out on television shows like Germany’s Next Top Model.

ASOS, which mostly targets young women, had sales of 538 million pounds ($870 million) in the year through August. Pre-tax profit was 40 million pounds.

Zalando co-founder Robert Gentz said margins were stabilising and that the firm was working to get its core DACH region - Germany, Austria and Switzerland - to profitability.

“The DACH area broke even last year and is working on a profitable path for this year,” he told Reuters at an investor day for Zalando’s biggest owner, Swedish investment firm Kinnevik.

Kinnevik holds a 35 percent stake, of which 26 percent is held directly and 9 percent indirectly through venture capital firm Rocket Internet.

Kinnevik, which has been raising its exposure to e-commerce, last year bought an additional 10 percent of Zalando at a price that valued the total company at 2.8 billion euros.

Despite Zalando not being profitable, there has been much speculation amongst bankers and in the media about a possible listing of the firm as early as next year.

Banks have started to contact Zalando in the hope of winning any mandate, banking sources have told Reuters.

Gentz said there were currently no IPO plans in the works and that the focus would be on building up its presence in its 14 existing European markets.

That may mean more investments in the year ahead.

“It seems Zalando follows a similar approach to Amazon - they focus more on growing sales rather than profits for now,” said Christodoulos Chaviaras, a Barclays analyst.

So while some may hope for an IPO which, a float may be a ways off. Based on Kinnevik’s investment, it would be Western Europe’s biggest tech offering since German internet service provider T-Online listed in 2000.

“Zalando has great potential to become a successful IPO candidate, but in a first step the company must show it can make money,” said one banker.

Zalando offers a free, but what analysts say is a costly, return policy in all markets. Gentz said an average of 50 percent of goods were returned, but that it was well worked into its business models.

Zalando has no plans to launch in new countries this year and said it is backing off in Britain where competition has been fierce.

“We’ve launched a UK website, but we do not focus on that market because it is an extremely different market from continental Europe,” Gentz said. “As long as we do not see very good (performance) in UK, we would not focus that much on getting that market. It is quite hard to compete if you are a new entrant coming from continental Europe.”

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