Zalando has warned that its first-quarter results will not meet market expectations because of the impact of Covid-19. Meanwhile, the company is offering to waive commissions for participation in its Connected Retail program to German and Dutch retailers until May 31. The company will also postpone its annual general meeting, initially scheduled for May 20 in Berlin. The new date will be announced in due course.
Despite a strong start to the year, the company expects growth in its revenues and gross merchandise volume (GMV) for the first quarter to be significantly below the analysts’ consensus. The adjusted Ebit will also be negatively affected by lower sales growth and an exceptional write-down of inventories as a result of revised sales expectations for the current season.
The median of the analysts’ consensus prior to the announcement was for 19.0 percent growth in revenue, 22.8 percent growth in GMV and minus €28 million in adjusted Ebit.
The company also scrapped the full-year guidance it issued on Feb. 27, assuming that it cannot be met in the current situation. It will release new guidance “as soon as the course of the corona pandemic can be estimated more reliably.”
Zalando had forecast GMV growth of 20-25 percent this year, revenue growth of 15-20 percent in 2020, an adjusted Ebit of €225-275 million, and capital expenditures of around €330 million. Zalando signaled at the time that its projections excluded the pandemic’s potential negative effects.
Reason for the correction is a lower level of discretionary expenditures by European consumers as a result of the measures taken by European governments against the spread of the coronavirus since March 9.
Zalando is anticipating a drop in GMV in spite of efforts to push its marketplace as an alternative to physical retailing by brands and multi-brand stores. It is reducing the fees for onboarding on its Connected Retail program in Germany and the Netherlands through May 31. The only condition is that the retailers must allow DHL in Germany and PostNL in the Netherlands to pick up the orders at their stores in one way or another, and handle possible product returns. Until recently, more than 1,500 brick-and-mortar stores in the two countries were using the platform as a complement to their own operations.
Citing a 2019 Statista report, it pointed out that 87 percent of European fashion sales are still made offline.
Under the program, the stores can fulfill orders placed on Zalando’s platform. Carriers – DHL in Germany, PostNL in the Netherlands – then pick up the orders at the stores. Any rejected items are returned to the shop.
Zalando has candidly admitted that Connected Retail is still in the ramp-up phase and “flaws may emerge in the coming weeks.” There are more than 1,500 brick-and-mortar stores in Germany and the Netherlands connected to the platform. To further help physical stores, it is shifting from a monthly to a weekly pay-out schedule.
In an open letter on its website, Zalando’s board said that it has earmarked €100 million in cash for early payment of goods and services already delivered or rendered to the e-tailer. “Over the coming months, we will look for more ways to support our ecosystem in these difficult times,” it said.