After the highs of the past few years, business at Zalando and other online retailers is poor. What the crisis means for Black Friday, the traditional day of the year with the highest sales, who benefits and who is left behind.
At Europe's largest online fashion retailer Zalando, the corona euphoria has long since evaporated. Customers are ordering less, the engine of growth is sputtering and the share price has plummeted. "The year continues to be challenging," said company boss Robert Gentz on Thursday when the current business figures were presented. Not just for Zalando.
After the highs of the past two years, the e-commerce industry is doing worse than it has in a long time. Industry observers are now sounding the alarm ahead of the most important shopping season of the year - Black Friday on November 25, 2022 and the subsequent Christmas shopping season.
"A perfect storm is brewing in online retail," says Alexander Graf, founder of the e-commerce software Spryker and host of the retail podcast "Kassenzone". A systemic insolvency risk is currently developing in the industry, which will lead to a market shakeout in the coming months. The outlook for management consultancy McKinsey is similarly bleak. "2023 will be a major challenge for the industry," says Achim Berg, senior partner and analyst for the fashion industry at McKinsey.
But why is that? And what does the crisis mean for the traditionally important Christmas business?
Inflation, rising energy prices and the general uncertainty with regard to the war in Ukraine are currently depressing consumer sentiment in almost all segments. This hits the fashion industry particularly hard, because with closets full, fashion is traditionally one of the first items where consumers save. This is also reflected in the market data from the Federal Association of E-Commerce and Mail Order Germany (bevh). In the apparel segment, sales fell by 15 percent in the third quarter. For shoes it was even 22 percent compared to the previous year.
The recession is primarily reflected in shrinking shopping baskets, many returns and rising logistics costs. At the beginning of the year, Zalando had to cope with the first decline in sales in its history, but was recently able to stop the downward trend again. Other competitors fare even worse. The Hamburg Zalando competitor About You recently even recorded a minus of around 43 million euros. The British competitor Asos recently slipped into the red.
The consumer shock caught the retail sector by surprise after the Russian invasion of Ukraine. "Everyone bought heavily in anticipation of a strong year," says McKinsey analyst Berg. Partly even for the autumn and winter season. The full camps are now faced with weak demand.
The miscalculation hits the online retailers even harder than the offline competition. After the digital push from 2020/21, they invested heavily in new capacities that they do not need now. According to its website, Zalando, for example, is planning four new logistics centers. The Hamburg competitor About You has also opened three new warehouses since 2020, and a fourth is currently under construction. Now the companies are left with the high investments.
The crisis hits them twice. The full warehouses force retailers to discount prices, while at the same time the purchase prices for new goods are rising. "In the long term, this becomes a problem," comments McKinsey expert Berg. Before the most important shopping season of the year, online retailers are now under a lot of pressure.
"The discounts will be even higher for Black Friday this year, but that will be at the expense of the already minimal margin," predicts e-commerce expert Alexander Graf. The discount battle could possibly even last until Christmas.
The big question is whether the price reductions will actually trigger the hoped-for sales boost. Industry observers Graf and Berg are only cautiously optimistic. And the retail giant Zalando also seems to have doubts. "In view of the pressure on consumers' wallets and an increasing advertising environment, we expect a lower growth impulse than in previous years," said Zalando CFO Sandra Dembeck this week at the quarterly presentation. In plain language, this means that the fashion platform will take part in the discount battle, although it is hardly worth it anymore.
In view of the difficult market situation, the smaller players in particular are at risk of insolvency. In order to survive in the unforgiving market environment, companies are now switching from growth mode to efficiency.
The result is a farewell to the long-vaunted mantra "the customer is king," even among the industry giants. Zalando boss Robert Gentz introduced a minimum order value for free deliveries in the summer. In normal times, such a measure would have been unthinkable. "We will now see such taboo breaches more frequently. The growth competition is now turning into a profit competition - and different rules apply there," says e-commerce expert Graf.
