Launched in 2018, Zalando’s Connected Retail platform is designed to create a symbiotic growth lever for both Zalando and the partner-retailers that are plugged into its e-commerce ecosystem.
Fashion partners have access to Zalando’s customers in eight different markets while, by accessing product previously unconnected to digital commerce, the e-tailer can expand its product assortment, reach and ability to service localised customer bases. Some participating stores have reported up to 60 percent incremental Gross Merchandise Volume (GMV) — on top of their regular topline.
As part of the Connected Retail partnership, Zalando oversees all technological requirements and digital capabilities, from content to customer care and infrastructure, while the brand — singular or multi-brand — fulfils new orders from their own store. Zalando research states that Europe has more than 300,000 stores that remain unconnected — representing a significantly untapped stock pool for digitised retail.
Now, BoF sits down with Zalando Vice President for Direct-to-Consumer Carsten Keller on the company’s plans to double down on its concession-style strategy and how Connected Retail can support independent retailers while benefitting the Zalando customer-base through increasing availability or product, breadth of assortment, local services and potentially reducing the impact of delivery
What prompted Zalando to launch Connected Retail in 2018?
Connected Retail was created when we realised that there was so much untapped opportunity within the platform to speak to a range of customer-facing KPIs. You can think of so much more if you have physical stores involved in the platform. The consumer can actually go buy and test things out with easy click and collect capabilities.
Improving availability is one element. Another driver was sustainability. It makes a real difference to ship an item from around the corner, from a store which is closest to your location, as opposed to warehouses all spread across Europe. The last consideration was around locality. We asked ourselves, “Can we reach and engage all potential Zalando customers if we only operate from a warehouse setup?”
Now, following on from the huge growth that we had over the past few months, we’re looking to invest more than €50 million into this arm of the business, which two and a half years ago was just eight people and a barely defined strategy.
What is the most significant benefit that Connected Retail provides partner-retailers?
The sheer size of the platform represented the biggest opportunity. Because boutiques can tap into customers all across Europe, they can offer a more varied product mix with us. If you are operating alone, how else do you match that scale?
From a distribution perspective, there’s nothing bigger on the planet than a retail network like this.
It also gives brands a lever to sell your assortment over the season multiple times, which in the past didn’t work — [brands] would just sell with a reduced risk. As we start to see more sophisticated click and collect models and also personal shopping-style advice sessions in store, the physical retail landscape gets much more exciting. Online customers will be shopping offline too as you can digitally see the high street, see what’s in physical proximity and consolidate outfits.
How does Zalando nurture its partners’ digital presence?
We make it as easy as possible to play the game. We’ve invested in technology that streamlines and simplifies the process for brands, which sounds like a hygiene factor, but it’s not easy. We take care of the customer care, the content — it’s a clear platform advantage.
We’ve identified that the most important piece that a brand — be it premium, or not — needs from a platform is curation. So, we offer the infrastructure to accommodate brands with their complementing stories by giving them the capabilities to build outfits or capsule collections — almost like a Spotify playlist — that consumers can follow.
We then build a real relationship with our partners. We can provide them with customer insights and we work super closely with our key account management team to really understand who a brand’s clientele is on Zalando. What are they buying? And we help them to build the best e-commerce practice that is really their own. We’re working to make retailers much more resilient. They are using the information we provide them and the practices that we’re using ourselves to effectively build their own e-comm space.
Why is it important partner-retailers can control their own story telling?
At Zalando, we clearly understand that if you want to be a relevant destination for premium retailers, then you need to understand that these retailers obviously want real licence over the way they tell their story. A premium boutique has significant opportunity in linking up with a platform like Zalando. The potential lies in the younger consumers who sit at the bridge into the premium sector. They are browsing Zalando and open to spending more if they find the right product, but they may not yet be shopping with the premium retailer directly.
We’ve invested in technology that streamlines and simplifies the process for brands. We make it as easy as possible to play the game.
We take the angle where we want to co-develop the platform with the retailers. We really want to sit down with them to see what they need and then build it for the benefit of our joint customer.
How does Zalando’s Connected Retail strategy reflect market dynamics?
At Zalando and at an industry-wide level, over recent years we have seen a slow, steady shrink of the middle market. The winners are essentially polarised — the premium luxury brands and the more price-conscious brands. With Connected Retail, we are providing smaller retailers with reach — we are taking customer demand from Zalando and transferring it back to the stores. The probability of a retailer now selling a product is heightened. We’re seeing sell-outs on certain items during the season which were never sold within a brand’s traditional retail model.
We believe that, with Connected Retail, we’re tapping into the biggest and best stock pool in the industry. From a distribution perspective, it’s super big — there’s nothing bigger on the planet than a retail network like this — and yet it has real upside potential with regard to locality.
How does Connected Retail inform Zalando’s wider growth strategy?
There are four key dimensions to our wider strategy: availability, choice, sustainability and locality. Across our business, Connected Retail could have the most potential regarding each of these priorities for our customers. Locality, specifically, is an amazing benefit, as that is not something that we, nor any other platform, can achieve through our warehouses alone.
I think what you can see from our evolving strategy, from the commitment we see from the company, and now the commitment to treble the store network, is that Connected Retail will become one of the core supply sources on the platform. It has evolved so quickly, so it’s hard to project the strategy five years out — but we’re looking ahead to 6000+ retailers involved.