Zalando’s 2016 results, unveiled this morning, shows how it is pulling away from rival Asos. Retail Week Prospect analyses the performance of the etailing giants.

German etailer Zalando may have been founded as a European imitation of the Amazon-owned footwear site Zappos.com back in 2008, but has come a long way since then.

Having diversified its offer into the wider fashion market, it has become Europe’s largest fashion etailer. While Asos is still far ahead in the UK market, data compiled by Retail Week Prospect highlights how Zalando has been outperforming its rival at the group level.

Sales performance

Sales levels at the two etailers were at a similar level six years ago, when Zalando was still in its infancy, but the German etailer has clearly outpaced Asos since then.

Zalando’s turnover of €3.6bn (£3.0bn) in 2016 was approximately double that of Asos over its most recent financial year, although it did benefit from the weakening of sterling last year (these figures are converted using annual average exchange rates).

Zalando has a much broader target market than Asos, which allows it to offer a wider range of brands – 1,500 in total last year.

This would have been a major factor in Zalando’s ability to increase its customer and order numbers over the last few years.

International customer base

Last year Zalando generated approximately half of its sales in its core market of Germany, Austria and Switzerland, while the UK still accounts for 43% of Asos’s turnover. Where the two really differ though is their customer base outside of Europe.

Zalando is still very focused on Europe and only 7% of its overall sales were to customers in the ‘rest of the world’ segment. For Asos this figure stood at close to a third, with the US market alone accounting for 12.8% of overall sales.

For Zalando it made sense to initially focus on Europe as it benefits from a large domestic market that is also well-connected to neighbouring countries. For Asos - being based in the UK - there isn’t much difference in terms of setting up warehouses on the continent or further afield in Australia or the US.

Profitability

Substantial investment in establishing its international operations meant that Zalando did not report its first full-year profit until 2014. Asos meanwhile has been profitable for well over a decade.

Zalando has been quick to make up ground though and its pre-tax profit of €192.9m (£157.9m) last year eclipses the £32.7m made by Asos. This gives it a pre-tax profit margin of 5.3% – compared with 2.3% for Asos.

The German etailer is now capitalising on its significantly increased scale and this is evident in its cost base. For instance in 2016, its fulfilment costs to sales ratio fell by 2.6 percentage points to 23.3%, while its marketing costs accounted for 10.3% of revenues – down from 11.7% in the previous year.

Customer metrics

2016AsosZalando
Site visits (millions) 1348.7 1991.6
Mobile traffic (% of overall visits) 66.0 65.6
Active customers (millions) 12.4 19.9
Number of orders (millions) 38.3 69.2

Despite now being twice the size of Asos in terms of sales, Zalando’s visitor numbers to its website last year were just 50% higher.

While this doesn’t tell the full story, it does appear to indicate that Zalando is finding it easier to convert its web traffic into sales.

Both etailers attract the majority of web visits through mobile devices these days, but Zalando’s average basket size is calculated to be around 15% higher than that of Asos.

In this respect, Asos’ target market will put it at a disadvantage as younger shoppers generally have less disposable income to spend.

  • The analysis was compiled by Retail Week Prospect, a live intelligence platform offering insight and analysis on the UK’s retailers.