How Does Zalando Make Money? The Zalando Business Model In A Nutshell

Zalando is a multi-national eCommerce company founded in 2008 by David Schneider and Robert Gentz, created under the name Ifansho, changed to Zalando as a reference to the Italian word zalare – or “making jokes”. Zalando generates revenues by purchasing stock and then selling it for a profit. Zalando also charges brands it partners with a commission for the privilege of selling on its platform. The commission Zalando collects on each sale is undisclosed. Zalando also collects advertising revenue from ads placed on its website and app.

Origin Story

Zalando is a multi-national eCommerce company headquartered in Berlin, Germany.

The company was founded in 2008 by David Schneider and Robert Gentz. Initially created under the name Ifansho, the name was changed to Zalando as a reference to the Italian word zalare – or “making jokes”.

Inspired by US retailer Zappos, Schneider and Gentz began selling footwear. After aggressive expansion across Europe, Zalando began to market itself as a digital shopping mall. Fashion and lifestyle products are now offered by retailers who can sell items using the Zalando Partner Program.

By integrating their stock into the Zalando Fashion Store, retailers get access to 17 European markets encompassing 38 million active consumers. This is underpinned by a suite of propriety technology the company uses to manage logistics, mobile shopping, customer service, and distribution.

Zalando revenue generation

Like all retailers, Zalando generates the bulk of its revenue by purchasing stock and then selling it for a profit.

In part, profitability is achieved through economies of scale. With most of the European market cornered, Zalando can purchase goods in bulk and offer competitive prices to its customers.

But money is also made by enhancing the online shopping experience. Zalando seeks to make shopping on its platform inspirational. It incorporates up-to-date and extensive information on its products and also offers fashion advice in the form of a glossary and blog.

Zalando also maximizes profits by offering free delivery and returns, with the latter being particularly important in an industry where return rates can be as high as 50%. To that end, detailed size guides and product presentation reduce the likelihood a consumer will have to return an ill-fitting product.

Partner program

Zalando also charges brands it partners with a commission for the privilege of selling on its platform. The commission Zalando collects on each sale is undisclosed.

In the partner program, merchants get access to Zalando’s expertise and the vast amount of consumer data is collects on purchases.

The company also offers a brand solution service to merchants, enabling them to sell on the Zalando platform under their own brand name. Merchants can also select between fulfillment by Zalando or fulfillment by their brand. Depending on the level of service provided, the company collects a commission.

Advertising revenue

Zalando also collects advertising revenue from ads placed on its website and app.

Under the Zalando Media Solutions banner, brands and other advertisers are encouraged to place marketing content on the platform. This content can also be re-used on affiliate websites where Zalando collects a commission from each referred sale.

Zalando vs. ASOS business model

Zalando and Asos are two third-party fashion giants that operate under the marketplace business model. Nevertheless, there are subtle differences between each company’s approach. 

Below we will compare the nuances of each business model.

Zalando business model

Zalando uses the platform-based marketplace business model where fashion brands can sell their products. The company is a reseller of wholesale products and also works with brands that want to utilize its customer base in targeted European markets. To that end, businesses are provided with various performance and analytics tools to maximize their sales.

The company notes that three areas are essential to the success of its platform strategy:

  1. Customers – Zalando offers a diverse range of seasonal, on-trend fashion items and importantly, strives to maximize item availability. The company has also invested heavily in supplier, payment, and customer service initiatives to make the process of ordering clothes online as efficient as possible.
  2. Brand partners – Zalando’s partner program allows third-party brands to easily integrate their stock on its platform. Leaders at the company also recognize the connection between brand assortment, product availability, and growth in both the customer and partner base.
  3. Infrastructure – as hinted at earlier, Zalando is skilled at coordinating its own logistics operations through scalable infrastructure. In Europe, the company has eight distribution centers across five countries. Infrastructure incorporates warehousing, delivery, and customer service – but this also includes content creation.

In recent years, Zalando has tweaked its business model amid rising concerns over the sustainability of the fast fashion industry. In 2021, it partnered with Save Your Wardrobe, a British Company which seeks to help consumers repair or clean clothes they already own and ultimately, purchase fewer new ones.

While this could impact Zalando’s bottom line, the partnership is part of a wider strategy toward a more sustainable business model. To that end, customers can purchase clothing made from sustainable materials with more product information detailing how materials are sourced. Consumers can now use the Zalando platform to buy or sell used clothing with the range now exceeding more than 200,000 items.

ASOS business model

ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as the main drivers.
Breaking down how Ultra-Fast Fashion Business Models work.

ASOS has a multi-faceted business model with a core focus on a customer experience for millennial consumers. As part of its value proposition, the platform adheres to the following three pillars:

  1. Personalization – ASOS fashion items cater to most body shapes and sizes, such as petite, tall, plus size, and curvy. 
  2. Customization – as a global fashion retailer, ASOS must also be able to customize its range and website according to factors such as seasonality, trends, and culture. 
  3. Convenience – the company also ships to nearly every country around the world with express or next-day options and detailed order tracking. ASOS also offers a convenient app with product recommendations.

Scalability and sustainability

As a fashion platform and seller of private-label products, the company’s multifaceted business model is inherently scalable. Indeed, these platforms tend to facilitate mass-market adoption where the number of interactions between buyers and sellers is maximized. One way ASOS keeps customers on its platform is via free delivery subscriptions, where customers pay $19 per month for next-day delivery on all orders. 

ASOS’s business model is also robust because it has spent the better part of 20 years collecting data on its buyers. For a competitor to steal market share from the brand, it would need to be an established player such as Amazon. Happily for ASOS, Amazon’s efforts to sell fashion items have been disjointed and subpar at best. In the meantime, ASOS continues to utilize its data to create private label products that are on-trend, profitable, and affordable.

Key takeaways

  • Zalando is a multi-national eCommerce company founded in Berlin with significant reach in the European market. It was founded in 2008 by David Schneider and Robert Gentz under the name Ifansho. 
  • Zalando primarily makes money by enhancing the traditional online retail experience and buying in bulk to increase profit margins. The company offers detailed sizing guides, fashion advice, and free returns for ill-fitting goods.
  • Zalando also takes a commission from each sale through its Partner Program for eligible brands. It also collects advertising revenue and affiliate commissions from advertisers.

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