Zalando is one of the most powerful online textile companies that of today. If you’re looking for clothes, shoes or accessories online, one of the first advertisements that you will see will be from Zalando. But how did Zalando get to this point? What was its internationalization process?
Zalando and its international process
Zalando is an online fashion retailer which specialises in clothing and footwear for men, women and kids. It was founded in 2008 in Germany where its headquarters remain in the capital, Berlin. Nowadays, Zalando is present in 15 European countries (Germany, Austria, Belgium, Spain, Finland, France, England, Italy, Luxembourg, Norway, Netherlands, Poland, Denmark, Sweden and Switzerland).
As a result of the its success in Germany, the firm initiated its internationalization process in 2009 and first broke into the Austrian market, followed by the Dutch and French markets in 2010. It was in that year when they prepared further expansion towards Italy, the U.K. and Switzerland where they were established by the end of 2010. However, it was in 2011 when the big expansion occurred reaching 7 new markets: Sweden, Belgium, Spain, Finland, Denmark, Poland and Norway. Following this expansion, the rhythm slowed down by expanding only to Luxembourg in 2013.
Taking in account this pattern in choosing new foreign markets, we can assume that Zalando followed a careful strategy based on only expanding to countries within close proximity. All of these European countries shared similar cultures, principles and consumer preferences.
This internationalization process paid off and has allowed Zalando to exploit the full potential of e-commerce in Europe, given that the majority of its annual sales are already generated from regions outside from Germany. This is mostly due to the Zalandos’s efficiency when dealing with the different countries as they saw it as critical to create different websites for each of the countries. (15 country-specific websites, 12 languages and 7 currencies).
Aside from the aforementioned slowdown in 2012/13 however, the rapid expansion has has not been without problems or challenges. For example, the UK market had backfired due to a difference in culture compared with the continental countries, not to mention its competition against popular, local, on-line retailer, ASOS. Zalando could also face problems in Italy where the fashion industry is treated differently from the other European countries. These cases illustrate that foreign market expansion can sometimes lead companies to a decrease in value on the grounds of high entry costs and insufficient demand.
Key points in the international strategy
But what strategy does a company need to follow in order to match Zalando’s success? And what are they keys to this success?
1.- The brand’s strategy is based on consistency and centralization of one directive with the other. Zalando follows a centralized logistics model which allows a better scalability when the company wants to internationalize. This way, it takes the same efforts to prepare an order for Germany than it does to prepare one for Spain giving agility to the client. This is vital in order to reduce the reaction time after product acquisition.
Each market determines the final delivery to the consumer, for example, in Spain it is more common home delivery, whereas in Scandinavia consumers frequently use pick-up-points. Zalando as a successful international company adapts to the needs of the consumer.
2.- Again, centralization is the base of Zalando’s strategy. Zalando has centralized equipment focused entirely on web development for each country. The advantage of this is that any improvement in the German website will also be updated on the Spanish or Italian sites.
3.- On the other hand, in the Berlin Matrix, every country manager shares the same space and so the dialogue is simultaneous. They can benefit from each other and what happens in each territory.
4.- Zalando takes into account the obvious aspect where the higher the purchasing volume, the better the cost effectiveness. Having a centralized management is critical for this. (Cost synergy).
5.- The firm also takes into account different payment methods. They use general payment methods in each shop, paying attention to the needs of each market. In Spain, Italy and Poland, the introduction of COD (Cash On Delivery) has been very important, as the customers often feel safer using this method.
6.- The human resources team at Zalando is in Germany, where most of the employees are German’s who have lived in Spain and therefore they are familiar with local Spanish habits as well as the ones from the matrix.
7.- Zalando’s Marketing Strategy follows a coherent line with the central head office in every country, from which they manage the international campaigns. The firm also trusts in local agencies who have higher expertise in each market. A very curious case was in Italy, where after being present for over a year and a half in the country, the managers of the firm realised that they had reached their limit of users. They had to organise an offline campaign in order to attract new users who were more adaptable to messages offline than online. Their problem was “Trust” and so the company chose to hire a celebrity to deliver the message, and thus gaining trust.
Zalando will close this financial year with a turnover of 3,000 millions € and 10,000 workers. In terms of revenue, The company earned as much in September as in 2014. They say that the fast growth was driven by strong customer metrics, and as a result the directors now know that they are making the right choices. They are sure that they will close the year with an important growth, heading in the right direction for the future. Zalando now plans to open a new logistics centre in Germany which will have around 5,000 employees. They will continue to focus on technology and their clients (both of which are key aspects to the company’s success), so they will further develop the mobile stores as they predict that the future for clothing stores is online. Zalando is doing everything possible to avoid becoming complacent with its results, and declaring that the company is “in the pole position to continue to outgrow and drive the European online market in fashion”.