For more analysis of the outlook for Zalando, please consult the credit rating exclusively available on investor platform ScopeOne. 

Scope Ratings says Zalando has recorded a decade of robust revenue growth, running at a compounded annual rate of more than 40% between 2011 and 2020, driven recently by two factors.  

“First, Zalando has deepened the shift to selling a broader range of goods through its online store through a partner programmes which have steadily increased gross merchandise volume,” says Adrien Guerin, analyst at Scope. A deal with beauty-products retailer Sephora is one example of Zalando’s diversification. The company has more than 4,500 brands in stock, sold to customers in 23 countries, according to its website. 

Secondly, Zalando was particularly well placed to benefit from the acceleration in e-commerce volumes in Europe related to the Covid-19 crisis and associated lockdowns. Revenue rose 23% in 2020 from 2019. 

“However, the German company needs to remain nimble and adapt to what remain challenging trading conditions,” says Guerin.  

Clothing retailers which have been slower to move their business online are now catching up such as Inditex SA’s Zara and Hennes & Mauritz AB. Zalando also faces competition from smaller but fast-growing online rivals, such as the UK’s Asos PLC and the recently listed German retailer About You AG. 

Much is riding on how well Zalando can capitalise on its 44.5 million active users – as of the second quarter this year – to develop its delivery, fulfilment and market services for branded consumer-goods suppliers such as Adidas and Nike. They have benefited from online stores as the pandemic reduced footfall in their own physical shops. 

“One advantage that Zalando has is a strong financial position - little debt, ample cash reserves - which could be important if the economic recovery from the pandemic proves bumpier than predicted,” says Guerin.