Zalando SE Q2 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Clement Genelot - Bryan Garnier & Co Ltd, Research Division - Analyst : We have 2 questions from my side. So maybe first one is on the U.S. expansion. Is this still on board right now? And what would be (inaudible) behind it? And the second point is on the ZMS, you and other players in the consumer space are currently marketing marketing spending. So does it mean that ZMS will be lagging behind Asia? Robert Gentz - Zalando SE - Co-Founder, Co-CEO, GM & Member of the Management Board Yes, thank you for your questions. So first of all, I've seen this report as well. So -- so what can I say about I think, first of all, like we are an [entrepreneurial] company. So we always look for good opportunities, like, be it like expansion of what we can do more for our customers within Europe as well as geographic expansion. So like we constantly look out for like new opportunities. I think that being said, I think there's certainly an opportunity as well from Zalando at one point in time, maybe as well outside of Europe. But I think the time is not -- yes, it's not now, it's not in the next -- and for the time being. So we are very much focused on the 25 markets that we're in, in Europe. There's no organic launch in the U.S. any time soon. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 04, 2022 / 7:30AM, ZALG.DE - Q2 2022 Zalando SE Earnings Call So we are very focused on our opportunities in terms of Europe in the 25 markets and the propositions that we're in. On the ZMS question, yes. So as Sandra said, like we've seen actually a very good growth of ZMS with 40% plus. What we've seen interestingly in ZMS is that brands as well behave differently. So we have actually some brands that actually contract a little bit like they're spending to ZMS, but then there's other brands that actually take it more as an opportunity to double down investment. So it's -- it's a different behavior by brands, which overall actually leads to an increase of ZMS by 40% as we'll see generally in the fashion market that there are some brands that are more gaining and some brands that are more -- see more contraction. And we see the similar pattern as well in ZMS, but at a 40% growth so far.

Question: Anubhav Malhotra - Liberum Capital Limited, Research Division - Analyst : I've got a couple of questions myself. Firstly, on the returns rate, if you can give me an idea on where it's trending at the moment? And how does it compare to prepanamic levels? And if the requirement for minimum order values, have you ever seen any impact on return rate once you introduce those requirements? And then secondly, on the partner program and just in terms of what the reaction of the partners has been when you have increased your ZFS fuel surcharges to them and you pass them on? And then also on the partner program, you talked about the higher risk, lower prominence brands being moved a lot more to the partner program than the main dominant brand in the market. Can you give me an idea on whether those lesser prominent brands are making money on the platform at the moment given that I think a lot of them would be shipping individual shipments, especially those who do not take on the ZFS program with you and they would be selling single product shipments as part of a bigger order and it may be quite costly for them. So can you give me an idea of whether they are making money with you guys?

Question: Georgina Sarah Johanan - JPMorgan Chase & Co, Research Division - Analyst : Three quick questions from me, please. The first one, apologies if I missed it in all of the materials. But can you sort of share a rough number as to where partner program penetration is sitting now with in Fashion Store, please? Second one was just with regards to expansion outside of Europe. I know that you said is not the right time for organic expansion. If an inorganic opportunity did come up, would you still consider it not to be the right time, given the backdrop? Or would that be something you're open to, please? And then finally, I know you referenced that there's been no increase in defaults on buy now, pay later, but we have seen some stats in the U.K. that certainly, there are longer delays in payments and people sort of missing first payments and things. Are you seeing anything like that, please?

Question: Michael Benedict - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Just a couple for me, please. First one, on minimum order value, if you see an improvement in your order economics without any notice or impact on the top line, why didn't you implement the MOVs in additional markets until now? And then the second question on marketing costs. I think 8% in Q2. Is that a sensible level to assume over the course of the year as well? Robert Gentz - Zalando SE - Co-Founder, Co-CEO, GM & Member of the Management Board So yes, on the first question, on the minimum order value. So -- so maybe to answer that. So I think first of all, just what I just -- what I just said, like when we prioritize like our -- when we prioritize our projects that we're doing, like for us, the minimum order value was not -- in the past, it was not like the highest [prio] topic because essentially, yes, it helps you to generate more profits or to offset costs as we alluded to, but it doesn't really -- yes, it doesn't like necessarily, first of all, increase the customer experience. So therefore, we didn't prioritize in the past. So I think now, given the more of the macro situation, I think those kind of projects that don't help us necessarily on the growth side, but this will help us to essentially be as well a more cash-generating business. They are the ones that we now price really higher than the other ones. So it's not -- so that's the first piece on the answer. Second piece on the answer is obviously, with the increased cost inflation that we have seen on the logistics side. It made it even clearer that the minimum order value is now a project to pursue that we are able to continue to offer items below a certain threshold to our customers, especially as well to Plus customers. So that's why we now did it and not like 2 years ago. The second question was on marketing costs and ratio for the second half of the year.

Question: Jurgen Kolb - Kepler Cheuvreux, Research Division - Analyst : Very good. 2 questions from my side, still open. One is on Highsnobiety. I was wondering if you could maybe elaborate in some more detail as to what your plans are with them, when will we see the first, say, combined campaign or what is in from your perspective with that acquisition? And the second one, also going back to an acquisition you did in the past on the Swiss body scanning company, Fision. I was wondering how you have implemented this service already entirely? Or what is here the current level of expertise that you have gotten into your app and what's the impact that you've witnessed? Robert Gentz - Zalando SE - Co-Founder, Co-CEO, GM & Member of the Management Board Yes. Thank you. First of all, Highsnobiety. So I think fundamentally, as I alluded in my presentation, too, it's -- like Highsnobiety is much more a fashion authority, is much more like speaks to the CMO of the brands, why we mostly speak to the Chief Sales Officers or the CEOs of social brands. And I think this actually is a very good combination because it allows us to have access to brands in a very -- yes, in a very complementary way to us and actually allows us to understand more of what we can do on the storytelling perspective and what we can do to actually get the most exclusive assortment of these brands going forward. And I think this is already happening. So we're already -- like we have a lot of like joint approaches to brands and actually thinking about and working with some of the brands of how we can actually tell their stories even more than on what kind of content can we bring and how we get access to this -- yes, to these drops that are -- like everyone is trying to get to. So I think that's overall a big piece of what we are falling with Highsnobiety. The second bigger piece is selling the storage and producing content in such a way that we -- yes, that we get even more attention from our customers to tell stories on the fashion board in a very inspiring way. And here, we will have a release in the course of this year, where we make place on -- yes, on all properties much more for these storytelling perspective that we were creating now jointly with Highsnobiety. So on Fision, on the acquisition, so yes, we are -- since the acquisition, I think we are very happy with the team and how we integrate as well their knowledge and their capabilities into our size and fit into our size and fit, and capabilities. There's no release yet that we have announced that, yes, that brings it all to market, but it will follow soon, and we will let you know once this release is remarkably enough, yes.