Online retailer Zalando has announced revenues of €4.5b in 2017, up 23% from the year before. Despite a slight decrease of its Ebit (from 5.9% to 4.7%-4.9%), profits before taxes will be over €200m. This is a very solid result for a company that needed huge economies of scale to be profitable. The logistics and supply-chain costs are indeed a major cost center and the free-returns no-hassle policy of Zalando cost them huge amounts of money (more info about free returns here and there)
Zalando is currently extending its logistics capacity and is building 2 main delivery hubs in Italy and Poland, as well as smaller hubs (Italy, France, Sweden).
Free returns, a driver of customer loyalty
Interestingly the free-return policy seems to pay off. This practice is at the heart of Zalando’s marketing strategy and probably tends to create new habits among consumers. The barriers towards online purchases of fashion items are falling down and the online model is eating up more and more of the differenciating aspects of brick-and-mortar stores.
In an interview for French journal “les Echos”, Zalando France boss Jonathan Trépo rightly stressed that a loyal customer has more value on the long-term and that the free-return policy was instrumental to drive customer satisfaction and loyalty (click here for more info about the effect of loyalty on profitability).
This perspective is interesting as returns are usually seen as a sign of insatisfaction (why would you return an object that satisfies you). Trépo rather sees them as a way to increase satisfaction and entice future purchases. The logics behind is rather clever. If returns are well handled the customer will be more likely to add more items to her cart the next time she makes a purchase, and will be more likely to keep more of those items.
Try first, pay after
The other rather disrupting idea proposed by Zalando is that customer should be able to try fashion items (clothes, shoes) first before paying item. That’s the process in a brick-and-mortar store.
This try-first-pay-after policy is already proposed to French customers who can hold the items up to one week at home to try them, and will be billed only 15 days after for the items they have kept. This is a very clever strategy that further removes barriers to purchase for reluctant customers.
Image : shutterstockTags: customer loyalty, customer satisfaction, e-commerce, logistics and supply-chain