People looking for the shoeshine-boy moment, the point where it all started to go wrong for the dotcom boom of the turn of the century often point to Boo. com – the Scandinavian online fashion retailer which managed to raise $130 million from investors in 1999 before crashing and burning with multi-million dollar losses in May 2000, less than six months after its launch.
The short but spectacular history of this failed enterprise has been chronicled many times, with various factors advanced for its disastrous performance. The most insightful studies, however, described it as an idea ahead of its time which failed primarily due to technological limitations.
It may be hard to imagine now, but 2000 was pre-broadband and the highest-speed internet available to most people was the glacially paced 56kb – less than one hundredth the speed most people can get on their mobile phones today. That was also the era before big data, Web 2.0, machine learning, and just about everything else that supports today’s online retail experience.
That’s where the world’s largest online fashion retail company enters the picture. Headquartered in Berlin with its technology hub, or Fashion Insights Centre, based in Dublin, the company now offers more than 300,000 products from over 2,000 brands with more than 50 million orders shipped to more than 24 million customers across 17 European countries, including Ireland, in the first half of 2018.
Zalando’s success is firmly based on its innovative use of technology as well as an enlightened sales policy. “If you have 300,000 products on offer, a customer can quickly get overwhelmed by the range of choice,” says northern Europe director Kenneth Melchior. “You need to offer people a personalised experience, where they are offered products relevant to them.”
That’s where the 100-strong Irish team and the enlightened sales policy come in. Part of what set Zalando apart from day one was its quite unique free-delivery, free-returns policy.
“We have now been in business for 10 years,” says Melchior. “It was started by two guys, Robert Gentz and David Schneider, who wanted to democratise fashion by bringing it to people’s homes. They had a free-delivery, free-returns policy that people thought would never work. We started with shoes and within three years had added clothing and reached revenues of €500 million – the fastest ever retailer to reach that.”
Free-returns policy
Crucial to the sustainability of the free-returns policy is reducing the number of items people find unsatisfactory. “The sceptics asked if we can really do this,” says Melchior. “But we said we would embrace returns. The business model is based on the fact that when you try things on that look good on models, they may not look good on you. With us, you can try on clothes in the luxury of your own home. You have time to try them on and return them if they don’t look good. A customer can try eight things on and return five of them and we make it easy to do it. We are now testing a service where we will go to people’s homes and pick up returns. The customer who orders eight items and only keeps three of them is still a good business case for us.”
But reducing the number of returns is critical. “You have to ensure that you are good at data to reduce returns. We use machine learning and AI to look into our customer data. For example, sometimes a 42 in one brand will fit but the customer needs a 44 in others. We can flag that the customer might need to go a size up.”?
That’s part of the work of the Dublin technology hub. “The Dublin Fashion Insights Centre plays an important role for us. It has experienced significant successes and has grown steadily over the past three years, with over 100 employees now working there on our smart product platform. We are capitalising on Dublin’s well-established and collaborative tech ecosystem and have managed to recruit a highly-skilled and motivated workforce.”
The Dublin centre will also play a key role in the company’s growth strategy. “We want to double the business by 2020. And we want to have an unlimited product range. If customers are not to be overwhelmed by that, we need good predictive analytics and big data. That’s where Dublin comes in. Trends change in fashion and you need to be able to personalise.”
And Irish fashion brands can benefit from this growth. “They can join us as partners on the platform,” Melchior concludes. “We can offer fulfilment solutions to them. Many smaller brands have trouble shipping to 17 markets. They can join our partner programme where they send their products to Zalando and we ship it for them. We can be a gateway to Europe for Irish fashion brands.”