• HBP# IM1259

IMD-7-2401
30.09.2022

ZALANDO: A DIGITAL
FOUNDATION FOR FASHION
SUPPLY CHAIN SUCCESS

Researcher Dr Richard Markoff, David Schröder (COO, Zalando SE), Professor Arnd
Huchzermeier (WHU) and Professor Ralf W. Seifert (IMD) prepared this case as a
basis for class discussion rather than to illustrate either effective or ineffective handling
of a business situation.

Copyright © 2022 by IMD – International Institute for Management Development, Lausanne, Switzerland
(www.imd.org). No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form
or by any means without the prior written permission of IMD.

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

By 2021 Zalando had become Europe’s largest pure player in online fashion. But the
road to success had not always been smooth. Back in 2014, six years after it was
founded, the Germany-based company was at a crossroads. With an impending initial
public offering (IPO) and investors looking for results, the company was nowhere near
being profitable. To achieve profitability and market leadership, it would have to leverage
advanced technology and develop a data-driven supply chain. So, with the innovative
spirit of a startup, it embraced the challenge of building internal digital tools and
competencies to drive supply chain efficiencies and capture growth opportunities.
The online fashion supply chain had to wrestle with the same challenges of tight margins
and high customer expectations familiar to all online retailers. However, the fashion
industry faced other unique challenges – high SKU counts, high seasonality, relentless
product turnover and frighteningly elevated return rates.
By developing proprietary systems and machine learning tools, Zalando developed a
responsive, flexible distribution network, trustworthy order promises and a sophisticated,
holistic approach to returns management.
Through a data-driven journey born out of a crisis, Zalando discovered that these
capabilities not only delivered supply chain excellence and pioneering new innovative
techniques but also helped to fulfill the company’s vision of providing endless choice,
seamless convenience and a tailored digital experience to millions of customers
across Europe.

COMPANY BACKGROUND

Online fashion, a big part of a growing market

E-commerce is in full bloom in Europe. The share of internet users shopping online rose
from 60% in 2017 to 73% in 2021, and over the same period the share of e-commerce
as a percentage of total gross domestic product (GDP) went from 3.1% to 4.6%, a growth
of almost 50% in four years (see Exhibit 1).

Among the various products available online in Europe, none was more popular than
fashion items like clothes, accessories and shoes (see Exhibit 2). In 2020, 63% of online
shoppers purchased apparel and fashion accessories, more than double the next biggest
category – prepared meals. Taken together, the online fashion and accessories market

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

in Europe was worth about €172 billion in 2021, 1 with 30% of total sales occurring
through online channels. 2

Zalando was the largest fashion-only online vendor in Europe, with Otto being its closest
European competitor although there was a big gap between Zalando and other vendors
(see Exhibit 3). However, considering all e-commerce sites, including those offering
more than fashion, the largest online fashion retailers globally were Alibaba (China),
Amazon (US) and jd.com (China). 3

Zalando: The Starting Point for Fashion

Founded in Berlin in 2008 by Robert Gentz and David Schneider, Zalando originally sold
shoes online in Germany before growing its offerings to include apparel and accessories.
With a laser-like focus on customer satisfaction, the company reached €1 million per
month in sales within six months. From there, Zalando expanded to France, the
Netherlands and Austria and began audacious media campaigns that helped garner
attention. By 2012, Zalando was present in 15 European markets and annual sales
surpassed €200 million. The company went public in 2014, and by 2021 it was among
the largest European online retailers in terms of both sales and market capitalization.

In 2019 the company set its vision to be The Starting Point for Fashion. The vision rested
on three pillars: Offering its customers endless choice, seamless convenience and a
tailored digital experience.

In 2021 Zalando had over 48 million active customers 4 in 23 markets (see Exhibit 4). Its
customers were very loyal, with 47% of them visiting the company’s website at least five
times per month. To support its sales, Zalando had 13 fulfillment centers across Europe,
with another 3 projected to open by 2023 (see Exhibit 5). The company’s earnings
before interest and taxes (EBIT) amounted to €424.7 million on revenue of €10.35 billion,
for a profit margin of 4.1% (see Exhibit 6).

Zalando offered over 5,800 different brands and 17 private labels and began branching
out into complementary categories such as beauty (see Exhibit 7 for website image).
The product catalogue almost doubled in size from 2017 to 2020, to reach 890,000
products. Considering different size and color options, the total number of stock-keeping

1
https://www.statista.com/forecasts/890785/e-commerce-revenue-in-europe-fashion-by-
segments
2
https://www.themds.com/companies/top-fashion-retailers-in-europe-after-covid-19-amazon-
leads-italy-intersport-takes-france.html
3 https://www.deraktionaer.de/artikel/commerce-brands-unicorns/amazon-alibaba-ebay-wer-hat-

die-nase-vorn-20227193.htm
4
An active customer is defined as having placed at least one order in the last year.

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

units (SKUs) amounted to about 2 million discrete articles for sale at Zalando, with more
than 2,000 new products added every day.

In the early days, customers used their desktop computers to place an order. Since the
introduction of the Zalando app in 2012, however, mobile traffic had steadily grown and
in 2021 accounted for around 90% of visits and more than 50% of sales. The introduction
of the app led to more frequent orders, and app customers were also much more
engaged through, for example, adding to wish lists, checking for new products or
discounted offers, and benefiting from the services of the loyalty program.

Transition to the platform

In 2015 Zalando began to leverage its emerging online success and logistics excellence
into new value propositions. First came the Partner Program, which allowed brands and
retailers to construct a presence on the Zalando website and app to reach a larger
number of consumers across Europe; they could employ Zalando’s digital experience,
customer care and payment processing, while maintaining full control of product offering,
product content, product pricing and order fulfillment, much like Alibaba in China. With
its Connected Retail Program, Zalando had recently taken it one step further by enabling
online orders to be shipped directly from third-party resellers’ stores. This allowed small
retailers to enter the online space in a scalable way.

Launched in 2017, Zalando Fulfillment Solutions gave brands the opportunity to use the
company’s logistics network as a logistics provider to fulfill partner orders received
through Zalando. The three main value propositions of Zalando Fulfillment Solutions
were (1) its highly localized delivery and returns solutions to enable cross-border e-
commerce within Europe, (2) the sharing of warehousing and shipping costs between
different sellers, and (3) the flexible pay-by-use offering allowing partners to scale up and
down without upfront investments and fixed costs.

The growth of the platform business was reflected not just in the company’s revenue but
also in the notion of gross merchandise value (GMV), which captured the value of all the
goods sold on the Zalando platform, irrespective of whether they were sold by Zalando
itself or by its partners. GMV almost tripled from the launch of the platform concept in
2017 through 2021 (see Exhibit 8), and the platform business thus represented a
growing share of site traffic, customer orders and items shipped through its physical
distribution network.

Technology as a core competency

In the years leading up to 2014, Zalando faced an internal crisis. While delivering
exceptional growth, the company was struggling to reach profitability, yet planned to
execute an IPO. This would provide it with the funds to fuel its growth and European
expansion ambitions.

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

In the words of David Schröder, Zalando’s Chief Operating Officer:

What made us learn most were the crisis moments. There was no clearly
defined strategy in the early years and yet we realized that to be a
successful fashion e-commerce company we needed to be a successful
logistics and technology company.

Zalando recognized that one of the largest obstacles to scaling the company was that its
information technology (IT) could hardly cope with the ever-rising needs of a fast-growing
company. The tools available at the time were simply not up to the task of managing the
complexity and scope of Zalando’s operations. According to David:

In 2013 we ended with a loss of more than €100 million. At some point, we
would need to turn profitable to fund our growth and not lose the
confidence of investors. It was time to focus on driving efficiency and
operational excellence and we started to standardize and automate our
logistics processes and to build proprietary and scalable technology
solutions and infrastructure.

Company-wide enterprise resource planning (ERP) systems at the time were built with
a market-specific logic, explained David. Zalando could not easily consider all of its
countries as one market for the purposes of distribution, and its IT systems were
inadvertently creating silos that the company wished to avoid. Furthermore, these third-
party systems, which had been largely optimized for offline retail use cases, were unable
to cope with the rapidly growing number of countries, customers, categories, products
and orders.

At the level of execution in the distribution centers, the warehouse management systems
(WMS) available on the market were incapable of managing the volume and complexity
of a significant pure e-commerce player in terms of the number of different products,
shipping destinations and transporters to integrate. The underlying data architecture was
not able to manage the high number of product attributes Zalando needed to fully capture
and describe its products. On the front end, the same issues were present, with the
added complexity of having to manage several countries, local payment and delivery
methods, as well as a variety of languages.

In addition, the shortcomings of third-party IT systems were stifling innovation, a worrying

development for a company with startup roots that valued entrepreneurship and
experimentation. Third-party software providers were usually not interested in the
capability ideas that might suit Zalando but few of their other clients, and even when they
were interested, these specific developments took months to deliver. Workarounds
became the norm; systems complexity grew and Zalando’s frustration mounted.

Faced with this challenge and threat to the company’s strategic plans, Zalando decided
that to be a successful e-commerce company, it needed to rethink its core competencies

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

and remove dependence on third parties. Zalando needed to be a technology company,

not just a fashion e-commerce company. David explained:

From 2011 to 2013, we largely used off-the-shelf software and worked on

customizing and configuring it. It was simply the fastest way to get started,
and when you start you don’t really know what you need … e-commerce
software was really in its infancy, so we had to build our own.

Zalando built a new shop system – the IT tools that interact directly with the consumer –
in three months. The company also built its own in-house WMS fit-for-purpose to handle
the huge order volumes and catalogue.

The development, management, maintenance and improvement of these advanced IT

tools required Zalando to build a new function within the company. The technology
capability supported cross-functional teams that were able to define, design, code and
test new ideas in a matter of weeks. Since the IT tools were fully developed in-house,
improvements could be proposed, developed and deployed fast. There was a company-
wide sense of ownership over the IT tools, driving employees to use them to their fullest.

Having complete mastery over the design and code of its key tools, Zalando built the
underlying data architecture for ease of access, enabling a data-rich company
culture. Recognizing the potential of data as a resource to drive future growth, in
2015 the company opened its “fashion insights center” in Ireland. The center was
dedicated to research and development to foster Zalando’s capabilities in big data
analytics, using machine learning and artificial intelligence; it employed over 100 data
scientists and engineers. This tech hub was soon complemented by a second one in
Helsinki. David noted:

There is only one caveat, though: some data might only be useful until the
next season starts!

ENDLESS CHOICE
A key pillar of being The Starting Point for Fashion was for Zalando to offer as deep and
broad a selection of apparel as possible, providing what the company termed “endless
choice.” Offering an endless choice to consumers meant not only a wide array of brands
(about 5,800) and SKUs (about 890,000) but also the declination of these SKUs into
sizes and colors, leading to a total number of products of around 2 million. The nature of
the fashion industry meant that the seasonal and yearly turnover of these products was
intense, with more than 2,000 new products added every day.

The implications of the ambitions of endless choice on the supply chain were deep and
structural. Zalando’s supply chain was designed to meet these challenges and leveraged
data to do this efficiently.

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Location, location, location

The high degree of complexity that came with such a large catalogue directly impacted
the way in which Zalando designed its distribution network.

At its inception, Zalando did not have to confront these difficult questions. As David
explained, there was one fulfillment center outside of Berlin, and it was sufficient for
picking and shipping all of Zalando’s orders. As the company grew and the need for a
second warehouse became apparent, the company simply split the catalogue in two:
men’s apparel in one warehouse, women’s apparel in the other.

As the catalogue and volumes grew, the limitations of this approach became apparent.
Extra capacity in one warehouse was not easily used to help cope with a shortage of
capacity in another, for example. Meanwhile, volume, SKU count and the number of
markets continued to grow.

Powered by its in-house IT systems, Zalando took a data-driven approach to the

problem. The company looked at what products tended to be ordered together, and
which products tended to be more popular in different regions. This information was used
to define the catalogue for each fulfillment center such that no two locations had the
exact same catalogue, yet the same product could exist in multiple locations.

A constant balancing act

The nature of the fashion business is such that the weather is always changing, and so
are consumers’ tastes. The decision to store a product in a specific location comes with
the task of determining how much of that product to store in each location. If Zalando
guessed wrong, then a customer order for more than one item might end up being fulfilled
from more than one fulfillment center, a costly and time-consuming operation.

To address this challenge, Zalando’s data scientists developed proprietary machine

learning (ML) algorithms. These ML algorithms ran every day, looking at vast data sets
culled from the company’s in-house IT systems. By looking at how much each product
had sold in the previous few days, how many orders were being placed currently, and
even which items were on customers’ wish lists or being perused on the website or app,
Zalando developed insights into which products risked selling more than previously
expected in the regions serviced by each fulfillment center. As David pointed out:

Orchestrating this network is impossible if you do not have a data answer

to the problem. It simply cannot be figured out manually.

Armed with this information, Zalando redirected inbound and return volumes and shuttled
inventory between its fulfillment centers every day, fine-tuning which products and how
many of each were available in each location. This task – called inventory rebalancing –
was the result of a careful trade-off between the competing costs of transportation,

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inventory and service. Zalando tackled even further levels of complexity, including not
just short-term externalities like weather but also the lifecycle of the product, since as
seasonal products move closer to obsolescence, the cost risk of inventory grows.

Product returns: Challenge or opportunity?

The level of returns seen by online fashion retailers could be staggering. Around 50% of
the items shipped by Zalando were returned to the company. To Zalando, this was a
feature of the industry, not a bug. The company’s understanding of endless choice and
seamless convenience led it to view the online shopping experience as similar to that of
a brick-and-mortar store. David explained:

There’s a reason why people take multiple things into the fitting room. Even
if they see an item they like, they are looking for the right feel and fit.

Customers often ordered different colors or sizes of the same item, with the
understanding that it was acceptable to return those that did not fit well or did not meet
their expectations.

For the supply chain, the consequence was a return volume that was half as large as the
outbound sales volume. To deal with this, Zalando set up 23 returns and refurbishment
centers throughout Europe (see Exhibit 9). In these processing centers, each item of
clothing was inspected and treated as needed to return it into stock, including ironing,
washing and repackaging, if necessary. Zalando succeeded in recovering and returning
to its fulfillment centers about 97% of the returned fashion items. Almost all the rest were
sold through Zalando’s network of 13 outlet stores in Germany.

This steady stream of return flow was an opportunity for the supply chain. The company
integrated all of the information available about current or pending returns into its
inventory rebalancing process. Zalando took into account returns that were being
processed, returns on the way to processing centers, and even products that had been
ordered and would likely be returned but had not even arrived at the customer yet.
Including all of this data in its ML algorithms allowed the company to avoid unnecessary
inventory rebalancing by using the current and anticipated returns flow to fine-tune each
fulfillment center’s inventory level.

SEAMLESS CONVENIENCE
The second pillar of Zalando’s vision was to offer seamless convenience to customers.
This objective had many implications for the customer experience while using the
website or app, but also demanded that the supply chain provide capabilities that
delighted customers.

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“One Box” experience

Zalando’s efforts to constantly rebalance inventory between its fulfillment centers, along
with using returns flow to adjust inventory, had meaningful cost and working capital
optimization implications. Having the right inventory at the closest possible location
meant lower transportation costs and lower inventory write-off costs when a product
reached its inevitable end of life.

But there were also service and convenience stakes to using data to deploy inventory.
In order to make the customer experience as enjoyable and seamless as possible,
Zalando aimed to provide its customers with a “One Box” experience. This required
delivering all items in an order to the customer in a single parcel, as opposed to several
parcels. Depending on the market, a typical Zalando order basket contained two to eight
items, with the average being around four. The more likely it was that the customer order-
basket items were located in one fulfillment center, the easier it was to deliver everything
in one box.

If Zalando got its inventory deployment wrong, the solution was not to ship two parcels.
The supply chain team would pick the items at each fulfillment center in parallel, then
consolidate them in the nearest fulfillment center. Although this consolidation met the
ambition of the “One Box” experience and was seamless for customers, it prolonged the
delivery lead time for customers and generated additional complexity and cost for Zalando,
raising the stakes of using ML effectively to manage the fulfillment center network.

Delivery promise
Another important element of the seamless experience was the ability to provide reliable
projected order delivery dates – what Zalando called the “delivery promise.”

The complexity of this projection became clear to the company in a moment of crisis. In
the cyber week of 2018, Zalando experienced an all-time daily peak of order inflow, and
the fulfillment centers did not have the capacity to handle the much higher than usual order
inflow, forcing customers to wait much longer for their delivery than promised at the check-
out. The company realized that in order to properly develop the capability to define the
order promise at the time the order was placed, a data-driven approach would be needed.

The first challenge was to understand the instantaneous capacity of each fulfillment center.
Determining this involved not only capturing the time required to pick and ship the order
but also the level of automation used and the available labor at any moment. It was not
difficult to generate the data because of the company’s data culture. The WMS software
was cutting edge and developed in-house. Next, the transportation stage had to be added.

The more granular and up-to-date the data, the stronger the predictions. Masood
Choudry, Zalando’s Senior Vice President of Logistics, explained the high risk of not
having updated data:

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We have delivery promises that were trained in a period when we had

excess resources – we had very fast dispatch times from warehouses, and
we had carrier networks that were empty. But now, sales are more buoyant
and we are operating close to maximum utilization. We are therefore in a
position where we have done the ML exercise. Since this is largely based
on historical data, we have delivery promises that, in today’s environment
and circumstances, are no longer accurate enough.

Developing an extensive ability to predict order promise dates to customers led to

another powerful optimization tool for Zalando: One that allowed it to instantly find trade-
offs between lead times and costs. For example, if the closest fulfillment center did not
have enough capacity to pick and ship an order on the same day, would it be wiser for
Zalando to ship the order from a more distant and therefore more expensive fulfillment
center or rather to wait until the next day? There are many variables to that question:
What is the delivery promise? How valuable is this customer? Is the customer a member
of the loyalty program? How much more does the incremental transport cost? Which
fulfillment centers are more idle than others?

As Dominic Bertram, Vice President of Fulfillment Core, pointed out:

What the company had not realized at that time were all the challenges
that had come up by no longer operating a single warehouse in Germany,
but operating a fulfillment network across Europe. This materialized very
sharply in the cyber week of 2018, since we had no systems to balance
the volumes across all our sites.

TAILORED DIGITAL EXPERIENCE

The final pillar of Zalando’s vision of being The Starting Point for Fashion was to offer a
tailored digital experience. At first glance, this did not seem to have a clear connection
to the supply chain, but as with the other elements of Zalando’s data-driven approach,
one key element in Zalando’s efforts in tailoring the digital experience focused on the
challenge of returns.

One size does not fit all

There are many reasons a customer might return an online purchase, but there is one
that is unique to apparel: The size does not fit. According to Zalando, one-third of items
were returned for size-related reasons. The expectation that the size would not be correct
had a strong influence on customers’ behavior. Customers sometimes even ordered
several sizes of the same item, in the hope that one would be the right fit.

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

With the understanding that returns were a powerful driver of both customer satisfaction
and the efficiency of Zalando’s supply chain at every level, the supply chain team began
delving deeply into the data trying to identify ways to minimize unnecessary returns. The
benefits, however, were not limited to the supply chain. According to David:

With every item shipped and sent back, we can learn more about the
customer’s body, without them sending us a picture or providing us with
measurements … we use this data to provide personalized size
recommendations and to improve the customer experience in the app and
the website. Since this reduces unnecessary returns, it has a positive
impact on the environment and makes us more efficient.

Zalando began to understand that an initiative to use data to minimize returns overlapped
with mining the pillar of the company’s vision of providing a tailored digital experience.

Zalando set up a specific team to build its data-driven approach to minimizing size-
related returns. To lead the effort, Zalando brought in Stacia Carr, who would become
the Vice President of Size and Fit.

The heart of Zalando’s approach to minimizing returns was to develop ML algorithms

that would predict whether an item being ordered by a customer would fit. If Zalando
could find a way to tailor the customer’s path to purchase toward items that had a higher
probability of fitting, then returns would automatically go down.

The nebulous idea of size and fit

There were two dimensions to the problem of size and fit. The first was the initial,
supposedly standard, definition of sizes. There was no agreed standard system for
clothing sizes, and the systems that did exist did not recognize the wide diversity of body
sizes. 5 On top of the lack of standardization in sizing systems, there were variations in
the production quality of manufactured items of apparel that were declared to be the
same size. Stacia explained:

Fast fashion is not only made very quickly but also often made very poorly.
So, it adds another level of complexity in terms of being able to tell if an
item is going to fit.

Adding to the challenge was the fact that, in addition to all the uncertainty and variability
around product size, Zalando did not have any information about the other side of the
size/fit equation – the customer’s body size.

The initial approach was to delve into the purchase/return history data available within
the company’s data resources. Using ML algorithms that trained themselves on this data,

5
https://en.wikipedia.org/wiki/U.S._standard_clothing_size

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Zalando began to identify patterns in which customers might not find a certain size of a
certain type of garment from a certain brand to be a good fit.

Taking things further, Zalando began using computer vision to analyze marketing images
provided by brands for items that were not yet for sale through Zalando. The ML
algorithms analyzed the image and tried to predict the return patterns by anticipating
whether the garment would have a tight or loose fit for the stated size.

Connecting data to tailored experiences

Operationalizing this data and predictions was a delicate question, far beyond the remit
of the supply chain. There was a risk of poor customer perception if customers were told
that they were not choosing the right size. Stacia elaborated:

Not only do we have clothing and body variables, but we also have body
image issues. So our recommendations are not about the customer, they
focus on the garment. We know the merchandise, and we are here to tell
you how the merchandise will work for you.

To craft that message, Stacia employed marketing experts who provided tailored digital
information to consumers about how a particular garment they were looking at tended to
behave in its size identification, framing the information as a perceived personal touch.

The prediction models were now sufficiently sophisticated that the return risk could be
calculated at the item level or customer level. Stacia noted:

There are stylistic choices to consider. Some people prefer a tight fit to a
loose fit. So, some advice is article advice (this item runs big or small) and
if we know a bit more about the customer, the advice will consider their
personal return probability.

Taking it a step further, Zalando asked its customers for feedback on the fit of recent
purchases in order to enhance the database. The company found that customers who
replied to these queries came back more often, spent more time browsing and had higher
customer lifetime values, suggesting that the data collection used to minimize returns
was in itself perceived as a tailored experience.

SUSTAINABILITY: DOING MORE

Public awareness about sustainability has grown considerably in recent years. In
particular, the fashion industry was the target of increasing scrutiny. 6 Recognizing this,
and the company’s goal of being The Starting Point for Fashion, Zalando initiated the

6
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“do.MORE” strategy as part of its corporate vision to be a sustainable fashion platform

with a net-positive impact for people and the planet.

This orientation had several implications for Zalando’s supply chain in the future. A
prominent element of Zalando’s sustainability commitment was to reduce its own (scope
1 and 2) carbon footprint by 80% between 2017 and 2025. In addition, to tackle scope 3
emissions across the supply chain, as part of the Science Based Targets initiative
(SBTi), 7 the company used its leading market position to encourage its suppliers to adopt
SBTi targets, with a target of 90% of suppliers by 2025. This included apparel
manufacturers and logistics providers such as transporters.

Zalando’s focus on minimizing returns and optimizing inventory and transportation also
played an important role in deploying do.MORE. David noted:

If you can have people make better choices with the sizes they buy, then
the whole supply chain becomes much more efficient. You have much
lower return rates, you ship far less out, get far less back, and order less
inventory in the first place. It makes us more sustainable.

The balance was delicate. The company focused primarily on measures that helped
create better outcomes for all stakeholders. As David pointed out:

Free returns have been part of Zalando since the beginning. For us, it is a
key attribute of the brand to offer free returns, but we definitely want to
avoid unnecessary returns that do not make sense for the customer,
Zalando, or the environment. Size-related returns are a great example of
that. Customers want clothes that fit and we want to provide them.

By 2021, Zalando had successfully reduced its scope 1 and 2 emissions by 64%
compared to 2017 and used offsets to fully compensate for any remaining emissions
including those arising from deliveries and returns, addressing its supply chain footprint.
Furthermore it continued to make significant investments to move the fashion industry
from a linear to a more circular model of design and manufacturing, use and reuse, and
collection and recycling with significant implications across the end-to-end supply chain.
As successfully applied in its own supply chain before, Zalando again set out to leverage
data and technology to solve this enormous challenge.

7
https://sciencebasedtargets.org/blog/how-can-companies-address-their-scope-3-greenhouse-
gas-emissions

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 1: European e-commerce turnover growth

Source: © 2021 European E-commerce Report. Amsterdam University of Applied Sciences &
Ecommerce Europe https://ecommerce-europe.eu/wp-content/uploads/2021/09/2021-European-
E-commerce-Report-LIGHT-VERSION.pdf

Exhibit 2: European e-commerce category segmentation 2020

Source: Eurostat https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20220202-1

© 2022 by IMD 14
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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 3: Annual sales of Top 10 online fashion retailers in 2020 (US$ billion)

10 9.1
9
Annual sales (US$ billion)

8
7
6 5.6 5.4
5
4 3.56 3.5 3.5
3 2.14
2 1.5 1.4 1.1
1
0

Online fashion retailers

Source: Authors based on data from bllush.com

Exhibit 4: Zalando’s market presence 2020

Source: Company information

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 5: Zalando’s supply chain footprint 2022

Source: Company information

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 6: Zalando’s income statement 2021

Source: Zalando annual report 2021

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 7: Zalando’s website

Source: Company website

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 8a: Zalando’s gross merchandise value (GMV) growth

Source: Zalando annual report 2021

Exhibit 8b: Zalando’s wholesale and partner program (€ bn GMV)

Source: Company information

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ZALANDO: A DIGITAL FOUNDATION FOR FASHION SUPPLY CHAIN SUCCESS

Exhibit 9: Zalando’s return and refurbishment centers

Source: Company information

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2024 to Jun 2025.