What Does Abercrombie’s Deal With Online Retailer Zalando Mean?

Abercrombie & Fitch (NYSE:ANF) recently announced a wholesale agreement with Zalando, Europe’s largest online platform for fashion. The German-based online retailer carries over 150,000 styles from more than 1,500 brands, and serves 15 European markets. The products of Abercrombie & Fitch, Hollister, and abercrombie kids will be available for sale on the platform from this week forward, and will receive the advantage of Zalando’s 19 million active customer base.

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According to internetretailer.com’s top 500 e-tailers of the European Union, the German company ranks 7th, with estimated web sales of $3.31 billion in 2015. The company has been increasing its investment on technology improvement recently, as well as spending more on marketing, in order to attract more customers. It is also considered to be one of the best internet retailers in Europe, and the availability of brands on this website does not diminish the brand value. A number of major US brands, such as Nike, Ralph Lauren, Kate Spade, and Under Armour, are present on the website, along with European designers like Armani Jeans, Hugo Boss, and Versace.

For Abercrombie to be able to get access to Zalando’s almost 19 million active users, who are regularly engaged through Zalando’s email marketing, could be immense. Furthermore, since every sale through this website will be additional revenue, without any fixed costs associated with it, it may have a positive impact on the margins. The company is also not that heavily present in the continent, and hence, a presence on the website will not result in cannibalization. In the past as well, wholesale arrangements with online retailers such as Next plc and Asos Plc in the United Kingdom have resulted in increased revenue, with $10 million additional sales in the year 2015.

Internet trade, in Europe, is expected to witness more dynamic growth than the overall retail sector. In 2016, the growth expected of the European retail industry is 1.2%, while that of the online trade is 10.6%. For Germany, as well, a similar scenario is forecast, with 1% estimated growth in retail, as compared to 11.4% for internet retail. This positive trend for European online trade is forecast to continue for the next several years, with a CAGR of 8.8% for the period 2016 to 2020. Within this segment, the online fashion industry is also predicted to see burgeoning growth. For Europe, the growth figure is estimated to be 9.6%, while for Germany it is 9.1% in 2016. The main drivers for the overall e-commerce growth have been identified as apparel and footwear, and this coupled with Zalando’s large customer base, wide brand awareness, and strong supplier relationships, will ensure the company’s continued success. These factors, in turn, will be beneficial to Abercrombie.

Have more questions about Abercrombie & Fitch? See the links below:

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