Today Zalando announced the roll-out of its Connected Retail program for Sweden, Spain and Poland. We wanted to know from Carsten Keller, VP direct-to-consumer at Zalando, how the cooperation with retailers in Germany has worked so far and what impact the Corona crisis has had on the program.
Mr. Keller, can you tell us a little more about the Connected Retail program? When did the program start and why was it originally founded?
Connected Retail allows retailers to connect to the Zalando platform and sell their products directly to our customers online. With Connected Retail we offer a model for the stationary stores to increase sales, reduce costs and simplify store operations. We launched in 2016 with the first retailers in Germany to build a bridge between the online and offline worlds. With Connected Retail, retailers can sell directly to Zalando's more than 32 million active customers. This creates a win-win-win situation for customers, retailers and Zalando. The customer gets more relevant products and this thanks to direct and shorter delivery routes faster and more environmentally friendly. The retailer makes more turnover and profit and - in contrast to many other platforms - predominantly at black prices. He can also score points on the sales floor: We know from participating retailers that they can now offer even more varied product ranges because they reach a broader target group online. People used to think twice about putting an unusual article on the shelf. With Connected Retail, retailers know that they are very likely to sell this article at least online. And with more exciting shelves there is more for the customer to discover in the store.
Are retailers not sceptical about the program and Zalando as a distribution partner? What do you say to critics?
Today, the retailers connected via Connected Retail are an essential part of the Zalando platform. We work with each dealer personally to explain the model and its set screws. This has created a real partnership with the stationary trade. Just last week I was invited to one of our partners at a business opening. Business opening in times of Corona: That sounds incredible at first. But the retailer recognized early on the potential of linking online and offline and launched Connected Retail in 2019. He came through the crisis much better than before the lockdown, and today he sells even more than before the lockdown. In addition, with more than 100,000 Zalando packages shipped to date, he is now one of the most successful retailers in the Connected Retail program. A year ago, I would not have thought this possible either. The initial skepticism has given way to a real cooperation.
How did you get in touch with retailers?
Especially since the massive cutbacks caused by suddenly missing customers and sales have begun, the number of inquiries from retailers has increased twenty-fold per day. At the same time, we launched the initiative to support stationary retailers and communicated via specialist media. Since the beginning of April, we have completely waived our commission and pay out sales to our partners on a weekly basis to help with financial bottlenecks and to increase liquidity. As Europe's largest fashion platform, we want to use our skills and resources to help solve the most urgent challenges in this crisis.
How many retailers are currently active at Connected Retail?
Currently, more than 1,800 stores in Germany and the Netherlands are connected to our platform. From July 1, retailers from Poland, Spain and Sweden will also be able to use our Connected Retail program. We are therefore optimistic that we will be able to further increase the number of connected partners significantly during the rest of the year. We are very pleased that this measure will now also help retailers outside of Germany and the Netherlands to continue to support them in maintaining and even growing parts of their business during the ongoing crisis.
There are - and any retailer can meet them. All a retailer needs to connect to the Zalando platform via Connected Retail is a merchandise management system, a computer with Internet access, a printer, a contract with a shipping partner and exciting products - Connected Retail brings everything else. We personally guide the retailer through the process. After only a few days the store is connected and the first orders are received by the retailer via our tool. When we developed the program, it was important to us that all retailers can participate. We are pleased that this plan is working.
What is offered to retailers at Connected Retail?
For retailers Connected Retail means additional sales with attractive margins. While the average Connected Retail business currently sends out around 20 orders a day, individual retailers have processed up to 2,300 orders at peak times. For the retailer, inventory turnover is also improved, so that new goods come into the store more frequently. Many retailers who have been with the system from the very beginning were thus able to master the crisis much better. Connected Retail is intended to build a bridge between stationary and online - and that can only be done when both worlds come together. We try to make this as simple as possible: Shops can connect their inventory to our platform easily and in just a few days. Zalando takes care of customer acquisition, online content, payment processing, customer service and much more. We support our partners with a personal contact person. As soon as they are activated after a few days, retailers can send orders to Zalando customers.
What are the costs for the merchant?
Apart from their own costs for packaging and shipping to the customer - and the return if necessary - the retailers do not incur any additional costs due to our current initiative to support retailers at the moment. The connection is free of charge and we have reduced the commission to 0%. In order to strengthen the liquidity of the retailers, we are currently paying out the sales generated to them every week.
How do Zalando customers become aware of the Connected Retail program?
In the last few months we have done a lot for the visibility of the retailers on the Zalando platform. For example, we have launched a #supportthestores campaign that has four elements: We explained to our customers in the shop how they could buy directly from connected local stores. We also introduced a filter option "directly from a store" so that our customers could shop directly at local stores in their state. It worked: In one weekend alone, retailers sent more than 100,000 parcels. We also communicated the #supportthestores campaign on our social media channels, where retailers reported on their experiences with Connected Retail during the Corona crisis.
Retailers have a keen sense for the right trends and the right product. In addition, we support them in their decisions with our data and also advise them personally at all times. Retailers with an exciting product range are extremely successful at Connected Retail. We also provide more and more opportunities for retailers to get closer to their customers. The #supportthestores campaign is a good example of this.
And what is Zalano's benefit from this?
Due to the current situation, we are extending our offer in order to provide even greater support for business in our new markets: We are continuing to waive commission until the end of the year and pay out sales to partners on a weekly basis. Even after that, retailers will continue to benefit from our attractive model with commissions below market standards. It enables them to generate additional business for which they basically do not need any additional employees. We understand that this model only works in the long term if everyone benefits: the customers, the retailer and Zalando.
How is the feedback from retailers so far?
We have seen that the Corona crisis in particular has given a huge boost to the digitalization of the fashion industry. Suddenly we had hundreds of requests from stationary retailers who turned to us to be part of Connected Retail. So the retailers were able to continue to record sales even when the stores were closed. In order to get everyone on the platform at the same time, we very quickly needed a lot more hands. With the help of almost 60 colleagues from all parts of Zalano, we were able to handle the many requests.
Have you seen a significant increase in the number of retailers as a result of the Corona crisis?
Since the launch of our initiative to support stationary retailers, more than 1,800 stores have already been connected to the Zalando platform, shipping up to 40,000 orders per day. One of the most successful partners with twelve connected stores shipped 6,500 orders in just one day.
What's the latest news on the Connected Retail program?
Starting July 1, 2020, we will expand Connected Retail to new markets. Retailers in Spain, Poland and Sweden will also be able to connect their stores to the Zalando platform via Connected Retail. By the end of this year all new partners in these markets will receive a commission-free period. This offer also applies to the Netherlands, as we have only recently launched this market.
Do you think the link between online and offline retail is inevitable?
In my opinion, the combination of online and offline is the greatest opportunity for the retail industry as a whole. We live in a world in which customers move freely between online and offline. We all now spend several hours a day on our smartphones: we read newspaper articles and shop online. At the same time, we meet joy in the city centre and shop in the shops. So if we build a bridge between the online and offline worlds and respond to changing customer needs, we can inspire customers even more in the long run. An example from the future: I order my new running shoes from a retailer who sells through Connected Retail on Zalando. I don't get the shoe delivered on request, however, but go to the store around the corner myself to try on the shoe on site and get advice on the fit if necessary. When I leave the store, I wonder where nearby they sell this cool sweatshirt I saw at Zalando. In the Zalando app I find a shop 350 meters away. I buy the hoodie there and discover another t-shirt I like. Unfortunately, the shop doesn't have it in my size - no problem: the retailer recommends me to order the shirt through Zalando. The next day it is delivered to me - it was delivered from a Zalando warehouse that still had the item in stock. I also find further recommendations and new inspiration for my next purchase on Zalando - which is either delivered from a shop nearby, a shop in the respective country or from a Zalando warehouse. All in all, the combination of online and offline solves real customer problems. This creates opportunities for all parties involved. By shortening delivery distances, we can also make a valuable contribution to protecting the planet. The time of online versus offline is definitely over. Today it is: Together we are better.
What lessons has Zalando learned from the Corona crisis?
The corona crisis is and remains a great challenge. Over the past few weeks, we have tried to be part of the solution for stationary trading with our special conditions. We firmly believe in this partnership as part of a common future. We were surprised how much we have achieved since then: Since the beginning of April, retailers connected via Connected Retail have shipped more than 800,000 parcels. Our customers have told us how much they appreciate the local retailer on our platform. We've spent many hours making our vision tangible, developing models on how we can work together to create a more complete shopping experience that goes beyond the boundaries of online and offline. We will continue to expand this partnership - in Germany and far beyond. We will work together on sustainability aspects of Connected Retail and add value to assortments, convenience and inspiration. The connection between online and offline is more important than ever - we have become even more aware of this in recent weeks.
Have you ever shopped on the Connected Retail platform yourself?
Connected Retail definitely takes place in my family's life as well. Last week the new sneakers for my wife as a Same Day delivery - which we are currently piloting in Berlin - came from a Berlin retailer. My daughter got her new summer shoes from a retailer in Bebra. And I particularly enjoy shopping for the products from a Connected Retail store in the Shopping Center Bikini Berlin - online and on site.