Europeans Are Dressing Down as Inflation Bites, Zalando Says
(Bloomberg) -- European consumers are hunting for bargains, buying cheaper clothes as inflation crimps the budgets of many households, according to Zalando SE.
Europe's biggest online clothing retailer said it's seeing the first cracks in consumer spending as rising expenses lead shoppers to choose entry prices over mid-market clothing. More well-heeled shoppers are still opting for pricier clothes, however.
The German company expects revenue and profit will be in the lower part of its 2022 forecast ranges after reporting first-quarter earnings short of analyst expectations on Thursday. The stock, which has lost about half its value this year, fell as much as 5.4%.
Evidence is starting to trickle in that some consumers are struggling to deal with tighter budgets. Asos Plc, a close rival of Zalando, said last month its full-year earnings goal is at risk from accelerating inflation. U.K. clothing retailer Joules warned this week its profit could be hit as customers have become highly dependent on promotions and demand for full-price items has reduced. Heineken NV Chief Executive Officer Dolf van den Brink has pointed to the risk that higher energy bills may lead consumers to pull back on other expenses, such as beer.
Gross merchandise value, which measures how much inventory the platform has sold, rose only 1%, meaning excess stock is likely weighing on margins.
“There were good reasons for the overstock: we really wanted to ensure the customer experience, give them the full choice and mitigate those supply chain disruptions,” Chief Financial Officer Sandra Dembeck said on an earnings call.
The company, which sells clothing from brands such as Moschino and The Kooples, had an operating loss of 52 million euros ($55 million) due to discounts and increased fulfillment costs.
The retailer said Thursday it's adjusting its offering to changing shopping patterns and expanding its logistics network, with fulfillment centers being built in Germany, Poland and France.
©2022 Bloomberg L.P.
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