Two of Europe’s largest online fashion retailers are joining forces. The Berlin company Zalando is taking over the Hamburg competitor About You for 1.1 billion euros.
The surprising deal raises questions: Zalando and About You want to continue to operate as independent brands, but also promise many synergies. The CEOs of both companies said this in conference calls with analysts and the media on Wednesday.
Why did Zalando decide to acquire About You?
With About You, Zalando hopes to capture a larger share of the €450 billion European fashion and lifestyle market. The combined European market share of Zalando and About You is currently in the single-digit percentage range, said co-CEO David Schröder on Wednesday during a conference with analysts.
By 2028, Zalando and About You are expected to collectively increase their gross merchandise volume and sales at an annual rate of 5 to 10 percent. The forecast for the adjusted EBIT margin (earnings before interest and taxes) is 6 to 8 percent. This means that the merged group expects a “significant” increase in absolute profit after the deal. The merger also promises 100 million euros in EBIT synergies in the areas of logistics, payments, purchasing, marketing and business-to-business (B2B).
Are there overlaps between Zalando and About You customers?
There is an overlap in customers, as many European countries are covered by both online retailers, said Schröder. However, the CEOs of both companies confirmed on Wednesday that this was not a problem.
“Both platforms will continue to have overlap and that is completely fine, because both approaches offer a clear and relevant value proposition,” Tarek Müller, CEO of About You, said at a media conference on Wednesday.
Why do Zalando and About You remain two independent platforms even after the takeover?
Each platform will remain independent and led by a “strong leadership team.” Zalando will run on its in-house platform, About You will remain on its own e-commerce platform Scayle. The fashion retailers consider the identity of their platforms to be so differentiated that they want to continue to operate them independently of each other with a so-called dual brand strategy.
Zalando sees itself as a “brand-driven” platform. The online retailer offers 6,000 brands to its more than 50 million active customers in 25 countries. Smaller competitor About You has 12 million active customers in 28 countries and more than 4,000 brands. The Hamburg-based fashion retailer sees itself as “style-driven” because its business model is based on collaboration with influencers and it has a database of over 27,000 digital creatives.
Zalando is moving away from a “transaction-based” platform and trying to reach customers earlier in their inspiration journey, said co-CEO and founder Robert Gentz in a press conference on Wednesday. He added that the acquisition of About You fits well with Zalando’s plans to expand its business-to-consumer (B2C) business.
Will the merger lead to layoffs of employees?
The merger with About You is about growth, and the expected synergies are not due to “inefficiencies in fixed costs,” said Gentz. However, he added that the “net increase in employees will be lower in the future.”
Both business areas, B2C and B2B, will make a “substantial contribution” to the total of 100 million euros in EBIT synergies. The combined group’s long-term EBIT margin is forecast to be between 10 and 13 percent for the B2B and B2C divisions.
Where do the savings actually come from?
The financial impact of the synergies will only become apparent after 2028, as a “large part” of it will come from the integration of logistics and warehouses, said Zalando’s CFO Sandra Dembek during a conference call with analysts. “The integration costs will be significantly below the synergy level and will be incurred primarily in the first few years. Longer term, this is a highly accretive deal.”
In addition to payment transactions, logistics and B2B business, sales costs should also be reduced through cooperation in purchasing and marketing. The brand overlap between Zalando and About You is 30 percent, says Gentz. The shared purchasing power will also contribute to cost savings in the short term, said Dembek. “Our ambitions are in the lower single-digit percentage range of sales,” said About You co-CEO Hannes Wiese in a call with analysts on Wednesday about possible savings in purchasing.
Marketing costs could be quickly reduced by coordinating promotional periods and avoiding inefficient bidding against each other, Wiese continued.
What is the B2B potential for Zalando and About You?
“Scayle will perfectly complement the software offering of our Zeos platform. By combining our software capabilities with Scayle, we can offer retailers a holistic e-commerce operating system that enables them to handle their multi-channel activities across Europe via a unified platform,” said Gentz.
“While the fashion and lifestyle industry remains quite fragmented on the consumer and brand side, on the infrastructure and technology side we see a very good case for consolidation,” said Müller, adding that the Zalando Group strives to reduce inefficiencies in the industry.
How long will the founders of About You stay on board?
It is important for the merged group that About You’s founders and CEOs remain on board, Gentz said in an analyst conference on Wednesday. After selling their shares in About You to enable the takeover, the management team will invest “part of the liquidity from the transaction” in Zalando shares. These shares will be removed from Zalando’s inventory to avoid dilution.
Will antitrust regulators allow a takeover that will create an e-commerce giant in Europe?
Considering the size of the European fashion market of 450 billion euros, even the group’s combined market share remains “super small,” said Schröder. He remains “confident” that the merger will go through after going through the usual regulatory processes. The transaction is expected to close in summer 2025 and is subject to regulatory approval.
How does Zalando plan to finance the takeover of About You?
In the third quarter, Zalando reported a cash position of 2.4 billion euros. “We are very well prepared to finance this from the existing cash position, from the existing liquidity,” said Zalando CFO Sandra Dembek on Wednesday. Even after the takeover, there will be sufficient liquidity and the balance sheet will remain strong for further “remaining investments,” it added.
About You plans to expand into the US with its business-to-business unit Scayle. Will Zalando join the expansion plans?
After winning well-known British customers such as the football club Manchester United and the luxury department store Harrods, Scayle is now also planning to expand into the USA. “We are now joining forces with About You to realize these growth prospects in both Europe and North America,” said Schröder.
About You was considering spinning off its e-commerce division Scayle. Is that still up for debate?
About You hosted a capital markets day for Scayle in early November to explore options for a spin-off of the B2B business. That is now “off the table,” says About You Co-CEO Hannes Wiese.
As a major shareholder in Zalando and About You, what role did Bestseller founder and CEO Anders Holch Povlsen play in the takeover?
Fashion entrepreneur Povlsen has invested in About You and Zalando in the past. The Holch Povlsen family’s holding company, Heartland A/S, led a €300 million financing round for About You in 2018. The investors acquired a double-digit stake in About You, and their investment valued the fashion retailer at more than 1 billion euros.
The German online retailer Otto Group (37 percent) and the Otto family (8 percent) as well as Bestseller CEO Anders Holch Povlsen (20 percent) currently own the majority of the shares in About You. They have committed to selling their shares to Zalando as part of the takeover.
Povlsen also owns a 10 percent stake in Zalando. As the second largest individual shareholder, he also has a seat on Zalando’s supervisory board.
“As a major shareholder in About You, he is of course involved in this transaction. He has committed to tendering his shares and making this transaction possible,” said Schröder. However, he added that Povlsen was not involved in the decisions on Zalando’s side to “avoid conflicts of interest.”