Rocket Internet’s Zalando Blends Data With Fashion

FRANKFURT, Germany — Berlin's Samwer brothers are known for building Internet companies that mimic the business models of American tech startups such as Airbnb, TaskRabbit and Uber. Philipp Erler aims to convince the world that fashion retailer Zalando SE — a Samwer creation headed for an initial public offering as soon as next month — isn't dismissed as just another copycat.

Erler, the technology boss at Zalando, leads a team of 500 programmers who have developed proprietary systems to ensure the site can manage surging order numbers while providing enough diverse features to keep customers from Stockholm to Salerno coming back for more. It’s a contrast to other Samwer-backed ventures, which typically license software from outside companies to quickly roll out new websites.

Zalando's e-commerce system, called Zeos, combines data from the site's millions of shoppers — especially the purchases of trend setters in Paris and London — with fashion ideas from in-house experts to create a recommendation engine that Erler likens to a magazine.

“You’re able to show a lot more people relevant items,” Erler said. “And as a retailer you can make a lot more money.”

Zalando plans to showcase its technology at an event tomorrow in Berlin, and may announce plans to list shares in Frankfurt, people with knowledge of the matter said.

Slow System

Erler, 31, arrived at Zalando four years ago from another startup backed by Oliver, Alexander and Marc Samwer, who have founded more than 65 Net companies. One of Erler’s first jobs: revamping an off-the-shelf e-commerce system that was too slow and inflexible, he said.

Zalando was spun out of Rocket Internet, the vehicle from which the Samwers have launched startups such as EasyTaxi (modeled after Uber), Helping (TaskRabbit) and Wimdu (Airbnb). In 2010 Groupon bought its Samwer-owned imitator, CityDeal, and Zalando itself was a copy of shoe-and-clothing retailer Zappos.

Zalando expects to pull off what Germans haven’t done in half a generation: A big tech IPO. The last one was the German phone company’s sale of its dial-up Internet service in 2000.

A successful debut for Zalando and Rocket Internet — also in the IPO pipeline — would quiet skeptics who question the long-term viability of Berlin's tech scene.

Zalando is adding customers about as quickly as London- based Asos Plc, even though it garners more than half its sales in German-speaking Europe. To keep customers in the region coming back, Erler says, Zalando ships some orders before they’re paid for since many buyers in those places are accustomed to being invoiced. “If you look across Europe, people really like e-commerce, but only if you can pay afterward,” Erler said.

Local Shopping

Germany has been a laggard in adopting e-commerce because customers often balk at paying with credit cards, traditional retailers have been slow to go online, and small-town residents still do much of their shopping in local boutiques, said Karin von Abrams, an analyst at eMarketer in London.

"The Germans were slow," she said, though they're catching up. German e-tail sales are expected to grow 22 percent this year and 16 percent next year, to $73.5 billion — the fastest of the five biggest European Union countries, according to eMarketer.

First-half sales at Zalando grew 26 percent, to more than 1 billion euros ($1.31 billion), and may reach 2.4 billion euros this year, according to investment bank Kepler Cheuvreux. Zalando’s main investor, Stockholm’s Kinnevik, values it at 3.8 billion euros.

Fashion Information

Competitor Asos is fighting back with features like online video and integration with scrapbook site Pinterest Inc. to drive traffic to its catalog, said Forrester Research analyst Martin Gill.

"Eighteen to 25-year-olds think Asos for fashion information — not Vogue or Cosmo or other magazines," he said.

Erler’s team is tussling for every trend-setter, shoring up its site and mobile app with a planned personalized news feed and offering guaranteed delivery times across Europe for the holidays.

Zalando does use some commercially available software, from SAP SE and Oracle Corp. Yet the systems that serve up its catalog and shopping carts are homegrown, with features such as a database that makes it possible for users to start browsing on the train home and then buy later from their PC.

It’s not unusual for young e-commerce companies to build their own catalog and ordering systems to differentiate themselves, said David Kohler, an analyst at Gartner Inc. in Paris. Yet Kohler said Zalando’s site stands out with pages that load quickly so browsing and shopping don’t bog down, and he praised the flexibility and layout of its mobile app.

Less Traffic

One concern for Erler is that traffic to the site is tapering off. Zalando.com recorded 17.5 million unique visitors in June, compared with an average of 21.3 million over the past year, according to ComScore Inc., which doesn’t include hits to Zalando’s increasingly popular mobile apps. The site now gets 41 percent of its traffic from mobile devices, versus 35 percent last year and 10 percent two years ago, Zalando said.

The developer of the mobile site: Erler’s team. With the IPO approaching and much of e-tailing moving to phones and tablets, he says Zalando’s proprietary approach will continue to give the company an edge.

Zalando “is evolving so quickly.” Erler said, “that it’s really important for us to control” the technology.

By Aaron Ricadela; assistance from Ruth David, Aaron Kirchfeld; editors: Celeste Perri, David Rocks, Stephen West.