Online fashion retailer Zalando gets makeover as eyes listing

By Emma Thomasson

BERLIN (Reuters) - Zalando unveiled a new advertising campaign, website, packaging and apps on Thursday - and gave a deeper insight than ever before into the inner workings of Europe's biggest online fashion player as it prepares for a likely listing.

At the German retailer's first-ever news conference, in a converted industrial building in trendy east Berlin, its three management board members said the start-up launched in a basement just six years ago was now growing up.

"Zalando is entering a new phase," said co-founder David Schneider. "Today we have one of the largest and most sophisticated warehouses across Europe. We could easily double our sales volume and not see such a problem."

Zalando is set to announce in the first half of September the listing of a 15 percent stake that could value the company at about 6 billion euros (4.76 billion pounds) in one of Germany's biggest tech flotations for years, sources have told Reuters.

The Zalando team declined to comment on speculation of an initial public offering (IPO) on Thursday, with board member Ruben Ritter sticking to the standard line that a listing remained an option for the company.

An IPO would come amid a flurry of e-commerce flotations this year, with Chinese giant Alibaba set to list soon as well as German venture capital firm Rocket Internet which helped launch Zalando and many other start-ups.

LOUD TO FASHIONABLE

Earlier on Thursday Zalando, in which Sweden's Kinnevik is the biggest investor with a 36 percent stake, said first-half sales rose 29.5 percent to 1.047 billion euros and it made its first-ever operating profit. It earnings before interest and tax (EBIT) of 12 million euros compared with an operating loss of 72 million a year ago.

Ritter said the turn to profit had come from efficiency improvements across the board, including in marketing, new automated logistics facilities and the need for fewer markdowns due to more predictable weather in recent months.

He said Zalando was now one of the biggest employers in the German capital - long plagued by high unemployment. The company has a total staff of 7,000 people, with an average age of just 29, and about two-thirds of them on unlimited contracts.

Zalando, which began selling shoes in 2008, now ships 1,500 brands to customers in 15 countries, gaining widespread visibility with its "scream for joy" slogan and ads showing delighted customers tearing open Zalando packages.

Gentz said the firm planned to focus more on fashion in a new advert that shows a woman carrying a Zalando package storming into a staid catwalk show where everybody is clad in black and getting everybody out of their seats to dance.

"We are now entering into a new phase of brand communication ... from being loud to being fashionable," he said.

Gentz said Zalando was also overhauling its website to allow personalised fashion recommendations, bringing in new packaging that makes it easier for customers to return unwanted purchases and investing more in product presentation.

The company, which said more than 40 percent of its traffic comes from mobile devices, is also launching an app that helps shoppers find and buy clothes on the go by photographing outfits they like on a smartphone.

"NO ASOS MERGER"

Zalando's most direct competitor is Britain's ASOS, which has seen its shares fall sharply this year after a profit warning and a warehouse fire, although they jumped on takeover speculation on Wednesday.

Schneider said Zalando and ASOS were fairly "complementary" given the German company's broader target market and the ASOS focus on 20-somethings and the British market - where Zalando is still weak. But board member Robert Gentz dismissed speculation that the two could one day merge given they have a common investor in Danish magnate Anders Holch Povlsen.

Zalando's high rate of returns - an average of about 50 percent - has been a concern for some investors, but Ritter said the firm did not want to make returning goods more difficult as tests had shown that put customers off making a purchase in the first place, ultimately hurting profits.

The retailer, which makes 60 percent of its sales in Germany, Switzerland and Austria, said its operating margin was 1.2 percent in the first half of the year, compared with a negative 8.9 percent a year ago, driven by the core German-speaking region which made a margin of 4.6 percent.

Sales growth slowed to 25 percent in the second quarter from 35 percent in the first quarter, but Ritter said Zalando was still growing faster than the broader e-commerce market, noting the huge potential to grow further given that the European fashion market is worth 420 billion euros.

The company's total number of active customers rose to 13.7 million from 11.6 million a year ago.

Ritter said Zalando could eventually expand to more markets in eastern Europe although it does not have any immediate plans.

(Editing by Maria Sheahan and Pravin Char)