Zalando Cuts 2023 Sales Forecast as Demand Stays Weak

The logo of fashion retailer Zalando is pictured at the new headquarters in Berlin, Germany, April 10, 2019. REUTERS/Hannibal Hanschke
The logo of fashion retailer Zalando is pictured at the new headquarters in Berlin, Germany, April 10, 2019. REUTERS/Hannibal Hanschke
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Zalando Cuts 2023 Sales Forecast as Demand Stays Weak

The logo of fashion retailer Zalando is pictured at the new headquarters in Berlin, Germany, April 10, 2019. REUTERS/Hannibal Hanschke
The logo of fashion retailer Zalando is pictured at the new headquarters in Berlin, Germany, April 10, 2019. REUTERS/Hannibal Hanschke

Europe's biggest online fashion retailer Zalando sees continued pressure on demand for the rest of the year and now expects 2023 sales to decline, the company said on Wednesday as it reported weaker than expected third-quarter revenue.

Zalando, a multi-brand platform that sells clothes, shoes, accessories, and beauty products, has been hurt by a pullback in online shopping after a COVID-19 pandemic-era boom, a trend that has also bruised smaller online-only retailers like ASOS and Boohoo, Reuters reported.
Zalando now expects 2023 revenue to fall by between 0.5% and 3%, having previously guided to a 1% decline at worst. Third-quarter sales of 2.275 billion euros ($2.41 billion) missed analysts' estimates and were down 3.2% from the same quarter last year.
An unusually warm September weighed on sales of autumn and winter clothes, Zalando said, exacerbating the impact of weak consumer sentiment. The Germany, Austria, and Switzerland region, which accounts for nearly half of Zalando's sales, was the worst-performing, with revenue down 5.6% over the quarter.
Apparel was one of the weakest segments for online retailers in Germany in the third quarter, according to ecommerce industry association BEVH.
Gross merchandise volume - a measure of sales on the platform by Zalando and its partners - fell by 2.4% from a year ago. The company lowered its 2023 forecast for gross merchandise volume to between -2% and 1%, down from an outlook for the lower half of the 1% to 7% range.
Faced with tougher competition at lower price points from Shein and other new rivals, Zalando is trying to grow its luxury brand offering, rolling out a new "boutique-style" space for designer brands.
Zalando, which says it is focused on growing profits, stuck to its operating profit outlook for the year. Gross margin for the third quarter fell, however, to 36.7% from 39.1% a year ago due to discounting.
Zalando shares have lost a third of their value since Jan. 1. The company's market value has dropped over the past two years as shoppers, freed from pandemic restrictions, returned to stores and ordered fewer clothes online.



Loro Piana is Latest Italian Luxury Brand Under Fire for Worker Abuse in Supply Chain

FILE PHOTO: The logo of Loro Piana is seen in a shop in downtown Rome, Italy February 10, 2016. REUTERS/Tony Gentile/File Photo
FILE PHOTO: The logo of Loro Piana is seen in a shop in downtown Rome, Italy February 10, 2016. REUTERS/Tony Gentile/File Photo
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Loro Piana is Latest Italian Luxury Brand Under Fire for Worker Abuse in Supply Chain

FILE PHOTO: The logo of Loro Piana is seen in a shop in downtown Rome, Italy February 10, 2016. REUTERS/Tony Gentile/File Photo
FILE PHOTO: The logo of Loro Piana is seen in a shop in downtown Rome, Italy February 10, 2016. REUTERS/Tony Gentile/File Photo

Cashmere king Loro Piana, part of LVMH's luxury empire, became on Monday the fifth high-end brand to be put under judicial administration in Italy over worker abuses in supply chains, after an investigation that has tainted the image of Italian luxury goods.

Loro Piana Spa will undergo court monitoring for a year, according to the 26-page ruling reviewed by Reuters, which stems from investigations into the world of subcontracting for luxury goods in Italy that started in 2023.

As in previous cases involving Italian luxury firms, the administration may end earlier if the company brings its practices into line with legal requirements.

In a statement, Loro Piana blamed a supplier for sub-contracting work without informing it, breaching legal and contractual obligations, and said it had ended work with the supplier as soon as it found out in May.

The case involving Loro Piana Spa originated after Carabinieri police from the Milan labor protection unit in May arrested a Chinese workshop owner and closed his factory in the northwestern suburbs of Milan, Reuters reported.

The employer was reported by one of his workers for beating him, causing injuries that required 45 days of treatment, after the worker demanded 10,000 euros ($11,692.00) in unpaid wages.

Carabinieri police found that the workshop produced Loro Piana-branded cashmere jackets and that its 10 Chinese laborers, including five illegal immigrants, were forced to work up to 90 hours a week, seven days a week, were paid 4 euros an hour, and slept in rooms illegally set up inside the factory.

Units of fashion brands Valentino, LVMH's second largest brand Dior, Italy's Armani, and Italian handbag company Alviero Martini were previously placed under administration for similar alleged worker exploitation.

The Court of Milan found that Loro Piana, which makes expensive cashmere clothing, subcontracted its production through two front firms that had no actual manufacturing capacity to Chinese-owned workshops in Italy.

The owners of the contracting and subcontracting companies were put under investigation for exploiting workers and employing people off the books, while Loro Piana Spa itself faces no criminal probe.

The company said in its statement it "has been constantly reviewing and will continue to strengthen its control and audit activities" to ensure compliance with its own quality and ethical standards across the supply chain.

LVMH, the world's biggest luxury group, acquired 80% of Loro Piana in 2013, leaving 20% to the company's founding family. In June, Loro Piana appointed Frederic Arnault, son of LVMH chairman and Chief Executive Bernard Arnault, as CEO.

WORKER ABUSE AT SUBCONTRACTORS

The Milan court, as in the cases of the other brands targeted by the investigation, found Loro Piana "culpably failed" to adequately oversee its suppliers in order to pursue higher profits, according to the ruling.

The prosecutors in the case said the violation of rules among fashion companies in Italy was "a generalized and consolidated manufacturing method".

Experience from past investigations "indicates that the complete outsourcing of industrial production processes is aimed exclusively at reducing labor costs and, consequently, also the criminal and administrative liability of the company with regard to worker safety... All this is done with a view to maximizing profits at the lowest possible production cost," the Court of Milan said.

Italy is home to thousands of small manufacturers that make up 50%-55% of global luxury goods production, consultancy Bain has calculated.

In May, Italy's fashion brands signed an accord with legal and political authorities to fight worker exploitation, but the ruling on Loro Piana said "this production chain, headed by Loro Piana, has continued to operate until now" and despite the previous cases being widely reported.

Carabinieri police said in a statement they inspected two intermediary companies and three Chinese workshops, all in the Milan area, and identified 21 workers, 10 of whom were working off the books without proper registration, including seven illegal immigrants.

According to the court ruling, the owner of an intermediary company stated that in recent years she had been producing around 6,000-7,000 jackets per year for Loro Piana at an agreed price of 118 euros per jacket if the order was for more than 100 items and 128 euros if the order was under 100 items.

"The reported cost figures are not representative of the amounts paid by Loro Piana to its supplier, nor do they consider the full value of all the elements, including, among others, raw materials and fabrics," the company said.

On the Loro Piana website, prices for men's cashmere jackets range from over 3,000 euros to over 5,000 euros.