? A large proportion of Zalando's technology team is dedicated to understanding customer behavior, customer needs and the fashion ecosystem.
? Zalando's goal is to create an experience similar to one that customers receive in premium boutique stores.
? Erler believes the next wave for e-commerce will be about offering experiences that physical stores cannot.
Philipp Erler is senior vice president for digital experience at Zalando SE, Europe's biggest online fashion retailer by annual revenue and market value. The Berlin-based company is present in 15 European countries and sells over 1,500 brands, including adidas AG, Gap Inc. and Ralph Lauren Corp., as well as private labels, which account for between 10% and 20% of revenue. While Zalando has enjoyed annual revenue growth of 23% or more since going public in 2014, it faces intensifying competition from other online fashion retailers such as ASOS Plc and boohoo.com plc, as well as Amazon.com Inc., for which fashion is its fastest-growing category.
Philipp Erler, senior vice president for digital experience at Zalando
Erler spoke with S&P Global Market Intelligence about how Zalando wants to differentiate itself from rivals through its technological expertise. Currently, about 1,800 staff members, or 14% of the overall headcount of about 13,000, are dedicated to technology. The following is an edited transcript of the conversation.
S&P Global Market Intelligence: Has the focus of your technology team shifted over the years?
Philipp Erler: There's been a shift. We first did what was necessary to get the business going, and now we're more in the phase where we focus on making everything smarter.
A huge proportion of our tech team focuses on data science and artificial intelligence for understanding what's happening both on the customer side — how are customers behaving, what are their needs, what can we tell from quantitative data or qualitative research — but also understanding the fashion ecosystem, understanding the products we sell better, or the behavior of brands' sizes, for example, which is a huge topic of fashion.
What kind of fashion are you focused on offering?
Fashion, even if you don't care about it, involves a clear decision. It's the billboard for our personalities and the first thing people know about us. Helping customers in finding and defining this billboard is essentially our true mission. That's about fashion, but also about what's best for you. It's about giving customers confidence that their choice is right, providing customers with something to play with. That's very different from going to Target Corp.or Wal-Mart Stores Inc. and picking something up from the aisle. It's about advice, setting things into context, or giving you an insight into whatever you're looking for.
As a Zalando customer, what will I see?
What we try to do is to create a similar experience you'll have if you go to a premium boutique. There's someone who talks to you, understands you, makes you smile while you're there, entertains you, but at the same time really focuses on you and tries to get something that's right for you. So what you'll see is content going beyond what you'll see today in e-commerce. It's an experience catered to you, not just a product.
We're very far in understanding your intent. For example, I may want to replace a shirt in an hour after spilling something over it. Or I may want to look sharp for a dinner coming up in two weeks but don't know what to look for. Both are personal but very different modes. We're very close to understanding these modes perfectly, and catering to them.
They will be on our site and apps. They will look different depending on what you want.
Brick-and-mortar retailers are increasingly talking about offering unique experiences in-store. What's your take on this?
E-commerce has had a good run over the last decade. The next phase is coming where it's really about creating experiences that resemble something, but something offline cannot solve, because it'll be too costly for them from a labor cost perspective.
We're at a sweet spot where we can create experiences that are more tailored and inspirational but can do this at scale.
Some online players like Amazon and Alibaba Group Holding Ltd. are gradually entering the physical store space. Do you have similar intentions?
We do this through a platform approach where we integrate with offline players but we're not actively opening up stores. We acquired Kickz [in 2017], a smaller German retailer in the sports sphere, and through that we run physical stores.
We focus more on a platform approach where we partner with local players and integrate them to create the best blend for our customers offline and online.
What differentiates Zalando from rivals from a technology perspective?
The key point is the deep investment we make to understand fashion from an artificial intelligence point of view. There are other companies also investing into the area, but none with our rigor, depth and focus. With our focus, we can make sure we're actually creating value at a level others just can't.
Both being very focused and/or having deeper pockets is the key factor that separates us from everyone else. Whatever we do, we can then build on top of that. That's something that helps you in giving great advice, but also helps to build better prophecies, and making your marketing more targeted, effective and successful. There's a lot of derivative stuff that we can build on top of this very deep investment we're doing.