Strategy · Fashion e-commerce · 2023

Returns aren't a logistics problem. They're a representation problem.

A strategy project on why Europe's largest fashion platform was losing its most valuable customers, and why the fix was sitting in a department nobody had connected to the P&L.

Context

Zalando is Europe's largest fashion platform: €10.3bn revenue in 2022, over 50 million active customers, 7,000 brands, 1.8 million products, 25 markets. The German fashion e-commerce market was forecast to grow 10%, and Zalando led it at €2,062M, well ahead of Otto (€1,435M) and H&M (€828M).

On paper, the market leader was positioned to take more of a growing market.

Tension

In Q3 2023 the active customer base fell for the first time: 100,000 fewer customers, 4.3 million fewer orders. Orders per active customer dropped from 5.2 to 5.0.

The people who already used Zalando were using it less. Meanwhile 77% of 8,236 Trustpilot reviewers were rating it one star.

“Half of everything ordered came back. 42% of shoppers said they couldn't see themselves in the models. Those are the same problem.”

Returns were being managed as a logistics cost. Inclusivity was being managed as a brand values programme. Different teams, different budgets, no line drawn between them.

But 50% of items were returned because of incorrect sizing. And 42% of online shoppers said they didn't feel represented by the images of models, with 59% reporting that an item looked different on them than they expected.

A shopper who cannot see a garment on a body resembling their own is guessing at the fit. The guess is what produces the return.

Which makes inclusivity not a values initiative but the highest-leverage margin lever available to the business, and turns a cost centre into a growth strategy.

Approach

  1. 01

    Qualitative research.

    8,236 Trustpilot reviews, 77% one star, cross-read against Kununu and FashionUnited. The pattern was fit, not price, not delivery.

  2. 02

    Rebuilt the journey around where people actually dropped off.

    Losses clustered before checkout, at product understanding, not at payment.

  3. 03

    Tested the diagnosis against what Zalando had already shipped.

    Size recommendations launched July 2023. Returns stayed at 50%. So the problem wasn't recommendation accuracy; a recommended size still asks you to trust a number.

  4. 04

    Sized each opportunity and mapped it to a lifecycle stage.

    Unisex: 60% of German consumers open to it, 31% of the market Gen Z, €807M → €928M in DACH. Try-on: 42% don't see themselves in the models, returns modelled 50% → 30%.

Three interventions, mapped to the customer lifecycle

  1. 01

    Universal browse

    Awareness → Consideration

    A gender-neutral filter and content layer replacing rigid Women / Men / Kids categorisation, letting shoppers browse without gender-specific constraints. Grounded in two figures: 60% of German consumers were already considering gender-neutral fashion, and Gen Z accounted for 31% of the German fashion market.

    Zalando app mockup on a phone showing a new Universal tab alongside Women, Men and Kids above a Cyber Week knitwear campaign banner
  2. 02

    See My Fit

    Consideration → Purchase

    An AI/AR virtual try-on letting shoppers view any garment on models spanning the full range of available sizes, heights and body shapes. Evaluated Google's diffusion-based virtual try-on against Veesual on realism and production readiness: Google stronger on realism but still in testing, Veesual less realistic but already live with La Redoute.

    Animated Zalando virtual try-on: a cable jumper rendered on different AI-generated models with a Select a model row of sizes and an Exit try on button
  3. 03

    Tiered loyalty

    Retention → Advocacy

    Replacing flat-fee Zalando Plus with Bronze, Silver, Gold and Plus tiers at €150, €330 and €500 spend thresholds. Industry research was consistent about what people actually want from a loyalty programme:

    • 55% of shoppers want a free gift
    • 42% want flat discounts on items they already like
    • 18% want points, the mechanic retailers back most

    • Bronze

      Entry

      Welcome reward, birthday month discount

    • Silver

      €150

      Silver offers, free shipping on 2 orders

    • Gold

      €330

      Gold offers, free shipping on 4 orders, gift under €20

    • Plus

      €500

      Gift under €50, all existing Zalando Plus benefits

    Gold costs €22 per customer to serve against a €330 spend threshold, at a 44% conversion rate into the programme.

    Loyalty tiers and spend thresholds
    TierSpend threshold
    BronzeEntry, €0
    Silver€150
    Gold€330
    Plus€500

    So the tiers reward gifts, discounts and free shipping. Spend qualifies you for the tier; it never becomes the reward itself.

Opportunity

Projections from the analysis, not realised results.

Universal browse

Awareness → Consideration

60%of German consumers open to gender-neutral fashion
31%of the German fashion market is Gen Z

Modelled DACH revenue

€807M€928M
TodayModelled

+15% on unisex adoption · benchmark: ASOS +28% revenue in 2018 after going gender-neutral

Table view
Modelled DACH revenue
Today€807M
Modelled€928M

See My Fit

Consideration → Purchase

42%don't feel represented by the model images
59%said the item looked different on them than expected

Modelled return rate

50%30%
TodayModelled

20 points off the return rate; half of all items currently come back over sizing

Table view
Modelled return rate
Today50%
Modelled30%

Customer lifecycle

  • Awareness
  • Consideration
  • Purchasing
  • Retention
  • Advocacy
  • Universal browseAwareness → Consideration
  • See My FitConsideration → Purchasing
  • Tiered loyaltyRetention → Advocacy

Also see

All strategy work