Online trade is now reaching its growth limits

The letter that the Zalando employees received on Tuesday morning could hardly have been more flowery. Zalando is “a place where people take care of each other regardless of their position. This strong culture and community of outstanding talent, combined with Zalando's entrepreneurial vision, has always meant a lot to us personally."

Only then did the two Zalando founders and bosses, David Schneider and Robert Gentz, get down to business: "We have decided to start a program that will eliminate several hundred administrative positions in many of our teams."

The job cuts at Zalando are an expression of the crisis in e-commerce. The big growth plans that were drawn up under the impression of the massive online boom in the pandemic period are wasteland across the industry. The market leader in the Western world, Amazon, is already cutting 18,000 jobs - and is also reporting vacancies in its German logistics centers.

According to the BEVH association, industry sales in Germany fell by eight percent to 90.4 percent in 2022 - a first for online retail, which has experienced two and a half decades of rapid growth. The Hamburg player Otto should also report a slack when presenting his e-commerce figures on Wednesday.

Although the industry mantra-like emphasizes that sales are still above the pre-pandemic level of 2019, the abrupt brake on growth is a double problem for the mail order companies, who are used to success. Initially short-term: Last year they suddenly had far too many goods in the warehouse and had to sell fashion with high discounts, for example. In the meantime also in the long term: It is currently evident that the high growth expectations have led to the fact that many have built up too much capacity. In addition, the high rate of growth obscured the view of pent-up internal problems.

Same with Zalando. "Instead of a large company with a large corporate structure and mindset, we must be a large company with a small structure and mindset," is the business administration poetry of the two founders. Specifically, they complain that the company has grown too much in recent years and has developed a structure that is too complex.

According to a spokeswoman, it is not yet clear how many positions will be eliminated. The only thing that is clear is that the areas of logistics, customer service and the shops are excluded. It is also still uncertain how long it will take to draw up the concrete plans. The management wanted to look at every department and every hierarchical level, it said. Advisors should also be on board for this purpose.

The situation at Amazon is similar to Zalando. According to the trade journal "Lebensmittel Zeitung", the US group has 13 newly built but unused distribution centers in Germany. Apparently there is not only a lack of employees, but also of orders for the increased logistics capacity. And Germany boss Rocco Bräuninger does not expect a quick recovery: he has the real estate service provider Cushman

The downturn is also evident financially. In recent months, not only Amazon and Zalando, but also the smaller German competitor About You have had to noticeably reduce their sales forecasts. The valuations on the stock exchange are correspondingly lower. The Zalando share, which was listed at over 100 euros in mid-2021, has meanwhile fallen below 20 euros. In the past few weeks, the paper has recovered somewhat. But after the job cuts became known, it went down again on Tuesday.

For the attacker About You, who is still fighting to break even in 2023, the stock market traders see even worse prospects. For months, its shares have been down almost 80 percent compared to the IPO in summer 2021. About You has fewer economies of scale than Zalando, which has sales of a good ten billion euros. Some smaller German players like Windeln.de and Keller Sports even went bankrupt.

The fashion mail order company Zalando, which is at least operationally profitable, is far from that. But the Berlin Dax group is struggling with home-grown problems. The company has set up an ambitious campus with several office buildings, roof gardens and auditoriums in the center of Berlin. However, many employees are still working from home, and some of the rooms seemed eerily empty.

This is matched by shattered hopes. An internally played out expansion into the USA was discarded. This reduces growth potential, after all, Zalando is already represented almost everywhere in Europe.

In addition, a striking number of executives have left the company in the past two years since the departure of the third founder, Rubin Ritter. Important newcomers in IT, marketing and communication left Zalando after just a few months.

Product director Jim Freeman, who came from Amazon and was supposed to organize Zalando better, will officially leave in March. According to media reports, he was blamed internally for some undesirable developments such as excessive memos and an intimidating conference culture.

The two remaining founders are now making a noticeable effort in their letter to cushion the bad news. They also use a classic formula of surprising breakups: It's not you, it's me.

At Schneider and Gentz ​​it reads like this: “This decision shows no failure of people, functions or us as a company. It means that some parts of the company need to be shaped differently from how it has been successful in the past. As founders and co-CEOs, that is up to us.”

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