Inside the deal: Zalando and About You founders break down the takeover

Two of the biggest online fashion retailers in Europe are joining forces. Berlin-based Zalando acquires German competitor About You for 1,1 billion euros. The surprising deal raises questions about synergies as the two companies seek to continue operating as independent brands. Here is what the CEO founders of both companies explained in calls with analysts and media on Wednesday.

Why did Zalando decide to acquire About You?

Zalando hopes to capture a larger share of the 450 billion euro European fashion and lifestyle market with About You. The current combined European market share of Zalando and About You is in the single-digits percentage range, said Co-CEO David Schröder during a call with analysts on Wednesday.

The combined group, Zalando and About You, is expected to grow its gross merchandise volume and revenue until 2028 at an annual rate of between 5 to 10 percent. The adjusted Ebit (earnings before interest and taxes) margin is forecast at 6 to 8 percent, which means that the group sees a “significant” increase in absolute profit after the deal. The merger also promises to yield 100 million euros of Ebit synergies in the areas of logistics, payment, buying, marketing and B2B business.

Is there an overlap between the customers of Zalando and About You?

There are overlaps in the customer base as many European countries are covered by both online apparel retailers, said Schröder. The CEOs of both companies reiterated on Wednesday that this isn’t a problem.

“Both platforms will continue to have overlaps and that’s totally okay because both approaches offer a distinct and relevant value proposition,” said About You CEO Tarek Müller in a media call on Wednesday.

Why will Zalando and About You remain two independent platforms following the deal?

Each platform will stay independent with a “strong leadership team at its helm,” said Co-CEO and founder Robert Gentz on a media call on Wednesday. Zalando will run on its proprietary platform, About You will remain on its own e-commerce platform Scayle. The fashion retailers consider the identity of their platforms sufficiently distinct to operate them independently with what they call a dual brand strategy.

Zalando sees itself as a “brand-led” platform. The online retailer offers 6,000 brands to its more than 50 million active customers in 25 countries. Its smaller competitor About You has 12 million active clients in 28 countries and more than 4,000 brands. The Hamburg-based fashion e-tailer considers itself more “style-led” as its business model is driven by collaboration with influencers. It also owns a database of over 27,000 digital creators.

Zalando is moving beyond a “transaction-based” platform, trying to engage customers earlier on their inspirational journey, Gentz said. He added that the acquisition of About You plays well into Zalando’s plans to expand its B2C business.

Will the merger lead to lay-offs of existing employees?

The merger with About You is about growth and its expected synergies are not “rooted in overhead inefficiencies”, said Gentz. However, he added that the “net increase of employees will be lower in the future.”

Both business segments, B2C and B2B, will have a “substantial contribution” to the total number of 100 million euros in Ebit synergies, he added. The long-term Ebit margin of the combined group is forecast between 10 to 13 percent for its B2B and B2C business segments.

Where will the savings actually come from?

The financial effect of the synergies will show after 2028 as a “large part“ of these will come from the integration of the logistics and warehouses, said Zalando’s Chief Financial Officer Sandra Dembek during an analyst call. “The integration costs will be well below the synergy level and will primarily incur during the first few years. This is a very valuable accretive deal for the longer term.”

Apart from payments, logistics and B2B, the cost of sales will also be reduced by collaborating on buying and marketing. The brand overlap from Zalando towards About You is 30 percent, said Gentz. Combined buying power will also contribute to the cost savings in the short-term, Dembek said. “Our ambition for this would be in the lower single digit percentage range of revenues”, About You Co-Founder and Co-CEO Hannes Wiese said in a call with analysts on Wednesday.

Marketing costs could be quickly reduced by aligning promotional periods and by avoiding inefficiently bidding against each other, Wiese added.

What is the B2B potential for Zalando and About You?

“Scayle will perfectly complement the software offering of our Zeos platform, by combining our software capabilities with Scayle we can offer merchants a holistic e-commerce operating system that enables them to run their multi-channel across Europe within one unified platform”, said Gentz.

“Whereas the fashion and lifestyle industry remains quite fragmented on the consumer and brand side, we see a very strong case for consolidation on the infrastructure and technology side”, said Müller, adding that the Zalando group seeks to reduce industry inefficiencies.

How long will the founders of About You stay on board?

It’s important for the combined group that the founders and CEOs of About You stay on board, said Gentz on an analyst call on Wednesday. After selling their shares in About You to enable the takeover, the management team will invest “part of the liquidity from the deal” into Zalando shares. These shares will be taken from the treasury to avoid dilution.

Will antitrust regulators allow a deal that will create an e-commerce giant in Europe?

Looking at the size of the European fashion market of 450 billion euros, even the combined market share of the group remains “super small”, said Schröder. He remains “confident” that the merger will be happening after going through the usual regulatory procedures. The closing of the deal is expected in summer 2025 and subject to regulatory approval.

How will Zalando pay for the acquisition of About You?

In the third quarter, Zalando reported a cash position of 2.4 billion euros. “We’re very well equipped to fund this from the existing cash position, from the existing liquidity”, said Zalando’s CFO Sandra Dembek on Wednesday. Even after the acquisition, ample liquidity would be left and the balance sheet would remain strong for any other “remaining investment”, she added.

About You plans to expand to the US with its business-to-business unit Scayle. Will Zalando join the expansion plans?

After acquiring known UK customers such as the soccer club Manchester United and luxury department store Harrods, Scayle is also planning to expand in the US. “We’re teaming up with About You now to deliver on these growth prospects, both in Europe and in North America”, said Schröder.

About You was considering a spin-off of Scayle. Is this still on the table?

About You held a capital markets day for Scayle at the beginning of November to explore options for a spin-off of the unit. This is now “off the table”, said About You Co-CEO Hannes Wiese.

Which role did Bestseller founder and CEO Anders Holch Povlsen play as a major shareholder in Zalando and About You during the acquisition?

Povlsen invested in About You and Zalando in the past. The holding company of the Holch Povlsen family, Heartland A/S, led a funding round for About You of 300 million euros in 2018. The investors acquired a double-digit stake in About You and their investment valued the fashion e-tailer at more than 1 billion euros.

German online retailer Otto Group (37 percent) and the Otto family (8 percent), Bestseller CEO Anders Holch Povlsen (20 percent) currently own the majority of the shares of About You. They have committed to sell their shares to Zalando.

Povlsen also owns a 10 percent stake in Zalando. As the second biggest single shareholder, he also has a seat on the supervisory board of Zalando.

“He is obviously part of this transaction as a major shareholder of About You. He has committed to tender his shares and enable this transaction”, said Schröder. He added though that Povlsen was not involved in the decision-making on the part of Zalando to avoid “conflicts of interest.”