Zappos-Style Fashion Portal Zalando To File For $657M IPO In Frankfurt In 2014

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Rocket Internet, the Berlin-based global e-commerce incubator, is widely believed to be preparing to go public, but in the meantime, Zalando, a Zappos-style European fashion portal with 13.5 million active customers that Rocket nudged out of the nest around a year ago, is now spelling out its own IPO intentions. The German company will list in Frankfurt sometime this year, and it will sell between 10% and 11% of its shares to raise around €500 million ($657 million).

Overall the valuation of Zalando is estimated to be up to about €6 billion ($7.9 billion).

The news comes as we gear up not just for Rocket Internet’s own listing, but also that of Alibaba, the China-based e-commerce leviathan that is widely expected to break records when it lists in the U.S.

While there have been murmurs about this about to happen since May, the new developments are now confirmed. Zalando itself has now set up a section of its website related to IPO news (although it has yet to publish anything there, at the time of writing, and it will legally be impossible for people outside of Germany to access it anyway). And Kinnevik, the Swedish conglomerate that is the largest shareholder in Zalando, has also issued a statement, which can be read by those of us outside of Germany.

That statement provides details on Kinnevik’s investment — between 2010 and today Kinnevik has invested 5.5 Swedish kronor ($784 million) in Zalando for a 37% stake in the company (a rundown of other investors and all publicly disclosed rounds of funding are here). And it also gives insight into the financial state of Zalando.

In 2013, Zalando made €1,762 million ($2.31 billion) in revenues, growth of 52% over the year before. But at the same time, it posted a net loss of €116.6 million ($153 million) that year. For the first two quarters of this year, Zalando has been mainly break-even (net loss of €28.9 million in Q1, net income of almost the same amount in Q2).

Fulfilment costs and marketing costs have come down somewhat over the last few years for Zalando but so have the company’s margins, which are now around 40%.

Zalando’s growth, but equally cost of operations and net loss, point to some of the challenges ahead for this company specifically, as well as the wider market for e-commerce businesses.

The economics of e-commerce remain a game that relies very much on scale — both in terms of production and fulfillment of orders. And companies like Zalando — they include Amazon-owned Zappos and Amazon itself — compete on low prices and fast service, but this has a knock on effect on a company’s distribution costs and margins. Produce or sell too little, and you are in the red.

The way out of this challenge seems to be to be able to produce more and more to both bring down production costs and also to increase the volume of returns if not the margins themselves. For Zalando, that has seen the company diversify into a number of different areas in the category of fashion. The company today aggregates products from 1,500 brands and says it offers 150,000 product choices for its customers in 15 countries.