Letter to shareholders 2023

Dear shareholders,

We are pleased to share with you Zalando’s progress, insights, and strategic outlook. In 2023, Zalando focused on profitable growth in light of a challenging year for online fashion. In this year of transition we laid further foundations for growth, delivering on strategic initiatives to better serve our customers.

Firstly, we doubled down on elevating the core fashion and lifestyle shopping experience. We invested in technology to solve problems such as helping customers find fashion that fits right away, leading to fewer returns. We brought exciting brands on board such as lululemon and HOKA as well as deepening and expanding partnerships, for example with luxury perfumes and cosmetics houses Lancôme, Shiseido and Mugler. Serving customers across 25 very different markets requires country-specific knowledge and a tailored approach. We are increasingly taking a localized approach, working with local brands and designers and adding even more country-specific delivery and payment options.

Secondly, we invested in ways to increase engagement with our customers. The shift from transactional shopping towards purchases inspired by stories, experiences or community is gaining momentum. In September we launched ‘Stories on Zalando’, a new immersive visual- first fashion experience. Another engagement tool is our new fashion assistant powered by generative artificial intelligence tool ChatGPT. The technology allows customers to ask questions using their own fashion terms and words, helping them navigate Zalando’s large assortment in a more intuitive way.

Thirdly, we invested in our B2B offerings to better serve our business customers. We launched our new ZEOS brand, short for Zalando E-commerce Operating System, building an operating system for the fashion and lifestyle industry that enables brands and retailers to manage their multi-channel business across Europe within one unified platform.

These accomplishments underscore our commitment to innovation and our ability to adapt to the evolving needs of our customers. At the heart of our success is our unwavering commitment to delivering an outstanding customer experience.

We drove these strategic initiatives in a year that was marked by high inflation and low consumer sentiment. In this challenging economic environment, we made a deliberate decision not to chase growth at any cost and instead focused on balancing growth with profitability. Gross Merchandise Volume was EUR 14.6bn and operating profit, adjusted earnings before interest and tax came in at EUR 349.9m in 2023.

We remain dedicated to sustainability. We brought together the teams working on our Sustainability and D&I strategies under one strategic umbrella as part of Corporate Development. This ensures a stronger and more holistic approach to achieving our goals and commitments in areas that are pivotal for transforming both Zalando and the wider fashion industry.

Zalando expanded its FASHION LEAP FOR CLIMATE initiative. The second year of this unique collaboration with ABOUT YOU and YOOX NET-A-PORTER saw the three leading online retailers enhancing their co-created climate learning platform. Since launching the initiative, 129 brands have joined the initiative. The platform supports fashion brands to measure their own carbon footprint and sets targets that align with climate science.

As part of our commitment to providing a more inclusive assortment, we designed new private label collections for Adaptive Fashion. We incorporated feedback from customers with disabilities to improve the functionality features of our products via collaborations with the consultancy All is for All and prosthetics and wheelchair manufacturer Ottobock. We then expanded our collections to more than 430 items from Private Labels, Tommy Hilfiger, Nike and the latest addition Friendly Shoes. Another initiative to achieve this goal is our dedicated approach to onboard more Black-owned brands. In 2023 we onboarded seven new brands, including Ahluwalia and Yaura, bringing the total number of Black-owned brands to 70.

Looking ahead to 2024 and beyond, we are embarking on a new phase where the industry is undergoing significant change, presenting us with tremendous growth opportunities and the chance once again to shape the industry’s future.

Our vision is to build an ecosystem of fashion and lifestyle e-commerce - on Zalando and beyond. We have defined strategies for both our fashion and lifestyle business (B2C) and our infrastructure business (B2B) that build on existing strengths and will enable Zalando to drive innovation and positively shape the industry as a whole.

For our B2C business, we will improve the core shopping experience, further differentiating ourselves through quality by offering our customers high value experiences and services. The key to success lies in strong loyalty and retention and we will do this by increasing customer engagement. Our goal is to become a lifestyle destination that caters to our customers’ multiple lifestyle needs and choices. Our understanding of the European market with its local preferences and nuances will help us develop stronger customer relationships. By leveraging technology and data, we can address shopping challenges on a larger scale. We strive to make the discovery of fashion and lifestyle products a fun and entertaining experience, encouraging customers to visit us more often and spend more quality time with us. Bridging the worlds of entertainment and e-commerce means offering a more conversational, playful, participatory and social experience. Our engagement journey builds on our existing efforts to inspire customers, exemplified by ‘Stories on Zalando’.

For our B2B business, we are expanding our offerings for business customers, leveraging our unique technology and infrastructure capabilities, as well as strong existing brand-partner relationships. We started with logistics through our ZEOS Fulfillment offering and will grow this offering. Furthermore, we see great potential in providing merchants with software and services to sell fashion and lifestyle products across Europe.

These strategies show our commitment to pursuing initiatives that will drive growth, profitability and shareholder value in the long term.

We’d like to thank our entire Zalando team for their hard work in driving the company forward this year. Their passion, drive and determination make Zalando unique and are decisive success factors. In conclusion, we thank you, our shareholders, for your continued support and partnership. The Zalando Management Board is confident about the opportunities ahead, and we look forward to executing our shared vision for the company's future success.

Berlin, March 12, 2024

Robert Gentz, David Schröder, David Schneider, Dr. Sandra Dembeck, Dr. Astrid Arndt