BERLIN Zalando, Europe's biggest pure online fashion retailer, is developing its own-label unit as a stand-alone business as it seeks to enter new markets and sell on rival web sites.
The move comes after investors have expressed concern that Zalando is more exposed than British rival ASOS to Amazon's expansion into fashion, as its zLabels own brands unit currently accounts for a much smaller share of the German firm's sales.
"We see great potential. We want to strengthen the brands outside of Zalando," said Jan Wilmking, chief executive of the zLabels business.
Only about 10-20 percent of Zalando's sales come from its 17 own brands, compared with about 50 percent at ASOS from labels targeted at fashion-conscious 20-somethings and 100 percent at British online teen fashion retailer Boohoo.
However, Wilmking is not seeking to reach the same share of own-label sales as ASOS, predicting his unit will grow at the same pace as Zalando as a whole, or some 20-25 percent a year.
"Zalando addresses a broad audience. ASOS is very focused on young fashion," he told Reuters.
"We are doing very good work in the value-for-money segment but we are very cautious about pushing that to the kind of limits that others do."
Zalando has focused more than ASOS on being a sales platform for big brands like Gap, Adidas and Top Shop, now offering 1,500 brands in 15 European markets, compared to the 850 available on ASOS.
That strategy has worked so far as many brands, particularly high-end names, have shunned Amazon. But some experts expect that will change as the U.S. giant improves its presentation of garments, rivalling Zalando more than ASOS, which can keep attracting customers to its site to buy its own labels.
ASOS shares are up 39 percent this year, outperforming a flat Zalando stock to trade on almost 65 times forward earnings, compared with almost 50 times for its German rival.
"I'm surprised they don't drive this business harder. Perhaps they are worried about antagonising the likes of Nike and Adidas, but it doesn't seem to have been detrimental for ASOS," said Jefferies analyst David Reynolds.
Nike and Adidas declined to comment.
Amazon has started a big push in fashion, including opening a photo studio in London. It is also building up its own fashion labels, although analysts estimate it is only selling about 1,800 different items so far, compared with the some 10,000 that Zalando is designing per season.
"OPPORTUNITY OUTWEIGHS RISK"
Zalando plans sales of its Zign designer shoe brand on ASOS and Anna Field dresses on Amazon in the United States. It is also experimenting with several brands in China on Alibaba's Tmall site.
Reynolds of Jefferies said that selling Zign via ASOS could act as a "Trojan horse" for Zalando in the British market, where the German firm is currently making a big marketing push.
But UBS analyst Adam Cochrane is more sceptical about the use of rival sites. "Having your own product seems to be a better defensive move than selling via someone else's channel. That gives you one less reason to go to Zalando rather than Amazon."
Wilmking, a 37-year-old former management consultant at McKinsey who took over at zLabels in 2013, is not worried: "The opportunity outweighs the risk that we will become less attractive due to cannibalisation," he said.
A spokesman at ASOS, which does not sell its own labels on rival sites, said it had decided to stock Zign because "we always look to offer the best choice and add new brands that we feel will excite our customer".
Zalando is giving zLabels full responsibility for its own turnover, although Wilmking said there were no plans to publish separate figures for now, declining to comment on how the unit's profitability compares with the broader group.
Selling own-label products is generally a more profitable business than selling on behalf of third-party brands, but it is a riskier one as fashion trends are so volatile.
The unit is disentangling its logistics and technology from Zalando, setting up an independent distribution centre in Peine, northern Germany, which will deliver its brands to Zalando warehouses and those of other e-commerce sites.
(Editing by Greg Mahlich)