This Online Fashion House Is Finding It's Expensive to Copy Amazon

This Online Fashion House Is Finding It's Expensive to Copy Amazon · Fortune

If you want to grow like Amazon, it seems, you have to put up with the occasional investor tantrum.

Shares in German online fashion retailer Zalando fell nearly 9% Tuesday after it acknowledged that capacity constraints in new warehouses from Sweden to France via Poland and Germany had crimped growth for the second quarter in a row.

But the Berlin-based company tried to accentuate the positive by launching a loyalty program called ‘Zet’. That’s its answer to Amazon’s recent foray into fashion with the newly-launched ‘Prime Wardrobe’ service. For 19 euros a year ($22), members will be able to get earlier access to cut-price deals, faster delivery, pick-up of returns on demand, and even personal fashion advice via a Facebook chat page (that last service piggy-backs on the company’s heavy investment in technology to analyze customer behavior on its site).

Read: Amazon Launches New ‘Try Before You Buy’ Prime Wardrobe Service

“Zalando Zet combines the best of both online and offline shopping,” Lisa Schöner, who heads up the program, said in a statement. “Customers receive orders faster and return items easier. Furthermore, Zalando Zet adds a personal experience, as customers can ask Zalando about the latest trends or if they are unsure how to combine the shirt they just ordered.”

‘Zet’ will start on a cost-free basis in four German cities, and be rolled out to the rest of the German market within a few months. Co-chief executive Rubin Ritter told Reuters that it will then be expanded to other countries, with the ultimate aim of signing up the most active third of its 20 million active customers.

Read: Germany’s Rocket Internet Falls Back to Earth

Zalando is the most high-profile asset in the portfolio of German incubator Rocket Internet. Its fortunes have contrasted sharply with those of its one-time parent since the two companies listed in 2014. Rocket’s shares have fallen by over 50% since listing, while Zalando’s have more than doubled.

All the same, investors were disappointed by the announcement of both growth and margins being at the low end of expectations. Annual revenue growth had stood at 26% at the end of last year, but has now slowed to 20%. Its shares in Frankfurt fell nearly 9%. Its operating margin, meanwhile, may have dropped below 5%.

Read: Amazon’s Meal Kit Move Will Be More Than a Blue Apron Competitor

Investors appeared concerned at Zalando’s ability to absorb the costs of the new service. For comparison, Amazon offers a limited home collection service in Britain but charges for each return. Luxury site Net-a-Porter offers a free home pick up service, but it can more easily absorb courier costs with an average order value of over 300 euros – five times that at Zalando.