Zalando SE (ZAL) Earnings Call Transcript & Summary

Good morning, and a warm welcome to Zalando's full year publication of our results 2021. My name is Patrick Kofler, and I'm heading the IR office here at Zalando. I will be your host today. Thank you for joining us remotely. It's great to have you here, even if only virtually. I am often asked why we have a co-CEO structure. Here is one of the reasons. As Robert, our co-CEO is quarantined after being exposed. The other co-CEO, David, can step in easily. Therefore, we'll kick off our full year publication with our co-CEOs, David Schneider; and COO, David Schroder. They will give you an update of our growth ambitions and our plan for the next year. After that, we have a dedicated performance deep dive on our recent results presented by our COO, David Schroder. For the Q&A session, we'll be back here live together with both Davids on stage and Robert virtually as well. A couple of housekeeping rules before we actually kick this off. To ensure the health and safety of our team, the presentation has been prerecorded. All the participants on site have tested negative to the coronavirus. We also observed the necessary hygiene rules. [Operator Instructions] And with this, Davids, the floor is yours.

Welcome, and thank you for watching. Today, it is David and myself, who will lead you through the 2021 results. But I can speak for all of us that 2021 was an outstanding year. And we have a lot of exciting initiatives coming up, and we will talk about what to expect in 2022. So yes, 2021 was a truly remarkable year and an important step in our journey to be the Starting Point for Fashion. So we expanded our footprint to 23 markets. Last year alone, we launched 6 new markets in Eastern Europe. In 2021, we reached more than 48 million active customers. That is a 25% increase from 2020. And that also means we expanded our customer base with 10 million new customers, which is great. But an even more important part of our strategy is to deepen customer relationship and create loyalty and that is also something we really see paying off. To give you an example, 60% of our overall GMV now comes from active customers who have spent more than EUR 500 a year with us. Our customers now buy on average 5 times a year. And this strong tractions in customer loyalty has translated into a strong financial performance. We delivered stellar growth momentum and an acceleration compared to 2020. Our group GMV grew to EUR 14.3 billion. That's quite an outstanding 34% growth year-on-year. And maybe let's also put this in absolute numbers. We added EUR 3.7 billion in GMV in 1 year. And as we have also strong momentum on our partner program, revenues didn't grow as much as the GMV, but I'm also proud that we exceeded EUR 10 billion in net revenues, which I think is quite an amazing milestone in like the 13th year after founding Zalando. Thanks to that strong momentum, we were able to deliver a healthy level of profitability with more than EUR 468 million in adjusted EBITDA, which is a margin of 4.5% of revenues. Yes, and that was a great result, and there was a lot of hard work behind these results. So I also want to take the opportunity to deeply thank all our employees for the great collaboration for the focus and for all the commitment everybody put in. And for us, being the Starting Point for Fashion means we want Zalando to be the destination where everyone gravitates to for all their fashion needs and wants. You don't need to go anywhere else for fashion because we have it all in fashion, lifestyle and beauty or we can find it for you, be it in our warehouse network, in our partners e-com warehouses or even in stores. And for us, you can get it in the most convenient way. And there's no way to get it faster, easier or better. And on top, the digital experience is great. It's tailored and personalized to you. So if you're looking for something, we offer the easiest players to find it. If you want to be inspired and entertained, Zalando is the best place for that too. We're not there yet in all these dimensions. But I think our progress is amazing. And every day, our team is working hard to live up to these promises for our customers. To achieve our Starting Point ambition, we have focused on 3 strategic pillars and have set ourselves ambitious goals for 2025. So first, we aim to create deep customer relationships at scale to play an important part in our customers' lives. Second, we transitioned towards a true platform business or let's rather say a true fashion platform, bringing together customers and partners in a way that really creates unique experiences and strong benefits for all. And third, we use our scale to become more sustainable and drive positive impact for people and the planet. And this is not only the right thing to do, but also strongly in line with long-term interest of our customers and partners. Strong progress on all these dimensions last year puts us in a very good here position to reach our 2025 goals, which are over EUR 30 billion GMV. Our partner business share of more than 50%. And to grow in a more sustainable way, we are working towards our net positive target. Yes, let me maybe begin with our first strategic dimensions to create deep customer relationships at scale. At our journey, we learned that just selling different categories to our customers is not ideal. Customers' needs and wants are so different that ultimately, we cannot just add new categories of merchandise. Instead, we built distinct customer propositions. If you're interested in the latest beauty trends or if you prepare for an outdoor adventure, you want to have an experience that really caters to your needs in that moment. And to us, the proposition means a tailored experience and the commitment. So only when you commit to deeply understanding the needs and wants of customers, be it in fashion or in beauty or in sports or in pre-owned, then you can drive innovation in the experience and earn deep customer relationships. Our core proposition is fashion. That's where we started and that's the biggest propositions we are known for and loved by our customers. About 90% of our active customers buy fashion with us. And if we look at the past few years, there's been a huge development. We have an ever-growing selection and access to the most relevant brands and stories. We drive innovation and understanding customer styles and sizes to really make the right recommendations. We add inspiration and entertainment which I think becomes more relevant in the future and one of the highest priorities we have to work on because really no single platform has figured out how to combine the transactional e-com experience with a content-driven inspirational experience. There's either the content experiences that are not great and enabling a customer to buy something or there is an e-com experience where customers are not really inspired or entertained. And that's probably the biggest frontier in fashion commerce. And we're very committed to make bigger steps in this journey throughout the year. Let's take a look. [Presentation]

But let's also have a look at our other propositions. Last year, we talked a lot about beauty and how we want to win in the beauty space that it requires proposition and in-depth innovation of the experience. Yes, we've made great progress here. Beauty grew over 100% year-on-year. We increased our selection to over 25,000 products from 400 brands, added great beauty houses like Estée Lauder, L'Oreal or Coty and of course, also through our partnership with Sephora. We're on a strong path with beauty and are happy with how customer -- our customer base has adopted our beauty proposition. But for us, it's not only about beauty itself, we have developed a repeatable playbook, a playbook of how we can broaden our customer proposition offerings, then dive deep in the innovation of the experience and help our customers to cross connect across all these propositions. In this playbook, we can use to build our further propositions and open more doors for our customers to connect. And talking about connecting, connecting this proposition is a critical part of our strategy to achieve deeper relationships. Well, we want to dive deep in the innovation of each propositions. Ultimately, we want to make sure that 1 plus 1 is more than 2. There's a lot of value for our customers to engage in all our propositions in order to get the most out of the Zalando. And Zalando Plus, our membership program is our ultimate tool as a meta proposition that unlocks value. Plus for an annual fee, you get the best out of the Zalando, even faster shipments and early access to exclusive product lines. And we've just passed the mark of more than 1 million members. That's an amazing milestone 3 years after we launched Plus. And there is now more to come with Plus. While the first million members took us 3 years, the second million we focused to achieve in this year. In 2022, we will double down in making the Zalando Plus the loyalty program in fashion. After expanding the program to the Netherlands, France and Italy in 2021, we will double the number of new markets by the end of '23. We'll add more benefits and improve existing ones in the area of convenience and assortment. For example, we will give Zalando Plus members early access to sales event. So Plus is the ultimate sign of deep relationships for our customers. Plus member visits Zalando twice as often and spends 3x more than a non-Plus customer. We just talked a lot about how we aim to create these great experiences, be it for fashion or for beauty or for designer. Customers want more choice. They seek inspiration, and they want to be entertained. And our partner brands deliver a great deal of this. They add to a limitless choice, to strong brand stories and even all the hot drops people used to line up for in the streets. Building our customer experiences also means building a destination where brands want to be. Only if our partners see a big value add of Zalando, for their own strategy, they will invest with all these assets. There are 2 main components that create strong value for partners. #1 is a multi-brand environment for millions of customers; and #2, capabilities for e-commerce at scale. We'll explain how we invest into these areas in a way that no individual brand could and how this actually creates strong win-win-win situations for customers, partners and Zalando. So let's start with the multi-brand environment. So why do we mention multi-brand so often because that is how customers shop fashion. Zalando customers shop on average 18 different brands throughout their order history. And even within 1 order, 50% shop more than 1 brand. As for fashion inspiration starts in the vast majority of all customers' journeys without a concrete product or brand in mind. And being the starting point means that customers come to us before they decide what they buy. And this concept is very important for our partners because they know they can only cover like a smaller fraction of the inspiration part themselves, and they need to be where the customers really engage. So we will build a place where they can engage with a relevant audience. And I think our growing brand portfolio is a good indicator of how relevant we are for brands. Launching brands like Sephora or Apple watches show how we create stories that elevate brand equity and customer engagement. We have scaled our assortment with driving really like a flawless choice across 5,800 brands, meaning we were able to increase the assortment of our most relevant brands by over 75%. And it's not only about a wide assortment. It's also about showcasing the brand's DNA and presenting the best range of products. And that's why we have introduced dedicated brand homes. These allow our customers to follow the brands they love. In turn, brands can engage with customers in a meaningful way and build deeper relationships and deep learnings for themselves. Already 14 million Zalando customers have become brand fans over the past years. And last but not least, our shared values across topics like inclusivity or talking about genderless or sustainability unlock impactful collaborations as all of these topics are very much top of mind for our customers. And together with our partners, we aim to drive further engagement across these trends. Investments and innovation in these areas in a multi-brand environment creates a strong value add for brands as it helps them to connect to their target audience, and it helps them in their own strategy. The more brands invest into the Zalando experience, the better our customer propositions get. The second big value add for our partners, our capabilities that enable digital business. So we solve 3 major challenges for them. First, they have to be online where the customer is, and we enable them to go direct-to-consumer in the multi-brand environment. Our partner program and Connected Retail are our way to put them out there. And you also see that the strong brands place more and more bets on direct-to-consumer. And I think it's a very strong signal that they consider not only like their own website as direct-to-consumer, but also selling through our platform. And by now, 30% of our GMV comes from this model. As a second step, partners can leverage our infrastructure to reach customers in all of our markets. Zalando Fulfillment Solutions is a great lever for brands to boost their reach without having to invest in their own infrastructure, which drive for 75% of Partner Program items shipped by ZFS by 2025. And today, we are already at 55%. So we're on a very good track. And then thirdly, we enable partners to speak to their audience and leverage our data and reach to drive their sales and not only sales, but also to position their brands. Our long-term target is that 3% to 4% of our GMV comes from Zalando marketing services. We reached 2% in the fourth quarter of 2021, which I think is already like a good proof point that more and more partners are adopting our marketing services. Let's dive 1 level deeper into our logistics capabilities as these are clearly needed for any direct-to-consumer approach, and we have built a highly relevant network. So our partner program business is a strong indicator of how brands engage with the direct-to-consumer possibilities. Our partner business grew at an impressive rate of over 75%, that's more than 3x faster than our retail business. Then Zalando Fulfillment Solutions, at the same time, grew even stronger. The item volume sold by partners, but shipped by the Zalando more than doubled year-over-year. And one of the reasons for partners to utilize ZFS is the immediate international footprint. We offer all of euros in a box to partners, which most cannot cover with their own footprint or with like a logistics provider. This is reflected in the strong growth rate of our partner programs in markets other than Germany. For example, in Switzerland, we went up 10 percentage points to a partner business share of 25%. In Belgium, we reached 33%, or in Spain, we more than doubled its share to 19%. And I think Spain is also a good example of how Connected Retail adds a lot of value to local customers. Connected Retail means connecting inventory of local brick-and-mortar stores and shipping it directly from the stores to customers. We have now more than 7,000 stores connected in our network. If we're successful in enabling partner business success on Zalando and on the Zalando platform, we can also enable our partners to leverage our logistics backbone to drive the success of then direct-to-consumer business across all channels. So we will start by opening up Zalando Fulfillment Solutions with channels beyond Zalando. And therefore, we enable multichannel fulfillment for our partners. And by doing this, we will offer brands and retailers the opportunity to outsource e-commerce logistics to Zalando. Some of our partners have actively asked for -- asked us to fulfill beyond our platform because they face challenges in their own approach. For example, if they serve Zalando customers and then at the same time their own e-com and several other channels that usually leads to splitting up inventories and that again leads to bad order economics. I can tell you, partners don't like fragmented inventory. And another reason shipping cross-border and integrating like the right providers is quite complex. And usually, many brands and providers cannot ship to like all the markets we're talking about. And then at the same time, customers' expectations around convenience are getting higher and higher. And then also investment, what's becoming more sustainable and then your own operations are needed and in demand by customers. We have built a large and flexible networks that will tackle all of these challenges. We can offer partners a flexible expansion to reach all markets and tap into our constantly improving convenience offer. And then also by consolidating orders, we improve order economics and we also reduce the carbon footprint, which is a nice segue to the third element of our strategy. We aim to build a sustainable platform to win the hearts and minds of our customers. Our ambition is to be a net positive company in the long run. And that means that we give back more to society and the environment than we take. And that's a high ambition. To achieve it, we have to work on solutions together with our partners and invest in innovative technologies. Only then we can really unlock opportunities that will help both Zalando and the industry to evolve. And we believe that with our platform, we are in the right position to do so because we can engage with more than 5,800 brands and on the other hand, 48 million customers. And we drive our efforts forward in 3 areas: planet, products and people. We're very confident in our efforts and believe we're on the right path. Nevertheless, there are significant challenges to solve and solutions to scale. Let's dive into 2 examples. So my first example is our more sustainable assortment. Our commitment is to generate 25% of our GMV with more sustainable products by 2023. And I think we've made quite some good progress so far. We're proud to offer our customers what we believe is the biggest sustainable assortment in Europe with now more than 140,000 products and that compares to around 80,000 last year. Maybe also to put it a bit in perspective, our sustainability assortment is now as large as our entire assortment in our IPO year. And the sale of these products accounted for 21.6% of our gross merchandise volume overall, which is already getting close to our 25% target. And also from customers we had very good feedback. We see strong interest in these products. For example, if we look at conversion rates or on more sustainable products versus similar standard products. And in order for this progress to be meaningful, we need to overcome 3 key challenges. The first is the lack of a common definition for sustainability for fashion products. And the second challenge is tracing all this information across the value chain, starting from the field to the product. And then the third challenge is around the customers' understanding of these standards. We know from our research that they find sustainability to be quite complex. It's complex to understand, and it's also complex to act on it. And that's why we have a team fully dedicated on building a better digital experience that allows customers to engage with sustainability in a better way. My second example is more sustainable packaging. When it comes to packaging, of course, our first priority is to ensure that products reach our customers safely and undamaged. But at the same time, we aim to reduce our packaging volumes to minimum and specifically eliminate single-use plastic. To do this, we focus on 2 key elements in our packaging design. And number one, 89% of our packaging materials contains recycled input and then 99% is recyclable, so that our customers can dispose off the packaging responsibly. Our main achievement last year was to switch to paper shipping packs across Zalando, which will actually complete in the next few months. But 1 long-term challenge in the industry remains polybags. This is a massive challenge and the industry has basically every single product is wrapped in a polybag. So what we'll do is, together with our partners, we're testing new materials and reusable options to tackle this. But we have -- also have to be honest, that there is a long way to go. So this will be one of our key focus areas going forward. That was just a snapshot of all our efforts we're driving. Yes, I have to say that it's very motivating to see how passionate all teams are, working on ideas and how to hold deeply ingrain sustainability already is in all of our projects. And we have talked a lot about growth. But it's important for us to not grow just for the sake of growing. We want to leverage all of our customer reach, our capabilities and our relationships in the industry to enable and drive some structural changes. With that, I would like to hand over to David, who can give you an overview of how the sustainable growth looks like in numbers.

Over the past 24 months, we've experienced an exceptional operational and financial performance acceleration. As a result of this acceleration, which was particularly pronounced in the first half of 2021 with GMV growth reaching 46% year-over-year, we are well on track to reach our midterm growth ambition. As European consumers and economies are gradually returning back to a new normal, we've seen our growth rates starting to normalize in summer 2021. That said, we are confidently looking ahead towards our 2025 GMV target of more than EUR 30 billion, as we continue to grow from a significantly higher base. The opportunity ahead of us remains immense. We are operating in a large market that is projected to grow to EUR 450 billion over the next few years. And although we have achieved a lot over the past decade, Zalando's market share is still only at around 3%. The COVID-19 pandemic has accelerated change in the fashion industry that has long been in progress and has blurred the boundaries between off-line and online as consumers and brands are increasingly going digital. And our strong platform strategy perfectly positions us to take advantage of this opportunity, making us confident that we can serve more than 10% of the total fashion market in the long term. To capture this opportunity, our #1 priority remains to deliver continued strong growth. Hence, we continue to invest through the cycle to create long-term value for customers, partners and shareholders. For 2022, we do expect a more volatile market environment, driven by 3 key factors: weakening consumer sentiment, continued supply chain disruptions and rising inflation concerns. While we will not be able to fully isolate ourselves from these temporary market developments, we are confident that just like in the past, our strong platform business model, our agile business steering approach and our continued efficiency improvements will allow us to successfully navigate through this volatile market environment and to continue to grow faster than the European online fashion segment. Looking ahead at 2022, we does expect to grow GMV by 16% to 23% and to add EUR 2 billion to EUR 3 billion additional GMV. On a 2-year CAGR for the years 2021 and 2022, our GMV outlook implies a growth range of 25% to 28%, ahead of our midterm target growth corridor of 20% to 25%. In line with our platform transition and increasing share of the partner program, we expect revenue growth to trail GMV growth resulting in revenue growth of 12% to 19%. Similar to last year, this growth will not be evenly distributed across quarters. Due to baseline effects, we expect lower-than-usual year-over-year growth for the first half and a reacceleration in the second half. Looking at profitability, we expect an adjusted EBIT of EUR 430 million to EUR 510 million, implying a margin of 3.7% to 4.1%, which is well in line with our midterm guidance. To fund our continued investments into our logistics infrastructure and our technology platform and thereby enable our 2025 growth ambition, we planned capital expenditure of EUR 400 million to EUR 500 million. And now back to you, David, for some final remarks.

Yes. We have a very strong team in place to advance our strategic agenda, to scale the business and, of course, to continue to deliver results. Robert and I are very happy that Sandra has joined our management Board today as CFO. And David will assume a newly created role as Chief Operating Officer, focusing on building and scaling unique capabilities and enabling the company's growth. Jim transitioned last year from CTO into a newly created Chief Business and Product Officer role. They are developing marketing and growing our consumer offerings. And Astrid joined us last April as Chief People Officer. We are all excited about the strong progress we have made in 2021 and further strengthening our position as the Starting Point for Fashion. In 2021, the company grew significantly faster than expected, putting us on track to achieve our midterm growth ambition and reach more than EUR 30 billion GMV by 2025. Zalando continues to focus on strategic initiatives that will drive future growth. We are laser-focused on execution and in a strong position to continue to deliver long-term growth. Yes, thanks to the whole team for this outstanding achievement. And yes, now let's hear what David has to say and jump to our performance, deep dive.

Welcome to our performance deep dive session. Today's keynote highlights the strong progress we are making towards our vision to be the starting point for fashion, providing further insights into our key strategic priorities and initiatives for 2022 and reiterating our 2025 ambition. Building on that, I will now provide you with more details regarding the development of key strategic, operational and financial performance indicators for Q4 and full year 2021 as well as additional information regarding our outlook for 2022. Starting with our strategic priorities to grow our active customer base and to further deepen our customer relationships, we see great progress when looking at key metrics. During 2021, we were able to grow our active customer base to 48.5 million customers, supported by strong new customer acquisition throughout the year. We also saw a continued decrease in new customer churn, with churn reaching an all-time low over the course of 2021. Customer order frequency reached a new all-time high of 5.2 orders per active customer over the past 12 months. Average basket size showed a slight year-over-year decrease of 1.3%, mainly driven by a lower average item value compared to the prior year. As a result of increasing order frequency and broadly stable basket size, GMV per active customer grew by more than 7.1% over the last 12 months to now almost EUR 300, representing the strongest year-on-year increase since 2017. While we are very happy with the progress achieved in 2021, we expect our customer metrics to normalize over the coming quarters as the return to normal continues. When looking at customer development over a longer time horizon, we see consistently positive trends in the evolution of our customer cohorts. These trends are well reflected in this cohort chart, which we update and share with you on an annual basis. It shows the total GMV per cohort and order year. The light gray bar at the bottom shows the GMV from cohorts we had acquired before 2016. Staggered on top of that, you see the GMV contribution of cohorts we acquired in the years thereafter. During 2021, we saw more than 10 million new customers join our platform to shop fashion, beauty and lifestyle products. The 2021 cohort delivered almost 25% more GMV in the first year than the cohort acquired in 2020. But it is not only the newly acquired customers that contribute to Zalando's growth. When we look at the development of older cohorts, we see consistent growth and an increase of annual GMV contribution for each cohort from the second year onwards, following some initial churn in the first year. It might be interesting to note that in 2021, Zalando's GMV would have grown at a double-digit rate even if we had not acquired a single new customer. Let me now provide a bit more context regarding the exceptionally large customer cohorts acquired during 2020 and 2021. This period has been strongly influenced by the evolution of the global pandemic and resulting governmental restrictions and changes in customer behavior, causing an acceleration in the structural consumer demand shift from off-line to online. As a consequence, more consumers than ever before have shifted to Zalando for their fashion and lifestyle needs. Our new customer growth accelerated significantly from 2019 to 2020 and remained at an elevated level in 2021. When looking at the quality of these customer cohorts in more detail, we see that they show very similar or even slightly better characteristics compared to previously acquired cohorts, as indicated by their engagement, their reorder behavior and their spend with us. This observation also holds true beyond the peak periods of the pandemic, as proven by the continued strong developments in the second half of 2021 when European consumers and economies saw a gradual return to normal. Let's now turn to our second strategic priority, enabling our partners direct-to-consumer business, which is at the core of our platform transition. In 2021, we recorded exceptional growth across our entire portfolio of partner-facing platform services. Our partner business consisting of the Partner Program and Connected Retail, which aims to connect our partners directly with European consumers, has grown by more than 75% in 2021, resulting in a partner GMV share of 30% in Q4. Zalando Fulfillment Solutions, which allow our partners to leverage our European logistics network to increase their customer reach and satisfaction, while at the same time reducing complexity and costs, have grown even faster than our core offering over the course of the last year. The number of items shipped via ZFS increased by more than 100% year-over-year, representing a 55% share of all partner program items shipped in Q4. Last but not least, Zalando Marketing Services, which enable our partners to increase their visibility of the offering and to build their brand on Zalando also recorded very strong growth of more than 90% in 2021. ZMS revenues reached 2% of Fashion Store GMV in Q4, putting us well on track to achieve our long-term ambition of 3% to 4% of GMV. Our third strategic dimension is focused on people and planet and on delivering the ambitious goals we set out in our do more sustainability as well as our do better diversity and inclusion strategies. As part of our Zalando principle to default to transparency, we report annually on the progress made in both areas. While you will find a great level of detail and relevant sustainability and DNI progress reports available on our website, I would here like to highlight that we make continuous and strong progress towards reaching our sustainability goals, which is also being recognized externally. As part of our do more strategy and next to drastically reducing our own emissions, we aim for our partners accounting for 90% of supplier-related emissions to set science-based emission reduction targets by 2025. By the end of 2021, we are pleased to say that partners accounting for around 51% of supplier-related emissions had [indiscernible] compared to 34% in 2020. The second example shown here concerns our sustainable packaging targets. With our switch from plastic to paper shipping bags, we reduced the use of plastic shipping bags to 37% at the end of 2021 and aim for 0% by 2023. Thirdly, we expanded our portfolio of more sustainable products to more than 140,000 products compared with around 80,000 a year earlier. The sale of these products accounted for almost 22% of our GMV. These are just 3 examples, but they clearly demonstrate that we are making quantifiable progress and leveraging our position to drive positive change in the industry. This concludes our wrap-up on the strategic progress we made over the course of the year. Let's now turn to our financials, starting with top line performance. We are pleased to report that 2021 saw exceptional top line performance with GMV growth of 34.1% and revenue growth of 29.7%, with full year revenues surpassing the EUR 10 billion mark. Both GMV growth and revenue growth are in the upper half of our financial guidance for 2021. For the fourth quarter, GMV growth reached 24.1% year-over-year, with revenue growing 20.5% year-over-year, well in line with our midterm target growth corridor of 20% to 25% and representing a 2-year CAGR of more than 30%. Looking at both full year 2021 and Q4 developments, partner GMV growth again exceeded overall GMV growth significantly. This also explains, to a large degree, the gap between GMV and revenue growth. Let's now take a brief look at the developments of each of our 3 segments. In 2021, Fashion Store GMV grew by 32.6%. Within Fashion Store, the growth rates for the DACH region and the rest of Europe region were on a similar high level in 2021 and driven by a significant growth acceleration in the DACH region by 8 percentage points to 33.3% GMV growth, whereas rest of Europe GMV growth remained strong and fairly stable at 31.9%. Our off-price segment continued on its strong growth trajectory, recording around 50% GMV growth for Q4 as well as full year 2021, which is remarkable, particularly in light of an increasingly challenging supply situation. The other business segment followed the positive trend, driven by a strong performance from Zalando Marketing Services, which benefited from continued high demand of our brand partners for our advertising products, resulting in revenue growth of around 95% for 2021. In the fourth quarter alone, ZMS grew 53% year-over-year. Besides using ZMS to drive sales on the platform by increasing visibility for certain products, our partners also increased their investments in branding campaigns to build their brand equity on Zalando. Let me conclude the discussion of top line growth by looking at our multiyear growth performance since the beginning of the pandemic. It is very notable that our 2-year GMV CAGR exceeded our midterm GMV growth ambition of 20% to 25% CAGR in every single quarter since Q2 2020 and exceeded 30% for 3 consecutive quarters from Q4 2020 to Q2 2021 before starting to normalize again, which we expect to continue in 2022. Let's now turn to profitability. We recorded an adjusted EBIT of EUR 468 million in 2021, representing a 4.5% margin on the back of strong top line momentum and a continued yet temporary return rate benefit. Q4 profitability came in slightly above prepandemic levels, yet remained below last year's level. When looking at the regional profit distribution in our core fashion store segment, we can see that our more mature markets in the DACH region delivered strong, absolute as well as relative profitability for the full year 2021, also supported by a higher partner business share. The full year adjusted EBIT margin of 8.7% for DACH Fashion Store is in line with 2020. Rest of Europe profitability came in slightly negative and decreased year-over-year, driven by continued and deliberate over-proportional investments into customer acquisition and customer experience to drive growth and market share gains in the rest of Europe, particularly also in the 6 new markets in Central and Eastern Europe, which we launched and ramped up over the course of 2021. Off-priced saw a more normalized adjusted EBIT margin of 7.2% for the full year compared to 9% in 2020. However, the segment delivered a strong Q4 performance, increasing the adjusted EBIT margin slightly to 13.1%. Our Other business turned breakeven for the first time over an entire business year. Let me now give you more detail on our cost line developments that drove profitability in 2021. For 2021, overall, gross margin decreased by 0.7 percentage points compared to last year's level, mainly as a result of increased discounts to offer our customers competitive prices in a highly promotional market environment, particularly in the second half of the year as well as continued business mix changes in terms of category mix and country mix. Our fulfillment cost ratio improved for the full year compared to 2020 as a result of a higher level of utilization and efficiency across our European logistics network and improved order economics benefiting from a lower return rate. The year-over-year deterioration in the fourth quarter fulfillment cost ratio is due to deliberate investments into our convenience proposition to further deepen customer relationships and to drive customer lifetime value, as for example, by extending our long distance shipping offer, expanding and scaling our premium service offering for Zalando Plus or by our ongoing efforts to offer more sustainable packaging. In 2021, our marketing cost ratio increased year-over-year as we remain focused on customer acquisition and engagement investments supported by our ROI-based marketing approach and ran major launch campaigns across our 6 new markets. In the fourth quarter of the year, we reduced our marketing costs in absolute and in relative terms compared to prior year, mainly due to lower brand marketing investments. Last, but not least, our admin costs continued the positive trend observed throughout the year, driven by increasing economies of scale and continuous efficiency improvements. As a result, our adjusted EBIT margin decreased by 0.8 percentage points year-over-year to 4.5% in 2021. Excluding the temporary positive impact from lower return rates, the pro forma 2021 margin would have been 3.4% in 2021 compared to 3.8% in 2020. Since we continue to expect a normalization of return rates over time and given the significant impact of returns on our operating margins, we believe this pro forma measure provides you with a better view of our underlying profitability development. Turning to cash-related items. We recorded a sizable decrease in our net working capital position year-over-year. The main driver behind this development is a relatively stronger increase in trade payables than in inventories and receivables, as a result of the strong growth momentum in our partner business. Reflecting our continued investment into our technology and infrastructure to enable our growth trajectory, capital expenditures significantly increased year-over-year, both for the full year and the fourth quarter. Mainly due to the strong decrease in net working capital and due to our strong operating cash flow, we recorded a positive free cash flow of EUR 283 million for 2021, broadly in line with the previous year despite higher capital expenditure. Our cash balance amounted to around EUR 2.3 billion at the end of Q4. Let me close this presentation by providing you with more information regarding our 2022 outlook. Over the past 24 months, we have experienced an exceptional operational and financial performance acceleration. As European consumers and economies are gradually returning back to a new normal, we've seen our growth rates starting to normalize as well. Looking ahead at 2022, we expect to grow GMV by 16% to 23% and to add EUR 2 billion to EUR 3 billion additional GMV. On a 2-year CAGR for the years 2021 and 2022, our GMV outlook implies a growth range of 25% to 28%, ahead of our midterm target growth corridor of 20% to 25%. In line with our platform transition strategy and increasing share of the partner program, we expect revenue growth to trail GMV growth resulting in revenue growth of 12% to 19%. Similar to last year, this growth will not be evenly distributed across quarters. As we are lapping exceptionally strong performance of 46% GMV growth in the first half of 2021, we expect lower than usual year-over-year growth for Q1 and Q2. With easing baseline effects in the final 6 months of the year, we expect our growth to reaccelerate significantly, implying a comparatively stable 2-year CAGR for the entire year. Looking at profitability, we expect an adjusted EBIT of EUR 430 million to EUR 510 million, implying a margin of 3.7% to 4.1%, which is well in line with our midterm guidance issued last year at our Capital Markets Day to start 2022 in the lower half of our 3% to 6% corridor. Compared to 2021, this implies a slight margin decrease as the prior year benefited significantly from temporary lower return rates, which we continue to expect to normalize over time. For cash-related items, we expect negative net working capital and capital expenditure of EUR 400 million to EUR 500 million to fund our continued investments into our logistics infrastructure and our technology platform, which are among the key enablers of our 2025 growth ambition. Next to the continued execution of our strategy and our through-cycle investments to drive long-term value creation. Our 2022 guidance also reflects our exceptionally strong growth in 2021 as well as a more volatile market environment driven by 3 key factors. First, weakening consumer sentiment linked to the economic outlook and current geopolitical tensions as well as a wait-and-see approach as the pandemic continues to evolve. Second, continued supply chain disruptions causing supply shortages in certain areas, particularly in sneakers, footwear and sports. And third, rising inflation concerns, which might have a further dampening effect on consumer demand in general and discretionary spending, in particular. While these same factors have been affecting our performance year-to-date, uncertainty remains with regards to the duration and magnitude of the impact these temporary market developments will have on our business throughout the rest of the year. To reflect this higher-than-usual degree of uncertainty, we've chosen to broaden our guidance ranges for 2022. In addition, this slide provides you with more transparency on potential performance scenarios and how the different macroeconomic factors might result in us moving towards the low or the high end of our guidance. While we will not be able to fully isolate ourselves from these temporary market developments, we are confident that just like in the past, our platform business model will prove to be resilient and will enable us to respond to these short-term challenges. Our strong brand relationships will help us to secure access to stock while our platform model will allow us to dynamically adjust our offer, our stock levels and our logistics capacities to various demand scenarios. Furthermore, we will rely on an agile business steering approach as well as continued efficiency improvements to deliver strong performance and to continue to outgrow the European online fashion segment. Let me close this presentation by reiterating that we are truly excited about the immense growth opportunity ahead of us. We remain laser-focused on our long-term vision to be the Starting Point for Fashion and on our 2025 ambition to build a sustainable platform business with more than EUR 30 billion in GMV, maximizing long-term value for our customers, our partners and our shareholders. That concludes our deep dive session. Let's now jump into Q&A.

Good morning, and welcome to our Q&A session today. With me are our Co-CEO, David Schneider; and our COO, David Schroder, virtually also our co-CEOs, Robert is there. Before we begin, David would like to deep dive and share a few words with you.

Yes. Usually, the publication of the annual report and our end of year financials is a special moment for us. However, this year, honestly, it's a bit hard for us to stand here as if it's business as usual as we watch the war in Ukraine unfold. Our hearts and minds are with the Ukrainian people and of course, all our employees, families and friends who are directly or indirectly affected. Our priority is to help them as much as we can. We're supporting our impacted employees and their families with counseling, visas and travel support. But we're also committed to helping out those impacted however we can through financial and in-kind donations, volunteering and support for refugees. We truly hope that path to peace can be found quickly.

Thanks, David. Under these circumstances, it's indeed difficult to think about much else at the moment. However, there are things we cannot postpone such as the financial reporting. And we want to give you the opportunity to share questions with us. Directly linked to that, David, can you comment on the impact you are seeing from that situation David just described on our business directly as well as indirectly?

Sure, I can. I mean, first of all, it's important to understand that there is no direct impact since we don't have operations there. We have a private label supplier working with a local factory in the Western Ukraine, but otherwise, there's no Zalando business footprint over there, and therefore, there's also no direct impact on the business. What we have seen, however, unfold over the past couple of days, in particular, is a significant indirect impact, especially when it comes to our business in Central and Eastern Europe. We operate in 8 Eastern European countries out of the 23 markets we serve overall, and in these markets, we have definitely seen that consumer sentiment was affected quite significantly over the past few days, which I think is understandable because people probably have different things on their mind at the moment than shopping fashion. And that's why we'll continue to closely monitor the situation and obviously adjust our business steering accordingly.

David, switching a little bit and trying to switch gears a bit towards you, Robert. There has been 2 years of big acceleration of e-commerce adoption. Do you see another decade of growth for Zalando?

Yes. Yes. I think, yes, certainly see another decade of growth for Zalando. So as you know, like our midterm ambition is to achieve more than EUR 30 billion by 2025. So that's more than double as much as we have done like in 2021. And long term, we see ourselves in a position to serve more than 10% of the European fashion market, and we're very convinced, we're working very hard on this growth path. And yes, I think that's where we're going. And I guess the last 2 years, they have certainly accelerated the shift towards online and [ prepared ] us well ahead on this path -- on this growth path. And as a company, we use these tailwinds very rightly and did a great job in our customer proposition work, market expansion and as well drove customer loyalty, as we have shared with the Zalando Plus milestone that we [indiscernible]. So yes, and as David said, like 2022 will certainly -- or very likely be a year with more volatility than usual as of these technical baseline effects from prior year. Yet, I'm very, very confident that with our great team, the proven platform model and our knowledge of how to agile steer our business, and we're very well positioned to navigate it well. And our strategy is strong, our team is strong. And yes, and I'm very convinced on our long term. So our next step is EUR 30 billion by 2025, and that's very much our focus.

Thanks, Robert. And going exactly into that direction, there's a question coming from Charlie Muir-Sands from Exane on deepening customer relationship and what's the cause and effect of our Zalando Plus members spending 3x more? Are they're signing up to Plus because they already have -- are our higher-spending customer or is there a strong sales uplift after they sign up?

Yes, I think it's -- that's a great question. It's something that, obviously, we are -- I'm very -- which is very well researched and understood at Zalando. So there what is actually correlation effect, what's the causality effect, I can tell you there's a big causality effect, so which as well makes sense. Like if you have this customer, if you actually commit to paying like on an annual membership for service, [ users ] will want to use this [indiscernible]. So there's a causality effect that actually drives more frequency of visits that drive more frequency of sales. And this is what we see now and that is why we are always so focused and -- on driving our Plus membership program into more success because of the causality because the causality is driving our deep relationships.

Well, thanks a lot. Yes, going away from deepening to more current topics on the GMV guidance we published today. David, could you talk us through the assumption that you get to the higher and lower of the range here?

Sure. So first of all, let me repeat that we, as Robert said, expect to continue our journey in 2022 and continue to deliver strong growth in terms of GMV that will be between 16% and 23%. And I think that is basically reflecting 3 things. First of all, it's reflecting a very strong foundation with by no more than 48 million active customers, partnerships with more than 5,800 brands. Numbers that have significantly increased over the past 2 years as consumer demand shifts accelerated towards online and also brands focused even more on digital channels. And I think that sets us up for now continuing to drive strong performance of the business going forward. The second thing that we obviously need to consider is the very strong baseline of last year, particularly in the first half. So for those of you who remember, we, for example, reported 56% growth in GMV in Q1 last year. We also reported 46% in GMV growth for the full first half. And that obviously means when we now lap these high baselines in the first half that our growth will be rather lower in the first half and higher in the second half of the year because in the second half of last year, we saw things normalize and therefore, also are up against more normal baselines. And then the third fact that I think Robert also mentioned and we discussed quite a bit also in the keynote and the performance deep dive today is that we expect a more volatile market environment, primarily driven by weakening consumer sentiment, by continued supply chain challenges and also by rising inflation concerns. We expect that most of these will be more pronounced in the first half and probably gradually improve or even fade away in the second half. And that is obviously also reflected in the guidance range, and quite frankly, it's also the reason why the guidance range is a bit wider than usual. And so the best way to think about the low end and the high end I think this year is to say, if these effects fade away quickly, then we'll see our growth rates move more towards the higher end. The longer dose effects persist, the more likely it becomes that will tend towards the lower end.

Yes. Thanks for that full year picture. Also always a recurring question is like when looking into the current trading, do you have already first comments you can share here that would be highly appreciated?

Yes. I think coming back to what I just said. I think there are certainly almost the same effects to take into account for Q1 that we just talked about for the full year. So for Q1, in particular, I think we have a super strong baseline with 55% or 56% GMV growth even last year that for sure will mean lower growth in Q1 this year on a year-over-year basis at least on the second effect, so more volatile market environments, as I just explained. We also expect those effects to be more pronounced in Q1 and Q2 and therefore also leading to lower growth rates for Q1 and the first half. And then last but not least, as we briefly mentioned in the beginning, we've seen some early indirect negative impact from the war in the Ukraine and that will most likely also have an impact on Q1. What does it mean overall? Overall, I think it means that for Q1, we should expect to see our GMV growth be in line with the 2-year CAGR that we project for the full year. So for the full year, we told you today in our presentation that we aim for a 2-year GMV CAGR of between 25% and 28%, which is above our midterm GMV growth corridor of 20% to 25%. So still continue to expect very strong growth, and we expect to land in the same 2-year CAGR range for Q1. When we then briefly turn to profitability, I think that you should probably have in mind the typical seasonality for our business outside of maybe corona times, which is that Q1 and Q3 are typically a bit softer, either breakeven or even slightly negative, whereas Q2 and Q4 are our most profitable quarters because they also have the highest share of full price sales. And then obviously, there's some additional negative impact to be expected this time due to the short-term developments that I just called out.

On the short-term developments and looking into your eyes, David, is like supply chain, inventory shortages. So can you quantify the impact on sales we are seeing for this quarter or the upcoming quarters, perhaps any color you can give here?

Of course, there is an effect which is real due to COVID in the supply chain and also due to transport, many of our brand partners have also commented on the challenges. So we see them in certain areas, especially when it comes to sneakers, footwear, sportswear, where it's most prevalent. So therefore, this season, spring/summer '22, we do see the effects, although the effects are less than we expected them to be last year. And we also see improvements. And we also expect it to improve throughout the year. We'll have to monitor closely like what happens to fall/winter '22. That said, I think also as a platform, we're very well positioned as we work with close to 6,000 brands. And I think we can balance because in our assortment, we are broad, we can have this full range, we can work through wholesale through partner programs, through connected retail in order to create like access for customers. And then on top, of course, we're also in very close dialogue with our core brands to monitor what's happening and to be able to react if necessary.

Yes. Thanks a lot. Moving away from current trading and looking more into the future into our platform strategy, perhaps to you, David, when we look into our partner program in more detail, can you discuss the drop-through of the 2022 EBIT margins will be slightly up on 2019 despite the partner program contribution of more than EUR 1 billion in 2021? Why aren't we seeing that on a gross margin or even an EBIT level yet?

Yes, let me take this opportunity to maybe take a broader look at the progress of the platform transition, right? So as David and I mentioned in the presentations today, we see continued strong progress on our way to become a platform business. We see partner program in Connected Retail growing by more than 75% year-over-year. And ZFS and ZMS, our key enabling services growing even faster. And I think that's obviously, a key proof point that we are moving in the right direction and that we're also are well on track to reach our 2025 targets that relate to the platform. I think what is also actually great news for us that for 2021, for the first time, our non-merchandise revenue exceeded EUR 1 billion. And I think that is, in a way, the result of the progress we are making with our platform business. I think it's also important to consider though that it's 1 out of more than EUR 10 billion by now, right? So it's the business or the P&L and especially the revenue line is still dominated by our wholesale business model. And I think that's one key explanation why you don't really see the progress of the platform transition as much in the P&L as you will see it in future years. And as we've also talked about it when we think about our long-term target margin. That being said, I think, obviously, we remain committed both to our long-term model where we project 20% to 25% target margin for the partner business and also to our midterm margin ambition to move closer to 6% by 2025 and that will be largely driven by our continued progress with the platform. To just maybe talk about one last key item that I wanted to mention. When we look at the profitability development or also profit contribution of our platform business year-over-year and also as it stands for 2021, there are 2 key messages. First of all, it is already highly accretive to the group margin. And second of all, the profitability has increased year-over-year. And therefore, we are definitely also on track to reach our long-term margin targets for that part of our business.

Thanks, David. Going more into the partner program. And there's a question coming from Miriam from Morgan Stanley. What explains the difference in our partner program share we are seeing across different markets? Is it simply scale or maturity? And how does this trajectory of our partner program in newer markets compared to our home market here in Germany?

Yes, I mean, first, to note that Zalando, of course, also -- the Zalando penetration looks different across different markets. So I think there is also like the Zalando maturity in certain markets that play a role then our partners. Of course, they also have to develop capabilities to ship internationally, which is usually a challenge to actually have like the right providers and all the connections in place you need, which is also exactly the reason why we offer ZFS and believe very much in our own logistic networks to actually help partners get there because that is actually -- this offers like all our European markets to partners quite immediately. We also see a strong traction. And you see also like if you solve these challenges for partners, how it then develops very quickly. I mean if we look at, for example, Switzerland how it develops once you overcome like the hurdle for partners and offer them through ZFS like an easy way in that you also see like the partner program share developing very quickly. And I think in the future, so we see markets that will develop fairly quickly on the partner program share. We also see a big lever to actually offer [ new ] relevant assortment locally. For example, in Spain, we can even can utilize like the Connected Retail proposition to actually get access to locally relevant assortment and offer that locally to customers. So I think is a big lever also for us to be even more relevant in the specific markets.

Yes. I think that was a good hint and also somebody already assumed some kind of a question here. We are also providing more logistic services for our brand partners, what kind of additional service can we exactly give to these Connected Retail partners? What is here in our minds and what are we able to share here already? Not sure, David.

Yes, happy to jump in here. So obviously, the type of logistics service that enables connected retailers is a bit different from the type of logistics service that we've built for our brands because those stores essentially are small fulfillment centers. That's the whole beauty of the model. And therefore, they don't require as much help with warehousing as our brand partners do when they use ZFS, but they definitely can benefit from our capability in the area of shipping and returns. And that's why we are, especially for 2022, now very much focused in making sure that we can support them with more efficient, more convenient and also more economical returns handling, which we think will make the model much more attractive for many of them, given that the cost to serve can be dramatically reduced.

Sticking with logistics, also kind of an evergreen here. When we talk about our logistics platform, to grow our GMV by EUR 4 billion per year, we also need to add 3 to 4 new distribution centers every year. But apparently, some outsiders don't seem that we are on track -- on pace here. So perhaps you can comment on are we getting enough throughput via our existing network?

So I think our existing network is well set up to support current business volumes and also, obviously, the growth for the year to come. Please don't forget, we just at the end of last year took online a completely new facility, the biggest so far close to Rotterdam in the Netherlands, which gives us ample of room for growth. And we are obviously continuing our ambitious network build-out program, which aims to add more than 7 additional warehouses by 2025. Several projects are underway in France, in Germany and in Poland. All those have been announced last year, and we are working on a few more that will be announced soon. So from our perspective, our network build-out is well on track and even so well on track that we announced today that we also now feel comfortable to open up our network to support our brand partners also across more channels than just Zalando.

Yes. And exactly also another question exactly on that last [ sentence ] by David, to you, David Schneider. Could you talk a little bit more about the outsourcing of the logistics to brand partners and how this will be chart or will it be the same way as Zalando Fulfillment services, so as a cost-plus model? And what is the level of adoption that could be? Yes, so perhaps any thoughts you can share here?

I mean we've -- also like in the past years, we've been in a lot of discussion with our brands, how can we actually open up our capabilities more and more. And the closer work together, I mean we know brands invest into their direct-to-consumer approach. And of course, they ship not only like through Zalando but also through their own e-com and other channels. So what we see is that by opening our capabilities as we have really the best network for fashion, yes, for fashion logistics. Why not open that up and actually help brands to really also go more direct to consumer, because I think that's how we want to position ourselves with brands to enable their digital business and be part of their really digital strategy and not trading any barriers. And I think there is like very clear wins. I mean for our partners, again, gives some access to you like all our markets, all over Europe. I think not in combination with like having Zalando as a strong channel for them. It also [indiscernible] like being able to consolidate parcels. I think also a lot of economic benefits that are in there. And of course, they can make use of like all these convenience investments in innovation also from a sustainability angle, all these investments will go across Europe, across all brands. They can make use of that. At the same time, I think we also have the benefits or our customers have the benefits as we tap into better availability, stronger inventory pools. And again, I think also the strong benefit for partners, we do not have to split inventories in that sense, which makes, of course, a big effect. And we can say that the brands do not like to fragment their inventory. So we believe that is a strong win-win-win. As again, our partners win, I think for customers, we have a strong benefit. And I think for us, of course, it's also interesting to build out like really this infrastructure and which, of course, is also like a great business model to build on for us in the future.

Yes. Thanks for that. That's also financially related, just coming in, another warehouse question from Adam from Deutsche Bank. Perhaps, David, you can comment shortly on that, like what is the return on capital for spending CapEx on a new distribution center and fulfilling the logistics for partners is only available if they sell enough product via Zalando and perhaps any thoughts you may share here?

Yes, sure. So obviously, when we evaluate these projects and take decisions on such large CapEx spending, we take a very close look at the business gauge for each of these locations. And although I obviously cannot go into a lot of detail here, what I can confirm is that all these projects come with a very attractive and high NPV and they also come with a super fast payback, for example, in the automation technology, which is really the bulk of the CapEx investment that we are talking about here, which typically pays itself in just 3 to 4 years where we can use the facility for much longer and I think that gives you an indication of the return on capital for such projects. And for sure, as we mentioned today, this offer will not be limited to partners selling on Zalando and will also be open for partners to use for other channels. Obviously, we would expect most partners to find it very useful that they can also tap into the large customer base that we can offer at Zalando, but it's not a prerequisite as such.

Well, thanks a lot. A little bit related to logistics, but also evergreen here at Zalando is like return rates. Yes, we have been seeing a big benefit over the last 2 years. Perhaps, David, you can comment on like does the 2022 guidance include a continued benefit from lower return rates? So that's the first one. And then perhaps also a little bit comment on the marketing spend as a percentage of sale given that more volatile consumer demand environment you also flagged and others are also seeing here?

Sure. So in terms of return rates, we definitely assume an ongoing normalization, and therefore, only a minor or smaller impact on 2022. Overall, we actually expect our fulfillment cost ratio to increase in 2022, driven by the normalization of return rates but also by our continued investments to drive convenience for Plus members and also to make our operations and services more and more sustainable, for example, in the area of sustainable packaging. When we think about our marketing expenses for this year, we assume a rather flat development year-over-year. But as we have repeatedly stressed today, we'll steer our business in a very agile manner. And as you know, if you follow us for a while now, we are steering marketing primarily based on ROI. And so we are not sticking to a predetermined budget, but we'll rather adjust our spending according to the opportunities that we see in the market.

Thanks. Yes, so moving away a little bit from logistics, going more into our longer term. There's a question on ZMS. And Robert, I think you are the right one to answer that one is like can you expand and explain a bit further what roles ZMS and other Zalando data services, data monetization in general will play in our starting point for fashion strategy?

Yes. Sure. So like as our platform proposition towards customers is kind of expanding if we want eventually like every fashion item to be available on our propositions, there as well another question, like how -- what's actually the most effective way that actually brands can as well engage with customers as well on Zalando and how can they actually tell their stories, especially in the environment like where there's, I think, a lot of offer available? And this is really where the ZMS service actually helps our brand partners to tell their story, tell their brand and as well shed more light on specific articles that they want like customers to more engage with. So this is the purpose of ZMS. And as we've highlighted in our long-term model, we assume this would be like in the area of 3% to 4% of the GMV and would be like the ZMS in terms of our platform proposition and we are very, very happy so far with the developments of how ZMS business actually, yes, is [indiscernible] by the brand partners.

Thanks, Robert. Then there's also another question coming from Christian from Hauck Aufhäuser. David, given your comfortable net cash position, how do you think about inorganic growth? And where would you see possibilities for acquisition which is -- be it in beauty or tech?

Well, first of all, I think it's great to have that comfortable cash position, as you call it, because it really enables us to take that through-cycle long-term view on the business, right, and to make sure that we can actually make all the necessary investments that allow us to achieve our midterm ambition of EUR 30 billion GMV in 2025 and also our long-term ambition of serving more than 10% of the total European fashion market. Apart from that, you see us mainly investing into our own infrastructure and in our capabilities, obviously, also our technology platform as part of these capabilities. Yes, we will most likely continue to also look at inorganic opportunities, but primarily those that help us advance when it comes to building, scaling and innovating our capabilities. So for example, the last acquisition that we did was around size and fit. And I think you should expect us to do similar acquisitions in the future when they can help us accelerate our journey towards being the Starting Point of Fashion.

Okay, thanks. Before coming back a little bit to our current and 2022 outlook. Perhaps another more strategic question, sticking with you, David, on a second is like our financial capabilities and probably mainly referring here to our Zalando Payments offering. Do you see any potential to include this as a service to brands as part of the partner program over time?

Well, the thing is all the brands and also connected retailers that participate in our platform use our payment services by default, right? So it is actually part of our Partner Program and Connected Retail offer and part of the reason why brands and connected retailers pay a commission to us. So part of that commission is a payment services related. But I think it's still a good question because we definitely see that we've built a very strong payments capability. We process more than 20 billion transaction volume through our internal payment systems. And we've also built a very strong buy-now-pay-later offering, which actually accounts for more than 2/3 of that payment volume. It's the most popular payment method for our customers in many of our markets, and it's also something that has obviously helped us to drive both customer satisfaction and also conversion. And therefore, we definitely are evaluating different opportunities on how we can leverage this strong capability, particularly in the area of buy-now-pay-later and also find ways to offer that to partners also outside of Zalando.

Okay. David, then looking into a little bit more the brands itself. There was also a question again from Charlie from Exane BNP.Would you also consider helping brands with their e-commerce technology as well as the logistics?

I mean we already help also beyond logistics. I think logistics, again, I think it's a very strong and clear value-add for our partners, and that's why we want to open that up and really enable brands not only for our channel also across like different touch points. But like marketing, for example, is also a good example. With ZMS, I think we're also developing capabilities that really help brands to engage with their audience, target like the right audience and help them position the message and their brand in the right audience. And I think we can actually built on that because part of that is also like strong customer insights and really help brands using those insights being in product development, but also in the messaging towards customers. So I think building on that, yes, I think there are like ways to support brands overall in their digital strategy. And I think it also gets more and more holistic how we can actually help them through our capabilities and not only on Zalando, but also beyond that.

David, you stated in your presentation earlier today as the prerecording on the customer metrics and how they have developed and what nice positive impact we have seen is -- there's a question from Jurgen from Kepler asking can you provide some additional details where you expect to see the biggest changes with regard to our customer metrics in 2022?

Sure. So I think if we look back at the past 24 months that have driven some exceptional developments for the business overall, but also for our key customer metrics, I think for me, the 2 that stand out, in particular, are the one around our active customer growth and particularly the acceleration in new customer growth that I've also focused on in my performance deep dive today. And the second key thing to highlight would probably be the basket size development, which obviously benefited significantly from the lower return rate that we've already talked about today. And so these are probably also the 2 key metrics where I would expect a normalization. So in the active customers, we would expect our new customer growth to return to, let's say, prepandemic levels. And on the basket size, we would expect to see the normalization of the return rate lead to a decrease in the basket size for this year.

Thanks. The last question, David, is going to you again on competitive on pricing. Adam from Deutsche Bank is asking, Zalando was more competitive on pricing in the second half of 2021, but now -- but looks to set to increase prices in 2022. Does this suggest you will be a price taker rather than a price setter? Any color you may give here would be helpful.

Yes. Maybe to answer it first from a strategic angle. For us, price is not our main differentiator. So it's not our goal to lead on price. For us, it's a lot more important to reinvest into experience and engage with customers through that experience and through a great assortment access, providing like anything that is relevant for customers, telling like all the great like brand stories and engage with like content. It's about creating like experiences on our propositions, be it like for fashion or for beauty or for designer or for pre-owned. So that's important. Then also convincing through a great convenience experience and then linking everything through like our Plus. So I could be talking about that for a while. But I think those components are for us far more important. And in the future, we think even further around like how to engage with customers in an even better way and also entertain them more. Concretely to like price developments, yes, we do see price increases in the market. And we're like also in close discussions with our brand partners. So it looks like we have price increases in like a mid to high single digit area, which I think we have like, over the past decade, haven't experienced such a shift in pricing. So that is something I think that we will see and where we also see like prices adapting and where we also closely monitor like what is like the customer reaction, how do they also shift like in different price buckets. But I think also across like our platform as we have a very broad assortment and work with almost 6,000 partners. I think we also have to lead way to also adapt to that and offer what is most relevant for customers.

Thank. Yes, that concludes today's Q&A session with the both Davids here on stage and Robert virtually. Thanks, everyone, for attending today's full year publication. As always, we'll be on the road to discuss our results in the next couple of days. We'll also host an analyst round table in the week. And if there are any remaining questions, do not hesitate to contact us. In the meantime, stay well and yes, get well through these times and hope to see you soon. Thanks, everyone. Bye-bye.