Right. Let's move from this rather short-term performance view to actually what's most important for us, at a long-term view where we actually see our company heading the next five years. If you look to the next five years, there's actually three key messages we'd like to discuss with you today. Number one, we very much believe in a huge opportunity of building the starting point for fashion. There's this one destination where customers gravitate towards for all their fashion needs. Number two, if we build the starting point, we are sure that our platform approach is actually key to scaling our business. That's what Robert will describe then in a bit. Number three, our platform will translate into quite attractive financial profile in the long run. That translation to numbers then Rubin is going to make.
If you asked me 10 years ago, where did I see the company today, I would have made a huge understatement. I would never have guessed that we celebrate our 10th anniversary with our teams on the airfield in Tempelhof. Would also not have guessed that we hold this Capital Markets Day here in this newly built campus, for me, the coolest office in Berlin. I think that's quite characteristic for us, that in the long timeframe, we underestimate actually what we can do. That's why this quote from Bill Gates also resonates very well with us. It said that people underestimate what they can do in 10 years. However, there's also moments where we don't quite reach our targets. We had those difficult moments. A 2013, for example, was one of those. Last year, Q3, we had a highly irregular season.
Those short-term challenges, they didn't keep us from delivering an extremely successful decade for the company. For us, it's actually extremely important to take this long-term view and have a strong vision, a strong picture in mind, because that's something where we draw a lot of personal motivation from. We also believe that it's the right thing to do from a shareholder perspective to really create this long-term value. Before we look ahead for the next five years, let's very quickly reflect on the past five years, because I think we've built quite a strong foundation for the starting point. For example, we have grown our customer base to now 26 million customers. Doubled them in those five years' time. We have not only grown the customer base, the customers are also a lot happier.
We are at an all-time high in our Net Promoter Score. What do happy customers do? They shop more. We increased our GMV per customer. While doubling the customer base in the same timeframe, we could actually triple our revenues from EUR 1.7 billion -EUR 5.4 billion. If you look at the next five years, we see this huge opportunity to really become an indispensable part in our customers' lives and also in the business from our fashion partners. For customers, we aim to be this one place to be whenever she thinks of fashion. If she's looking for a concrete shoe in size 38, if she wants a new jacket, if mahogany is her new favorite color, if she's excited about the release of a new sneaker, that's exactly where we want to be.
In any of these moments, we want to be the very first place the customer goes to. We aim to be that starting point for fashion. This is not entirely new. We have worked on that for years now, we are already on that way. It's rather about doubling down on that strategy and on our customers. While I keep mentioning this word, starting point, also to make clear what we actually mean by that. The starting point for us is that destination where customers actively, naturally gravitate to whenever they want to shop a certain product or a service. You might know that from your own behavior. If you have a Spotify App, that's your starting point whenever you want to listen to music. If you have Netflix, that's your starting point when you want to get entertained.
I think this behavior is especially pronounced in an app world. How many apps do you download? How many apps do you actively use? We clearly aim to be one of these few apps. We aim to be the fashion app. Everybody who downloads that app, whenever you think of fashion, you should pull out your phone and hit that orange triangle. We also see that this general trend, it also holds very much true for fashion. In fashion, we know that people buy across many different brands. We see it in our own data. Almost every second order contains more than one brand. A female customer shops on average 13 different brands throughout the year with us.
If you take that jointly, like a general trend, few destinations, natural fashion behavior, I think it's super logical that people will not have 20 different apps for individual brands or occasions. They're looking for this one place they go to. The good news for us is, if we want to build a starting point, we are already in a very leading position. We are already top of mind. Whenever you ask someone in Europe where they would buy fashion, we're already way ahead of any competitor. For example, in our DACH region, our unaided brand awareness is 2.5 x higher than the next best competitor. We had 3 billion visits in 2018. That makes us already the most visited fashion destination in Europe. More importantly, customers come to us directly.
It's not only that the traffic's increasing, but the share of direct traffic has gone up from 70% to by now 90%. I think those numbers, they show quite clearly that we're already on that way of becoming the starting point. All this is especially pronounced if you look at the usage of app. Our customers clearly gravitate towards app. App has become our biggest sales channel already. By now 44% of our GMV. If you want to take an indicator for the future, look at young customers. Customers below 25, they're already at 60% of their purchase through app. Those customers who pick the app, they're extremely engaged. They visit more frequently, they spend more time, they look at more products, they shop more. A 30% uplift in app users in GMV, and they're happier. A 8 points more than NPS.
I think if you look at all this, at the general consumer trends, at fashion behavior, and at our own data, it very clearly points in one direction, that people are picking that one favorite place for fashion, and that we're in the best position of actually building the starting point. Now all of this is not entirely new. We had those ideas and those hypotheses already years ago, and we invested quite heavily into this. Just now, we see very clear proof points that this is actually happening in progress. Our early platform approach was a bit ample. Like, we tried out different customer propositions. We invested in different B2B services. Now it's rather about taking all those learnings and bundle these learnings, all our efforts, our investment in one clear joint goal to become that starting point for fashion.
In order to do this, to realize this, I mentioned it that our platform is quite crucial to scale our business. That's why I would hand over to Robert to explain a bit more how we aim to build that.
Thank you, David. How do we achieve to become the starting point for fashion? We believe the only way is with a platform strategy that really aligns our interests with the interests of fashion brands, that enables them to help us to build the proposition for —hold on. Okay, here. We believe the only way is with a platform strategy that aligns our interests with the interests of fashion brands. That enable them to really help us to build a proposition that qualifies for being the starting point for fashion for our consumers. Ultimately, what customers want is a flawless selection at one single destination. When they think of Zalando, they can think of, if it's not on Zalando, it probably doesn't exist at all.
What they as well like is when the ordering is as easy and convenient and fast as possible, as it possibly really can get. We'll discuss the customer proposition in more detail in our later section today. This degree of flawless selection, strong convenience, we can only offer by enabling very strong partnerships with our fashion brands. By connecting their warehouses, by servicing our warehouses to them. By either connecting their offline stores to us. We're making them feel very comfortable to offer the entire assortment on Zalando by putting them into the driver's seat of their business, putting them into the driver's seat of their brand on Zalando. We do that by giving our brands access to the European digital consumer. More than 3 billion visits we had on Zalando in last year.
A 3 billion visits that are interested in fashion, highly relevant to the fashion brands. By working with us, a fashion brand can easily focus on its core competencies. Like building beautiful merchandise, driving its brands. For the rest, they can really leverage our infrastructure. Our reach, consumer reach, our expertise in technology and our e-com infrastructure. We are then really in the sweet spot. The platform where everybody invests in. Customers invest in their time, share their profile, tell us something about their sizes. We learn more about what they like in fashion, what they don't like. Brands invest their resources because it is the ultimate gateway for them to drive in the digital business here in Europe. The more customers invest in it, the more brands invest into it, the more powerful our platform will get.
Ultimately, we service our assets of consumer reach and technology to the brands, and in the same time, we as well limit our inventory risk. Our platform strategy is about creating win-win-win situations. Wins for the consumers and customers, wins for the brands, and wins for us. We have been driving this deep transition of our models now for a few years now. Then, 2018 was the year where we achieved a number of very important milestones. First, our Partner Program reached a bigger scale in absolute terms and crossed more than half a billion euro in GMV. Now more than 10% of the consumer demand, which is of our platform, is actually fulfilled by the Partner Program.
Our Zalando Fulfillment Solutions more than doubled its share of our Partner Program since 2018. So more than 25% now of the items of our Partner Programs are shipped out of our warehouses at better unit economics for our partners and greater customer satisfaction. Brands still own this business. Our marketing services start to get heavily used and frequented by the brands. Brands increasingly buy their visibility on our platform. They engage with us to drive more traffic from outside on the brands' destinations of Zalando. They use as well our influencer solutions to actually tell their brand stories to the relevant customers. In 2018 alone, our ZMS has grown by more than 60% year-on-year. Now, since we as well optimized this product and start to market it more, just in January alone, they have grown again 75% year-on-year. It continues to accelerate now.
Maybe even more important, 2018 was a year where we made great progress in solving the conceptual questions of how to scale a successful platform business on Zalando. As we are actively disrupting our own wholesale model, getting the scaling of the platform process very crucial to us. In the growth of the Partner Program, we have encountered three major challenges, which now have been resolved or where we have a clear path of how to resolve them going forward. First, the Partner Program fulfills orders that are not fulfilled by our warehouses. They actually yielded a lower customer satisfaction than our own wholesale orders. This is now being resolved through very strict performance management with our partners and obviously as well with the scaling of ZFS where it really comes out of our warehouses.
Now the NPS of Partner Program and wholesale is on very similar levels. Second, our Partner Program has a lower profitability than the wholesale business on a GMV basis. We target similar profitability on our GMV levels between wholesale and Partner Program, as we continue to bundle very attractive services, B2B services such as fulfillment solutions, or ZMS into this proposition. Third, we are facing the challenge that the scaling of the Partner Program obviously eats into the profitability of our wholesale business. We ship less items per order. Now with the scaling of ZFS, we have a solution which enables both. It increases the profitability of our partners and as well it protects our wholesale business. Going forward, this will reduce the negative impact it has on our unit economics.
Three major challenges and all of them we either solved or have it very clear how to solve them going forward. Speaking of fulfillment solutions. We have plenty of capacity already in the process of building. Our warehouse infrastructure of the 11 warehouses alone by 2021 will allow for the fulfillment of EUR 12 billion GMV. It's not only this unmatched scale of our footprint. This dense network also improves our convenience proposition to become increasingly fast to our customers. By 2020 we will have a share of 30% next day orders. Up from about lower than 20% today. No single fashion brand has such a network and no other dedicated infrastructure tailored to fashion allows for such a coverage in Europe.
This is what we are now opening up increasingly to the fashion brands in order to drive their digital business in Europe. Our marketing service now have developed into the ultimate gateway for our brands to grow on the platform and drive their brand communication. Beyond the organic visibility of our brands, we enable them to connect directly to Zalando consumers through ZMS. Over the past year, this business has grown very substantially. Several hundreds of campaigns from our fashion brands are live every single day at the same time across all Zalando touch points and drive traffic to the brands' destinations on Zalando. Over time we added a lot of different service along the marketing value chain. We increasingly can make a difference for consumers and as well for brands. For example, our influencer product, Collabary.
Here we understand better than anybody else of what kind of fashion audience an influencer has, how to price a campaign or for which kind of campaigns to engage them for. On Collabary, we have more than 5,000 in-fashion influencers across Europe, and we provide a coverage of more than 600 million followership on Collabary. In consumer insights, another product, we provide brands with unparalleled insights into benchmark performance on Zalando. For example, how they do in the organic searches of Zalando. Even more, we as well are building a data ecosystem that really enables the brand to build strong business based on our data insights. For example, recently one big auto brand designed new styles for the upcoming season in summer, only based on our data insights that we provided them with.
Probably most importantly, we bring this all together in huge, holistic, large-scale campaign strategies. For example, Under Armour last summer engaged a European-wide female sports-affined customer audiences in their 20s to increase the awareness for Under Armour. So they reach with us 37 million unique female users and generate great marketing return on invest. I think in summary, to sum it up, hundreds of our top brands are loyal customers of our ZMS services. A large and increasing proportion of them really drive their business, optimize their visibility on Zalando on a daily basis. Therefore, we are very, very convinced that ZMS will be a major part of the monetization of the platform going forward. With that, I will hand over to Rubin, who will now translate you all this into the financial numbers.
Okay, let's talk about some numbers. What I would like to do in the third part of the presentation is really to explain to you how the platform transition can help us to build a superior business model in the long term. I think, like any big business transition or transformation, also this one has its cost, and we have talked about some of that cost in sort of the first presentation and the last earnings call. This is really to bring across that we are convinced that the long-term benefits will by far outweigh these costs. The long-term benefits are increased scale, increased market share, and a really attractive margin and cash generation at scale. This page, in one form or the other, has been, I think, in every single investor presentation I have done over the last nine years. Yeah.
I'm sure many of you know it. Sometimes the market is in a square, sometimes the market is a circle. It doesn't really matter. The key message is really to bring across how small we are compared to the opportunity that we have ahead of us. I like this page actually more of all the pages, because when I prepare for these sessions, I think this is the one that always also creates clarity in my mind, that really there can only be one number one priority goal for us, which is capturing market share and capturing growth as long as the window of opportunity is still there. Let's look at the opportunity. The overall fashion market in Europe is forecasted to grow to a level of more than EUR 450 billion in the next 7- 10 years. I think that's a big enough market.
Compared to that, we are still tiny, like 1.5% market share. Secondly, the online portion of that market is forecasted to continue to grow, yeah, to more than 25% online share. That may feel like a high number, but if you compare it to other consumer categories, it's actually not that high. Yeah. Consumer electronics in the U.S. already is above 30% and is forecasted to go above 40% in the next five years. We have said before that our own ambition, long term, is to serve more than 5% of the overall European fashion market, which would correspond to about 20% of the online market. Why do we think that is feasible? I think there are two ways of explaining it. The first way is to look at other online aggregators and the market share that they have been able to achieve.
As David explained, we really want to be that online aggregator for fashion in Europe. For example, 80% of hotel bookings online in Europe happen through Expedia or Booking.com. About 50% of the online book sales happen through Amazon. We know that Alibaba in the Chinese online market has a share of about 60%. I think that gives you an idea, sort of how high some other of these platforms are aiming. I think in that context, aiming for 20% of the overall European online fashion market doesn't seem out of reach. I think the second way to explain it is actually to look at our own numbers.
As you know, we have already shown that we can reach a 5% market share of the overall market, which we have already achieved for shoes in the DACH market, which corresponds to probably a 25% share of the overall online shoe market in the DACH region. This continues to be a really high ambition. I also think it's feasible. We also know there are certain things that we really have to get right if we want to get to such a scale in the future. Those are the two things that David and Robert talked about. The first one is really to make sure that we are the starting point, that we are this destination that consumers automatically gravitate to whenever they want to shop fashion. What does that mean financially, though? Yeah.
To just give you one example, we talked about how we already have more than 26 million active customers. That is already almost 7% of the European population. We are serving them with a share of wallet of about 25%. If we really are successful to build these deeper relationships and take the share of wallet up, that already yields quite some significant growth potential in the future. We will need to achieve that if we want to come to something like a 5% market share overall. The second thing that we have to get right is really this platform transformation. That's what Robert explained. This really yields a much more scalable business model. Why is that? It creates very clear incentives and a very clear and efficient separation of tasks. The brands get in the driver's seat. They get to do all the fashion.
They get to do all the content. They get to do all the merchandising. We really focus on those parts of the ecosystem that are highly scalable. Reach, technology, logistics, infrastructure. Now, what are some of the important milestones on this way towards our long-term ambition? We think there are two that I would like to point out. The first one is we want to grow to about EUR 10 billion in GMV by 2020. I think that's a number that we also have talked about previously and that we continue to aim for. Then we really want to take the business to a scale of about EUR 20 billion by 2023, 2024. That means we actually intend to build the scale of this company in the next five to six years.
I think there are few companies in Europe that have this level of ambition to grow at such rates and already are at such scale. On that journey, how will the business model mix evolve? We think that about 60% of the volume, equate to about EUR 12 billion, will be through wholesale, which is our current core business. It will continue to grow. In order to reach these targets, this has to more than double the scale over the next five to six years. As Robert explained, we expect the Partner Program to actually grow faster because of its scalability to about 40% of our business. Right now, it's about 10%.
As you know, the high share of the Partner Program will mean that also GMV and revenue will be more different in the future, because for the Partner Program share, we only account for the commission. We expect EUR 20 billion in GMV to translate roughly into EUR 13 billion in revenues, with a growing share of that coming from commission income, ZMS fees and ZFS fees. That also means that the CAGRs are going to be different, and we already hinted at that in the guidance today. We expect GMV to continue to grow at 20%-25%, whereas revenue over the next five years will probably have a CAGR between 15%-20%. Building all of the scale, of course, also has a purpose of, you know, building scale now and then being able to enjoy the benefits of scale in later years.
I think that is already today something that really differentiates us from our online fashion pure-play competitors, our ability and our willingness to invest today into the scalability of our business and to have the benefits in the years to come. Essentially, all parts of our business are a scale game. Reach and customer acquisition. David already talked about the vast reach that we have created in the European market. Think of a EUR 20 billion scale. That means we would have more than 40 million active customers. That's more than 10% of the European population and aiming to serve them a really high share of wallet. When we come to that stage, obviously, we will become even more interesting for our brand partners. Already today, we have a really special partnership with them.
If we manage to get to such a scale, imagine how we really will be their number one digital channel to the European consumer. Data and technology clearly is a scale game. Scale gives us the ability to really invest like nobody else in technology innovation. Scale gives us access to the biggest pool of data that the European fashion industry ever has seen. Logistics, I think it's super clear. Over the last years, we have invested a lot of money, a lot of CapEx into really building the number one fulfillment infrastructure for fashion e-commerce. If we continue to do this, we believe we build an asset that the entire fashion industry can rely on. We think that scale will result in a bigger resilience of our business model, but also more attractive long-term margins.
I think you will find this page interesting because we revisit the discussion around target margin. In the last years, always the question came up, what does the Partner Program, how does it contribute to your target margin? How does it change your target economics? We have not answered that question in great detail because we always felt the Partner Program is still small. We think now it has reached the scale that we can maybe give some more disclosure on this topic, and it will maybe help you to better understand what we are trying to achieve. First of all, I have to make one big disclaimer that this is a target model discussion. We are talking about the profitability potential of our business once we reach something like a steady state.
For example, once we start to grow in line with or slightly faster than the online fashion market. It is not realistic to achieve a margin like this when you still continue to outgrow the market by a factor of three or four. Okay, with that disclaimer, let's take a look at some numbers. First big part of our business, wholesale. We expect the wholesale margin in our target model to be between 6%-8%. That is slightly lower than the number that we communicated in the IPO. Why is that? It's really the impact from this transformation, that driving a business model where wholesale is not 100%, but only part of the business, leads to some complexities for this wholesale business. For example, the impact on the basket that we already have discussed. The second business model comes into play, which is the Partner Program.
We expect this to have really high target margin of 20%-25%. Why is that? First of all, because it's a commission income. The commission that we book essentially has a really high gross margin. Secondly, it's because of the scalability of this business model that we talked about. It's also because of the high profitability of some of the additional revenue streams that will come into this. For example, Robert already talked about our Zalando Marketing Services. On a group level, if you take those two together, that would lead us to a target margin of 10%-13%. I think a very healthy double-digit target margin level. The negative effect of the transformation on wholesale will be overcompensated by the positive effect of bringing a more scalable business model into the mix.
I also would like to point out that compared to what we discussed during the IPO, of course, one great benefit of this is that we will be able to enjoy this target margin on a much higher revenue base because we just continue to grow the business for an even longer time if we go for this EUR 20 billion target picture. Now, I quickly would like to point out some of the key assumptions that have gone into this model. Number one is for the purpose of this model, we have assumed Partner Program share of about 50% of GMV. The reality is that in the very long term, we don't really know what exactly it will be. It could be 60/40, it could be 40/60.
The reality is also in that model, it doesn't make the biggest difference because in terms of the profitability relative to GMV, the two models actually turn out to be similar. The second assumption, ZFS share, we forecast at about 75% of the items shipped through the Partner Program. We think the model is really proving to have great benefits. As Robert explained, it benefits our customers, it benefits our brand partners because it makes their fulfillment more feasible and cheaper because they get to leverage our scale. For us, it mitigates some of the negative impacts on our wholesale business. Assumption number three is that we think ZMS can be a really big part of our business in the long term.
We estimate these revenues to be at about 3%-4% of GMV, and we think this is a really highly profitable revenue stream, which I think is backed up if you look at many other marketing platforms that you can see. The fourth assumption is coming back to scale, that we will see operating leverage really across all cost lines and fixed cost regression. I think that's quite clear. Last but not least, if you want to translate this into cash flow, we would assume working capital to be broadly neutral and CapEx only slightly above depreciation amortization because in this target picture, of course, we still could continue to grow with the online fashion market. To summarize this, maybe to go to the cost lines where you see these arrows.
In getting to this target margin, we assume gross margin to be higher compared to today, mainly driven by the nature of our commission income and ZMS income. We expect fulfillment costs to be around similar. We will continue to invest into convenience. We'll also continue to see factor cost going up. That's also baked into this. We also will have some additional revenue streams that don't have any logistics cost. For example, the commission income or ZMS fees. On marketing costs, we think long term we'll continue to see operating leverage. I think as we have seen also in the last years, as our active customer base grows and gets more and more active, that makes our marketing more efficient. On admin expenses, we will see this scale benefit.
I think here also we come back to something I said earlier in the earnings call, that going forward, we put really high emphasis to make sure that our business really scales faster than our cost base. This was a lot of information. Should I repeat it? No. Great. We have talked about the target margin. Now really to underline, this is not something that will happen next year or the year after or the year after. Really to talk a little bit about our transition towards the target margin. How do we think about that conceptually? In my mind, there are three phases. The first one we call the transition phase, where really most of that reshuffling towards the platform business is happening. That will be the next two, three years.
In that time, we expect to continue to grow 20%-25% in GMV. We expect a margin level somewhere between 2% and 4%, which is driven by the continued investment into that strong growth and also the adverse effects on the short term that we see from managing this transformation. From a cash perspective, we expect to be cash flow negative, driven primarily by the CapEx, which we expect to be between 4% and 5%. Also here, driven by continued investment into ZFS and into the growth of our wholesale business. Of course, eventually growth rates might start to come down.
After this transition phase, that is actually where we would expect then margin levels to increase as especially the benefit from ZMS and the commission income starts to kick in and starts to have a bigger and bigger effect on the P&L. The third phase, someday in the future, we would expect to reach that target model. However, in combination with a growth that is roughly in line with the market. Obviously, these are big targets. There are many things we have to get right to get there. There are many exciting projects that we want to work on. In that context, we actually discussed and agreed with the supervisory board to extend the management board in order to have even more execution power, even more expertise in that group.
Going forward, Robert will be focused on marketing and sales, which was also his focus in the very early days of Zalando. David, that's not a very big surprise. He will continue to focus on our assortment and continue to work with our brand partners because that is such an important part of our business. I'll start to focus more on strategy and long-term projects. I'll step away a little bit from the very operational mode and get more into a long-term mode. We'll have two new members on our team. One will be Jim, who's sitting in the first row in the red sweater. You will also have the chance to meet him over lunch, and you will also see him in the customer section, which comes next. He will join our team as CTO.
We think it's really important to have his technology and product expertise in our team. The fifth member will be David Schröder joining as CFO. Whenever we talk about our logistics network, he's the main driver behind that over the last nine years. We really think he has proven that he knows our business extraordinarily well, and this is why we think he will be able to really help us to also steer our business well from a financial perspective. We're excited to start to work on that set up as of April 1st. Maybe to at the end summarize again what we have said in this session. We started off by saying our vision is really to be the starting point for customer, the destination that all the customers, the app that all the customers naturally gravitate to when they think of fashion.
Secondly, we have explained that the major building block of getting there is the platform transformation, we have talked about the building blocks Partner Program, ZMS, ZFS. Then we have closed it up by explaining how that really will lead into a very attractive long-term business model, characterized by high margin, double-digit margin, and high cash generation at scale. We think that this is the right path forward. This is the best path to create the most value for customers, the most value for our brand partners, and the most value for our shareholders in the long term. This is why we're really excited about this direction. With that, we can come to your questions.
We're again open for questions. The rule is still the same. Who stayed stubborn? We'll see when the cube comes up. You got lots of information on 28 slides. We'll start directly the Q&A with the row number two. Please state your name and the company, then go ahead.
Thank you very much. Charlie Muir-Sands from Exane. I just wanted to go back to your business model. Apologies, I was doing some of the maths on the back of a fag packet. The way I interpreted it was that you expect to get, let's say, roughly EUR 12 billion of revenues from wholesale, 60% of the EUR 20 billion.
Of GMV, EUR 12 billion of GMV.
Yep. That's the wholesale model, that would be EUR 12 billion of revenues. That EUR 1 billion of revenues from everything else.
Not quite.
That's on EUR 8 billion of GMV, which is only 12.5% margin, not the 25%, your fulfillment costs are clearly more than 12.5%.
Yeah.
I just wanted to understand that.
The important thing of GMV to keep in mind is that as it is measuring what really customers are spending, it includes VAT. Right? EUR 12 billion wholesale translates into rough GMV, translates into roughly EUR 10 in revenues. Most companies use that definition, and it's also helpful because when you talk about market share, right? That's the logic that we use. The market also includes VAT.
Sorry, those margins at the bottom of the page.
Yes.
You're talking about were percentages of GMV inc VAT or?
No, they're percentages of revenues. Our adjusted EBIT margin that will also not change going forward is sort of as percent of revenues. Yeah.
Right.
When you look at it as percent of revenues, there is a big difference. As I tried to explain, that is primarily because of this commission mechanism, that you get the commission and you don't really have any cost associated to that. The gross margin is really high, and that leads to a very high margin relative to revenues. If you look at the two relative to GMV, the difference is much smaller. Yeah.
The second question is about the CapEx. I think a year ago you were talking about CapEx that's of 6%-6.5% of sales. Now you're talking 4%-5%, and not just this year.
Yes.
Is the next few years. Is this a structural level of efficiency that you've found relative to your previous budgets, or is this about phasing?
I think it's probably two effects. One is really that we have, because of these high CapEx level, we have put more work into figuring out how we can build this network in a more efficient way. I think Birgit mentioned also in this earnings call this morning that we will have, for example, inbound distribution centers, which will increase the turnover that we have in the sort of fulfillment center and therefore make our network more efficient. That is something that we have incorporated into our planning. We have also adjusted the phasing a little bit because we felt in some areas we are too conservative to maybe have some capacity coming in too early. I think a third effect is that we just, in the process of doing this long-term model, we have also made our long-term CapEx planning maybe a bit more granular.
As a result, we come out slightly lower. I think in general, our philosophy is still to continue to invest into this footprint because we think it's a great asset and it's a great differentiator. We think it actually will be a bit cheaper than we initially thought. Which is good.
In fact, Charlie, let's go Magnus first.
Okay. Magnus Råman, [Handelsbanken Capital Markets] . Perhaps I can get back to the initial part of the presentation with the young app customers that you mentioned being positive, visiting more frequently, ordering more, et cetera. Could you also perhaps shed a bit of light on the profitability of those younger customer cohorts? If they order more frequently, is the average basket size of this customer audience lower? Returns rate, is it higher, et cetera?
Yeah. We're going to share some of the later cohort analysis in the section right after, where we not single out on apps or something, but like the last year.
Okay. A cliffhanger on that one. On the Partner Program, you mentioned here that the share of ZFS is now 25%, you aim for 75%. Could you perhaps describe how come you believe that such a large part of your partners would like to utilize your fulfillment services, since larger brands should possibly have a quite large fulfillment footprint themselves and being willing to utilize their own?
Do you want to take that?
I can take that. By the way, we'll also cover that quite in detail in the section, but to give you the short answer for brands, it's a huge economic benefit. A, because imagine in the Partner Program how it works if you have an order from a customer, we have several items, and then the partner has to ship one or two of them. It's a lot of single item shipments, and the logistic costs are, relative to that order, very high. Now, if you move that into our own infrastructure, we bundle the package. Suddenly, the partner, they only have to pay maybe a third of this logistic partner spend now. For them, it's highly more attractive, and we've experimented it with partners. Actually, we have, let's say Inditex partners, for example.
We started in a Partner Program model, low price points are quite challenging in that model. Now they moved into ZFS, that makes it extremely more attractive for them. It gives a lot more reason to actually then invest additionally in wider assortment, better availability, or even ZMS. I think just to complete the second part is many brands, for them, they very actively use our infrastructure because the capabilities are a lot further along than their own. That's why we even start then offering that. Now we're even able to ship then, for example, to their own e-com, they can actively use our capabilities.
For example, would Massimo Dutti be prepared then to ship in a Zalando parcel instead of a Massimo Dutti parcel?
Yeah. If you spot the right brands. Massimo, for example, we have Inditex with the two different models. All of the younger and lower price points are moved to ZFS. Massimo is actually in pure Partner Program. That works because the price points are higher, so economics are better. Of course, they might also care more about branding. Even for them, I think they also take all those learnings we do with the other brands. It's also in quite tough discussion if that's actually even the better model for them to go.
Yeah, hi. This is Tushar from Goldman Sachs. Two questions. Just trying to understand, within your assumptions of GMV, how much cannibalization impact are you taking on the wholesale side of the business? Given only the 50% of Partner Programs are incremental orders, I'm assuming the rest is cannibalizing the wholesale channel.
Sorry, I didn't understand the question.
I'm just thinking if the Partner Program increases so dramatically, do you see an impact of cannibalization happening in the wholesale channel? You need to adjust your purchasing because people might be more— SKUs are being listed on a Partner Program. They're picking up SKUs on the Partner Program and not actually picking up the SKUs from the wholesale side of the program. Does that impact kick in or no?
Can I take it? First of all, if you look at last year, for example, of our Partner Program, eur 190 million is actually a backfill mechanism. Those to explain, it's really things we have already bought, and the partners only ship them once we're sold out. That already makes up quite a proportion. You imagine, those would be customers that would have left unhappy or didn't find their size available. In the additional styles, we do look at brands quite carefully. We have a segmentation logic where actually you see how relevant are brands. How much incrementality do they actually add? We have strong brands like Massimo Dutti, we have Mango. I think exactly those cases where we see they add a lot of benefit. We also see still, although we have already quite a wide assortment, if we add more relevant brands.
We also see that this actually drives volume. We see a lot of incremental value and not unnecessarily undermining what we have in our wholesale.
Second question, in terms of your long-term gross margin assumption, which is going up. Can you just clarify, are you expecting wholesale gross margin to go up as well, or it's just incremental Partner Programs just adding the gross margin benefit?
We think also in a business that grows so much in scale, like our wholesale business, of course, there will be opportunities to improve gross margin from more scale, optimized pricing. I think there are many ideas. Really the bigger effect, of course, comes from the shift in business model, right? If you all of a sudden have 40% of the GMV with a very high gross margin, obviously that's a much bigger effect.
The reason I'm asking because during the IPO, your gross margin was between 45% and 47%. Currently, it's close to 42%. To get to the 6%-8% EBIT margin, is it all operating leverage on the OpEx cost, which is much higher than what you expected during the IPO process, by the way?
Yeah. There would be some improvement in gross margin. We actually expect to also see that over the next years. I think 2018, for several reasons, also was a bit tougher for the gross margin. Also, as we discussed, of course, to invest in gross margin, to offer great prices and to invest into marketing are really to some extent the same thing. They just show up in different cost lines. Maybe that's also something to keep in mind.
Thank you.
Paul, please.
Hi, Paul Bonnet from Bank of America Merrill Lynch. Two questions from me. You assume the marketing spend to go down in the long term, but some of it will have to relate to GMV on the Partner Program. Ultimately, it means on GMV, they go down even more because in revenue, they come down. Can you explain that a little bit?
Yes. If I understood you correctly, marketing would come down faster as percent of GMV than as percent of revenues.
Yes.
Right?
You're assuming your long-term expectations.
Yes.
That in percentage of revenues, it goes down.
Yeah.
I mean.
Exactly. Which is the effect we also have seen over the last five years, right? I think five years ago, we started at, I think it was 12% or something, and now we are more towards 6%, 7%. I think the main driver behind that is just building this customer base means you acquire new customers once, but then they stay with you and grow their spending, which is then not necessarily tied to marketing spending. If you look at the last years, we have been keeping our absolute spending roughly stable, but grown our revenues, you have this effect.
I think more recently, in the fourth quarter specifically, we have increased our absolute level of spending because we saw good ROI investment opportunities in marketing. You might also see some of that, really for the long term, I think it's pretty clear that will come down as percent of revenues.
Thank you. Second question from me. About the economics of the Partner Program, plus Zalando Fulfillment Solutions at present, can you let us know a little bit, not in 5-10 years, but is it kind of accretive, as a package right now on a relative and absolute level?
I think in general, we had the earnings call to talk about Q4 and like the next year, I think now we really try to talk about the next five years, right? I think there, the story of ZFS is pretty clear, I think the progress we are making is really fast. I can understand that you're really interested in the next quarter, maybe let's talk about it over lunch.
No, but—
Let's focus here on the five-year questions maybe.
In five years, you think Zalando Fulfillment Solutions plus Zalando Partner Program will be what? Because it's not going to be 20-25 years, right? It's a 10-year target. We don't really have clarity over a three-year to five-year view, even.
For five years, the answer is yes. Sorry. For the target model, the answer is yes. I think also when you think further out, as the Partner Program continues to pick up and we see that the growth rates of ZFS are just really strong, right? Already in January, we again see that the share is picking up. I think that is something that will have an effect also in the coming years. As David mentioned, it really creates this win-win for partners and for ourselves.
Thank you.
Thank you.
We pass it to Volker up there.
Thank you. Volker Bosse, Baader Bank. Looking at your targets from a product fit perspective. First, on beauty, how much beauty sales have you factored into your targets, and can you share with us your first experience above cross-selling experience between fashion and beauty? Second, also, how much incremental new product segments have you factored in, for example, home accessories? What's your view on that to expand in this kind of direction, and is that part of your long-term guidance already? Thanks.
Yeah. First of all, when we talked about it with market share with the 5%, that we purposefully just focused on the fashion market. The more than EUR 450 billion in 5- 10 years, that's only fashion. Beauty would come on top of that. Home accessories and furniture would come on top of that. I think those are opportunities to further expand our target market. We have not included that yet because we think beauty is just too early. To be honest, we don't know how big it's going to be in 5-1 0 years. We think it can be significant, but I think it doesn't make sense now to start to forecast any market shares there. Although I think in principle, I don't see a structural reason why we shouldn't be able to aim for similar market shares in the long term.
When I think about the ambition of EUR 20 billion, I hope that beauty will actually help us to some extent to get to that very high ambition and maybe also home appliances will help us in some way at some point to get to that ambition. In terms of the market share, we have not included it into the target market.
I can also add a bit from a partner perspective. I think beauty is an extremely interesting case. From a consumer perspective, I think it makes sense because it's very related to fashion. From an industry perspective, that's why it's also so highly interesting. We have this access to all those fashion customers, and that is something that beauty brands, they usually don't get. They work with other pure play beauty partners. Also, they're especially interested in actually getting that fashion angle in. That for us, it opens up, I think, a whole new world. We have partners like Estée Lauder, those international players coming on board. Those are also the players that are very interested, for example, in doing joint marketing like ZMS, for example, is super relevant service for them to actually target the digital audience.
That's why we haven't factored that into that calculation. This is really, I think, that opens up new interesting opportunities.
Have you already experienced that the cross-selling experience is working as you expected?
The what?
The cross-selling opportunity out of—
Okay. Yeah. Beauty, of course, it's fairly small in comparison to the overall. That's the general idea. We have all those fashion customers, and we know those customers. We know they purchase a lot of beauty items. Now we have to increase awareness. If you look at the past month, it's been very quiet. We have not pushed it on them yet. We actually start campaigning it. For example, now in April, we actually start more actively communicating. It's a bit of always start to get the offer and the assortment really right before we claim it too much. In general, that's I think overall our game. Once we have that access, once we have customers quite locked in, then we can offer them more and more and get more and more basically of their wallet, of their overall spend throughout the year.
Perhaps one more question from Dan in the back on row seven.
Thanks, Patrick.
No more. Two.
Dan Homan from Citi. A couple of questions. First of all, on ZFS. I think previously you've spoken about you charge ZFS at a logistics margin rather than charging a sort of fully loaded commission basis like Amazon would do for its partners. Is that something you're minded to change over the next few years as ZFS grows? Related to that, do you think the terms that you give on ZFS are fairly generous to the brands? Do you think, in your planning assumptions, have you assumed better terms for yourselves as you go forward?
I can maybe start with the second. I'm not sure if I've got the first one completely right. For ZFS, it's not our main business. We're not a logistics company generating our margin through that. Of course, it's an additional add-on, but it's a means. We think by offering that, it's a huge incentive for partners, like I said, because we add capabilities they don't have. Economically, it's way better for them. That incentivizes partners to actually go all in, to really show all their assortment, go into a lot of availability. We believe that's hugely beneficial for customers, also in terms of convenience for customers, and ultimately that it pays out in our platform because we do more in GMV, again, more access, monetize, for example, through marketing.
Overall, ZFS is rather like means, and that's why we also price it in a way that it's attractive for partners, that it actually makes sense for them to very actively invest into it.
Okay. In your long-term planning assumptions on margin, you don't expect to charge the partners more than you are at the moment for ZFS. You can keep the commission rates or logistics rates where they are.
Yeah, I think on ZFS, the assumption is pretty similar to what David just explained. It is earning a good margin and it's a viable business in itself, but it's not, I think, our main way of earning money in the future, especially if you compare to margin profile, for example, on Zalando Marketing Services. I think those are the areas where in terms of margin development, I think there will be significantly more upside as we scale it.
Okay, great. Maybe if I can just squeeze one more in before lunch. Again, on the relationship with the brands. You've obviously gained a huge amount of scale over the last few years. When you're talking to the brands, what's the most important terms that you're trying to get from them? Is it better pricing, better cash profile, or is it availability of product, exclusive product? Where do you prioritize your relationship with the brands and what you ask them for?
For us, it's very clearly on the customer side. We say we want to be that starting point for fashion. Product access, that's one of the most important things. I think that's also one of the biggest differentiators we have. If we go to brands, what we ask for is, yes, we want to, A, get all relevant brands on board, with the brands, we want to get all the relevant styles. That's not easy. If we talk to Nike or Adidas, to really get this full access, latest styles, newer stuff, even exclusives. Product access, first priority. The second priority would also be around content and really create those exciting experiences. That is also something if we want to personalize the experience more to our now 26 million customers, we need a lot of exciting fresh stories.
That's what we need. Of course, the third, I think the economic results. We aim for a model that is actually attractive for both ends. Of course, we want to have our margin, we also have to find a model that actually provides a good return for brands because I think we have a very different relationship, not so much like this supplier-retailer type of thing, it's rather like those partnerships. We want to create those situations where it makes sense for brands to actively invest into us.
I think that was a good conclusion of that session.
Welcome to the second part of our Capital Markets Day. Joining me on stage is now Jim Freeman. We talked about him. Jim joined Zalando initially in April 2018. Prior to his role at Zalando, he was responsible for launching and scaling the Amazon Prime Video. As well for launching communication experiences on Alexa and Echo devices. We are super excited that Jim is now taking over the role of our CTO as of April 1st and driving these customer propositions really to the scale that we will talk about now. As we explained in the main presentation, we believe that being the starting point for European fashion is the big prize to win. We want to take a deeper look at the customer side of our strategy, focusing on very much three key messages.
First, we have made very strong progress in being the starting point for fashion for customers, which is evidenced by healthy development of our customer base. Second, in order to be the starting point, we double down on our compelling customer experience and we continue to invest in our key areas of our proposition. Third, going forward, we prioritize our goal of being the starting point for our most committed customers over being just another fashion destination for many. We achieve this by differentiating our customer proposition going forward and investing into Zalando Plus. Let's jump right into it. We have made strong progress towards being the starting point for fashion, which is evidenced by very healthy development of our customer base. As you know, in the past, we have been super successful in winning more and more customers.
As we have shown you already in the first presentation today, we more than doubled our active customer base since 2013. Only in the fourth quarter alone of last year, we added 1.3 million more active customers, which is the biggest net increase of active customers for five years. As you know, these customers shop more and more often with us. The order frequency now stands at 4.4. Sorry. This all is actually very much done by our ever-increasing focus on customer satisfaction. From 2013 - 2018, we managed to increase our NPS for our customers by 14 percentage points. Even now in January, it has peaked another all-time high. Last year, we shared this quote with you for the first time, and you were pleased to see that now. Today, one year later, we want to present you with an update on it.
You can clearly see that the positive trends that we discussed with you last year are very much still intact. In this chart, you see the total GMV per cohort per order year. On the light gray, actually shows the cohorts that we have acquired before 2014. Second, on top of that, are the cohorts that we acquired in the years thereafter. What does this chart actually tell us about our customers? First, old cohorts grow again over time. Once a cohort has digested the natural churn of the first year, they then grow again. On average, 5% per year. Second, the first-year churn is already coming down. Lastly, we showed that the churn in the first years for 2014 - 2016 cohorts has actually come down 25%.
I'm now pleased that to actually tell, the 2017 cohort, actually their first-year churn was even 13% lower than the one from 2016. Third, every new cohort spending is bigger than the spending of the previous ones. Since 2015, each year, our new cohort spending was on average 8% larger than the spending of the previous year's cohorts. Lastly, it was even 10% higher. I think this really confirms that our customer base continues to be very healthy. It also confirms that it does not only make sense to invest into new customer acquisition, it makes as well sense to invest into the development of our customer. We need to create deep relationships with them and become their starting point for fashion, is what we focus on. This is really the prize to win for us.
How do we define the starting point for fashion? The starting point for fashion, this is for us. This is ultimately the brand, the destination, the service that people have in mind where they gravitate to. When thinking about discovering fashion, getting advice, getting inspired, or just buying fashion, where do people actually start this fashion journey to? Where do they go to? We are the starting point for fashion for our customers when we are top of mind, when we're top of consideration, and ultimately as well the top choice for our customers. We're doing great in all these areas, in these aspects of the proposition already. We're the most known fashion brand in Europe. We have unaided brand awareness of a staggering 70%, in some markets, even 80%.
We're not only the most known brand, we're as well the most visited one. With more than 3 billion visits, 90% of this traffic is coming direct. People naturally gravitate to us. When it comes to top choice or share of wallet, we're as well great. Our 26 million customers, which is 6% of the European population, they spend on average about EUR 250 with us, which is roughly like 25% of their annual fashion spend. It is great, but it's actually far from the potential of our platform. If you think about how many searches when you search on the internet, how many searches didn't you start on Google? How much music didn't you actually listen to on Spotify when you are subscribed to Spotify? How many hotel rooms didn't you really book on Booking.com?
As a platform, when you really manage to deliver on all the customer wants and needs, there's actually no reason to go anywhere else. You're not limited in 25%, 30%. You're only limited by 100%. In delivering on these reasons why our customers would spend another 75% with us and why another 94% of Europeans will join Zalando now is what Jim is now going to tell us a little bit more about.
Thanks, Robert. Now we want to look at how do we take this opportunity we've been talking about all day long and really unlock that. What are the areas of focus we need, and how do we make this happen, becoming the starting point of fashion for our customers? We're going to look at a couple of different areas where we believe we need to really continue to elevate the experience, make this happen. We start by imagining what would our customers say if we did make it happen. What key areas would they focus on? First, we imagine them thinking of our assortment, and that assortment becoming so strong that they would say: If it's not on Zalando, it does not exist. We think they would consider our digital experience.
Here, we imagine they would say: Zalando knows me and inspires me. We think they would consider the convenience that we offer. Here, we imagine they would say: Zalando is so convenient. Why would I go elsewhere? Lastly, we imagine they would say: No matter what my fashion need, Zalando is my one-stop-shop. Let's look at these different areas in a bit more detail. When it comes to assortment, there are three critical dimensions we consider. How complete is the offer? How fresh is the offer? How desirable is it? We have a team that's been working hard on scaling our assortment and looking for more and more ways for brands to offer up their assortment through our platform. This is really paying off. You can see in Q4 of 2018, we scaled to over 500,000 articles available to our customers.
A significant improvement over where we were in the past, 2.4x over the last four years. It's not just about the size of the assortment, it's also about how fresh is the assortment. Here, our teams have worked super hard to remove friction from the onboarding process, and we're now adding 1,500 articles every single day for our customers. A 3x improvement over where we were four years ago. As you'll learn in the next presentation from Dave and the team, it's also, of course, about the desirability of the assortment. In 2018, we added, for example, Massimo Dutti, which is a popular brand in my household. We ask ourselves, are we there yet? The answer is clearly no, not yet. We've developed the capabilities in-house to look at the incrementality of our assortment and understand the areas of opportunity that we have.
We see significant areas of opportunity. Not only that, we hear directly from customers every single day. We receive 200,000 size-related requests from customers who have found something they would love to purchase on Zalando that's not currently in stock or available through Partner Program. We see huge upside in continuing our journey of improving assortment with the ultimate aspiration that five years from now, customers will be able to say: If it's not on Zalando, it does not exist, online or offline. Let's consider the digital experience. Today, I want to focus you on two complications. The first complication is relevance. If you scale assortment significantly, it becomes increasingly difficult to find the relevant items for one customer. Four years ago, we began really scaling our engineering talent, and in particular, our data science talent. They have taken on this relevance challenge.
In the last several years in particular, we've been building the operational systems and infrastructure required to make more and more portions of the Zalando experience highly relevant for our customers. This is paying off. As you can see, engagement in our app has significantly scaled over time. We're at 69 minutes on average per customer, per month, from 16 just 4 years ago. The demonstration on the right of this slide illustrates how two different customers are receiving very different content based on their behaviors and their interests. There are more and more areas of the experience that will benefit from this relevance engine in the coming months. The second complication, of course, is fit. This is a significant challenge for the whole industry, but obviously a special challenge in online. The perfect experience would be one where every single item fits you perfectly.
Of course, we're not there yet, but we're also making progress. We have a simple size recommendation product today that shows customers when something runs large or small. This is currently covering 86% of our wholesale assortment and driving a 4% reduction in size-related returns for those products versus products that do not have that. The next innovation we're going to offer our customers is precise size predictions for them, picking exactly their size for a particular article. This is currently available in certain markets and in certain categories. We're innovating on this, iterating on this, and scaling this. They're just two of the complications we're tackling in the digital experience area, but two that are very important to our customers. Next, let's look at convenience. Convenience is a moving target. What was delightful before becomes a basic expectation.
The way we focus our efforts is looking at how can we create the best convenience for fashion and solve fashion-specific problems. I'd also like here to talk about two examples. First is our Pay Later offering. Pay Later allows the customer to make the final purchase decision in their own home after they receive the articles. This is a great experience for our customers, and one that drives significant NPS, as you can see here. It's one that we're currently scaling to reach a 65% share of our customers. The next example, of course, is the returns process. Returns are part of fashion. Here our goal is to make it as seamless as possible for our customers. Again, you can see the super high satisfaction that we're able to achieve based on all the fashion-specific adaptations we've made in this area.
We'll continue to invest in new forms of convenience for our customers with the ultimate goal of customers saying: Why would I shop anywhere else? It's so convenient on Zalando. We've talked about elevating assortment, the digital experience, and convenience, all crucial areas to our strategy. Given our ambition to be the starting point for fashion, we also need to take a step back and reflect that not every fashion journey's the same, not every moment's the same. One day a customer may need very fast delivery, but the next day maybe they need style advice for a special occasion. Maybe yet another day, the customer's looking for an exciting deal instead. Obviously, we've been investing over the years and exploring many of these different situations and what the offering can be from Zalando.
What I want to share today is when we evaluate the success of these investments, we look at them in two different ways. What is the direct impact? Also, what's the indirect impact in terms of other customer behavior changes that we see associated with these? As our data shows, customers who turn to Zalando for more of their fashion needs spend significantly more. It's important to point out that's not just through the new touch point that they've adopted. It's also across everything. We believe there's significant leverage in the capabilities and experiences we've developed in integrating them deeper and offering them to more customers. We see ourselves as increasingly relevant to the many different fashion moments our customers have. That's our focus on becoming the one-stop shop for our customers.
With that, I'd like to turn it over to Robert to talk more about how we're deepening our relationships with our customers.
Thank you, Jim. As you saw, we are working very hard now on these arguments for being the starting point. You will see us both grow. Thank you. You will see us both grow in numbers of our active customers and as well in their spending. Yet in some areas of investing into our proposition, we will face choices, yeah. Choices such as if we're limited in availability of assortment, whom should we actually show this to? Or if we have a certain share of orders that we can deliver same day, to whom should we actually deliver these orders first? When being faced with choices like these, being the starting point for those customers that are most committed to us is the better route for us.
We rather have 25 million customers that spend 100% of their wallet with us than having 250 million customers that spend 10% of their wallet with us. Going forward, we will prioritize of being the starting point for our most committed customers over being just another fashion destination for many. This is more sustainable and that's why the more financially attractive path to take. I'll show you why. As you see, already our deepest customer relationships are the ones that are the fastest-growing. On average, we have grown our active customer base by 15% over last five years. If we only look at the customers that spend more than EUR 500 with us, actually we have managed to grow this customer group at the double the CAGR, at more than 30%. These customers, they shop everything with us.
They shop from head to toe, from basics to professional pieces. The great thing about them is they are proportionally more profitable. They yield several times much more profit contribution per year as an average Zalando customer. This type of very deep customer relationship is the relationship that we are very focused on. Actually in 2008, we started off with a very simple marketing message. The simple marketing message was great selection, free delivery, free returns. With such a simple marketing message, we started to educate the population around understanding fashion e-commerce as a way to have this changing room experience from offline at home. With that, we built it towards the mainstream. To make it a natural part of people's life. In Zalando, we're really at the forefront of this mainstream.
Now in the next decade, we're building on top of this, but tailor the experiences going forward. We still have a main entrance to Zalando, but we're rolling out the red carpet. The red carpet to our most committed customers. With this red carpet, we invest into those customers even more, which are already the most committed to us. We give them an experience where Zalando is not anymore one of many choices, but it's like the only choice that people are very happy with spending 100% of their fashion spending with us. To put it differently, we're now adding to the general transaction mindset of Zalando as one, a more subscription mindset for our most committed customers. One key lever to deepen this customer relationship is through our successfully launched membership program, Zalando Plus. Zalando Plus exactly builds on these mutual commitments.
In Zalando Plus, customers commit to us by subscribing to an annual fee of EUR 15. We commit to them by providing them the red carpet, the best that fashion e-commerce has to offer. Faster delivery, fashion advice, return pickups, and many things more to come. Like today, Plus is available in most parts of Germany, and we already see very positive impacts. We see that we increased our share of wallet with these customers. In fact, they spend 2x -3x more than an average customer already. Customer satisfaction increased as well quite a lot. As a result of signing up to the Plus program, we see as well an increase in customer lifetime value. That's why we are so fascinated about Plus. This is why as well, we hang out to roll it out further, two countries to follow in 2019.
As we scale Plus, we'll decide then which more benefits we add to Plus and which more countries we add to Plus. Ultimately, with the benefits that we're adding to Plus, we aim at really going to the steep relationships and to provide customers with no reason to use any other fashion destination out there to get ultimately to the 100% of fashion wallets that we want to have. To sum it up, we have 17 European markets that we're in, and there is about 450 million people. Everybody needs fashion. Nobody's running around naked. Everyone spends of them about like EUR 1,000 per year on fashion, offline and online. As I said earlier, we have 6% of the European population which is already on Zalando, so 94% to go. They spend about EUR 250, so about 25% average of fashion.
You will see us grow in two dimensions. We're adding more and more customers to Zalando by actually delivering on these statements. What is not on Zalando doesn't exist. Zalando knows me so well, knows my sizes, knows my style, knows what I want, that I'm actually so surprised. Zalando is always the better choice if I have many choices, always a better choice. With Zalando, I have with one-stop shop, it covers everything on fashion. Adding more customers. When being faced with choices, you will see us as well grow, on the other dimension in terms of our share of wallet. By applying a subscription mindset, by rolling out the red carpets to our most committed customers, and really growing as one to this direction.
We won't stop until every single European is on Zalando and spends 100% of their share of wallet with us. That's really the prize to win, and this is where we're on. With that, thank you very much, and we'd like to go to Q&A.
Thanks, Robert. Usual setup. Magnus, will you start again or shall we start here? Okay.
Hello. Yeah, thank you very much. Charlie from Exane again. Can you talk about what proportion of your German customers and/or what proportion of their spend now is coming through Zalando Plus?
We just last year tested out this program. We see very positive results. It's still not huge yet, but we plan to make it huge, I think, with that.
Less than 10%?
With that.
I tried.
Yeah. We share so many KPIs with our customers.
Hi, Simon Owen. A couple. Just thinking about returns. You talked about the improvements to fit and things like that. Can you break down the cause of returns? What percent is due to fit? What percent is due to other things, increased choice, et cetera? What part of the problem are you addressing here?
You want mine?
No, take it.
All right.
First, let's keep in mind I'm a bit newer to the team, so I'm going to invite anyone who needs to correct me if I get something wrong. A bit more than a third of our returns are size related today. Of course, we're constantly improving the instrumentation around size related returns, meaning getting better, higher quality data about the actual reasons why customers return. This is what our current data shows. Of course, here we're working super hard to give customers that size advice that I mentioned before, so that they themselves, using all the data collected across all returns at Zalando, can understand if something runs small or large. Also the more purchases they make in certain categories, the better we can predict their personal size as well.
These are the two areas we're currently invested on. We also have much longer-term initiatives as well that we're not ready to talk about today, that are more experimental in nature. The way we approach it is we have many different time horizons we're looking at in terms of innovations, starting with the things we shared today, which are currently operational, also further-reaching ideas as well.
Okay. If I can ask a follow-up on assortment. How many SKUs can you get into a single DC?
Sorry.
How many SKUs can you get into a single DC?
Yes, I'm definitely going to defer that to someone else.
To a single DC, SKU.
Okay.
First of all, I think they're all very different sizes.
Okay. Let's break down the question.
I'm going to take it.
Right.
It's between 10 million and 12 million items, and then it depends on really how many SKUs you can store into that. Depends on the
In terms of range, out of your half a million.
We said earlier in the main presentation that with our current footprint of 11 warehouses, we can deliver up to 12 billion GMV.
Right.
Right, so—
The point I'm trying to get to is, as you widen the range, they're presumably not all in the same DC. Presumably the kind of basket economics then start going down quite fast if somebody in Sweden orders two elements of their basket from the GMV in Poznań, and the next one is kind of somewhere in Italy. How do you square away the increasing range, if you can't make them all immediately available to your customers?
We definitely have people who can address this question.
I can—
He's sitting down in the audience.
I can jump in and give you an idea. In the end, we have our main warehouse, pick-up warehouses in Germany and Poland at the moment. We have a small one in Italy, the other one in France, and then the one up in Stockholm. If you are a Swedish customer, we're trying to replicate what we forecast that the Swedish customer will order. If he orders beyond that, then there's a certain one specific warehouse out of, currently it's Poland, where you're going to get delivered extra. It's roughly split. We forecast it on a very regular basis to split that out. It's not the case that you send something from Italy into Spain. It's more that you have already a kind of a setup where you say: Okay, which is moving upwards and what is moving downwards?
Okay. Now I got it. Yeah. I think, first of all, it's a machine learning question of where to put these items before and where we do the forecasting. The second question is should we actually have how much soft zoning or hard zoning do we actually do? By starting to offer minimum order values, we will be as well able to, you know, as well pay on this selection proposition by still not hurting our order economics going forward.
Okay. Thank you.
Thanks, Jürgen Kolb from Kepler Cheuvreux, two questions. First of all, Robert, you talked about the assortment that you want to have. Apparently you're not yet there 100% that you have all the assortment ready so that everybody and every customer has all the opportunities. Where you still see white spots where you would like to have a deeper or wider assortment available?
Perhaps can we hold that question for the next section following? Great. Second question.
Switch to Jim, maybe. With your background from Amazon and being at Zalando now for some time, and obviously you give a little insight that you're working on these size questions. In terms of technology, where do you see more work to be done at Zalando? What's your core areas of you know, digging deeper into advancement? Thank you.
I think the good news is that actually a lot of the core work has been done and has been a priority for a long time. Again, it started four years ago with the dramatic scaling of our engineering and data science practices. This group has been very busy building really the infrastructure that we need as a company to work on these really difficult challenges. I think when a company scales as fast as Zalando does, I think this is normal that you need to go through an infrastructural investment cycle. I think we're coming out of that cycle, to where more and more impact for customers will be visible in the experience. I'm pretty optimistic about where we are right now, but of course we're continuing to improve this infrastructure and hiring more talent to scale.
I think biggest areas of opportunity in particular, probably are all in the machine learning area. Here, I think one big opportunity we have is to imagine different data we might receive through our ordinary processes so that we can feed the machine learning models with much richer data sets. For example, I mentioned briefly earlier, improving the quality of the return data. This is just one of probably 100 examples that we have where we imagine ingesting more data, different data, slightly higher quality data to drive these machine learning models and get a lot of leverage through these optimizations that we're doing with machine learning.
Row 5, 6, 7. No further questions? Well, I also have no questions from the web, we got to conclude that session.
Ready for the last session? Yeah. Been quite a day. Now actually we turn it a bit around. We discussed so much about the starting point for fashion. We discussed our platform. What we're going to do now is rather look at it from a bit different perspective, really look at it from a partner perspective. What does that strategy actually mean? We pulled out sentences like: If it's not on Zalando, it doesn't exist today. This is quite a high ambition level. If you look at it from an assortment point of view, that sounds a bit crazy at the first moment.
To be clear also, it does not mean for us that we have to carry every fashion item ever produced. It means for us that we have to have anything that is relevant for a specific customer. Anything she seeks for. Either way, it's a tough nut for the assortment. How does it translate? We need all relevant brands. From those relevant brands, we need actually full range access, like all the best styles. Of all those styles, we have to have a perfect availability. Try to never be sold out.
In addition to that assortment access, we also want to create great experiences for our customers. We actually need a lot of content, exciting content, great experiences. If we look at last year, we've done quite some progress along all those dimensions. If you look at relevant brands, we added interesting stuff like Massimo Dutti. One of the last Inditex brands still to miss. We've added interesting premium brands like See by Chloé, Diane von Furstenberg, et cetera. Beauty, we mentioned it earlier today. That has also opened up actually quite new, interesting players for us. We have very international players like Estée Lauder coming to the platform. In terms of range, take sneakers as an example. Sneakers, it's always one of those most pronounced sections where you need the very latest and the very best styles available.
That is something where we collaborate very closely with the brands. We've worked, for example, with Nike quite closely to improve our sneaker experience. This year, this Nike M2K Tekno, that's one example that has not driven only the fashionability, but was also quite a commercial success. On the availability layer, I think we also mentioned that before. The Partner Program here actually unfolds its power. You can actually see how well that adds to our availability. Those EUR 190 million, that is just backfill. Again, what we mean by that, it's articles we have bought, and we've sold out on them. The partners ship it directly. That would've been customers, we would've lost them or they would've been unhappy because their size was not available. Then also in terms of engaging content, we've increased quite a bit, like this content layer.
Any given week actually, we run around 1,000 campaigns in 17 different markets. We also have a lot of exciting stories around. If want to do all that, we have to also remind ourselves that getting this full access in the fashion industry is actually super hard. If we want to have all relevant brands and coming actually answering the question we recently had. Of course, there's brands that never sell to other retailers or also don't like to sell through external partners. Vertically integrated partners are an example. The Zaras and Inditex and the Inditex world overall, as an example. Premium brands that are very careful about where they sell and what the adjacencies are. Range access, also not an easy game. Sneaker example to continue that. You have brands, they love to see the customers camping outside from store in Kreuzberg.
They care a lot about how they actually position their articles. Availability also. I mean, fashion has its very own characteristics. Somebody has to place buying bets. You have long order cycles. You have to manage inventory with size runs. That's expressed by, I feel like, 260,000 size requests we get per day. Also in terms of content, the more we move into the personalized world, I imagine we have to create fresh, exciting content for 26 million customers. Building this flawless offer for customers, it is very hard. While I emphasize that it's hard, actually, that's why it's also one of our main differentiators. We have built up better access than anyone else, and we have built very strong partnerships. I think there we're actually quite ahead and there's also a reason for it.
To put it in very simple words, like why brands place their bets on us. We provide a combination of reach, of great business opportunities and a place where they can actually protect or even build on their brand equity. I mean, reach, I think today we said a lot of numbers. I mean, again, like the 3 billion visits we have, I mean, that's enormous for partners, 26 million active customers across 17 markets. Not only that access to consumers, it's also the insight that generates. This is insights, that data, the brands wouldn't get hold of that anywhere else, and can use that actively to actually improve their product. Business opportunities. We provide the brands actually tools and services that allow them to actively invest into growth themselves. We also make sure that they can actually earn money with it.
We know every brand somehow has to invest into digital. That's not secret anymore. There's only very few alternatives, and Moritz will actually tell you a little bit about that in a minute. Actually we are, I think, the partner. We are the best alternative, actually, if they want to grow digitally. On the third dimension, the brand. Yes, we focus on fashion. We create that environment. We want to create exciting experiences for consumers. We also provide the brands actually the tools to manage that themselves, to drive their brands, to drive their content. Regard it a bit like as having a flagship store within our system. You might say, those components, you can also get them somewhere else. You might have big marketplace models. They give you a lot of reach.
I can assure you, they do not give you this brand place, where the brands actually feel comfortable and where they actively invest into brand equity. There, they try to org it out or limit as far as possible to whatever old season stuff or latent season stuff, but they don't use it as brand building. You have retailers. They might get the brand perspective actually right. Or even better, because of course you have some that are very opinionated and very sharp. Again, those, they don't really have the reach. Also they don't give brands actually those capabilities they actually need to drive their digital strategy. It might be an add-on, but they do not become part of their digital strategy.
Very honestly, we believe that this combination in Europe, we are actually the only best place for those brands to be. We are the only one who can actually combine all these important dimensions. You see how complementary that works to brands. We have all those skill sets, building the reach, having data, the technology, the operations behind. The brands, they can actually fully concentrate on what they do best. There, I think in that context, we have built up very strong and trusted partnerships. Now, the good brands, they care about all these things I just said. The very best brands, they actually care about even something more, because they actually strive to go direct to consumer. Here, this quote from Nike actually summarizes it quite well; The closer we are to market, the stronger the demand signal and the better the assortment.
The great brands actually know that they have to play a different game online. They have to be in control of their brand, and they have to get closer to the consumer. The most obvious pick, of course, is building own e-com. But we will actually tell you in a minute that this is very limited, what they can do in there. Here, I also want to emphasize that a direct-to-consumer strategy from the brand is actually very much in line exactly with our platform strategy. Because we actively build all those tools and capabilities necessary that enable and empower the brands. We do not want to be like a regular retail model or some kind of intermediary. Rather, we aim to become a significant part of their brand's digital strategy.
Now I can actually hand over to Moritz, who can tell you a bit more how that works out for brands.
Sure.
Yeah.
David said brands really like going direct. What they like in particular is their own e-com store. They are big fans of their own e-com store for two reasons. Number one, this helps them to outbalance the shrinking business in offline. Second, as David explained, this own e-com store gives them the chance to have a direct access, to have a direct relationship with their customers. So they love it. I think you know better than I do that they have also communicated a lot on their own e-com strategies, right? That's a big thing for brands. However, there's a problem. You see from the growth rates, growth is slowing down. In the past, they had healthy or huge growth rates, and now their own e-com growth is coming down. We expect that this is going down even further. There are mainly two reasons.
Number one, for brands, it's very difficult to acquire new customers in the same speed as they did in the past. Why is this the case? Brands are really used to doing now Google marketing and the Google search terms. There are not coming additional search terms to Google, and the Google search terms, the number or the volume is not growing. The number of people who search for a dress or search for a skirt or search for a sports shoe is not growing anymore. There is a limit to how much the e-com business of a brand or the brand store of a business can grow on their own. The second big piece is the retention. If you think about a single brand, for example, like Levi's jeans or a shoe like a Nike shoe, there's only so much reason to come back on a regular basis.
How often does someone on a weekly basis or every week buy a jeans, right? The engagement, the shopping frequency is a big challenge for their brand on e-com. Let us zoom a little bit into the new customer acquisition, one of the first problems the brand on e-com has. When you talk to brands, they are now all into the mood, social media is the way out. I explained actually Google is limited. The number of people looking for dresses, I said, is stagnating. Social media is the new thing. We, on the other hand, also invest heavily in social media, and what we have figured out is when we show an ad, for example, for a Timberland boot to customers on Facebook or Instagram, in 19 out of 20 cases, customers buy something else than Timberland.
This is in return, the beauty of having a multi-brand store because this drives your conversion rate to a completely different level than in a mono brand or single brand environment. You can see this from our figures. We have changed the way we do performance marketing last year heavily. We do now machine learning and have automated a lot of processes. The core of the success of the social media team here at Zalando is coming from the multi-brand environment, which drives the conversion rate to a much different level than you have on a single or mono brand environment. You just look at the figures. In 2018, we spent almost EUR 19 million,right? In 2017, 2018, like this, and inside 2018, it's also trending like this.
Q4 was the record ever we had on social media spending, which in return makes it difficult for multi-brand use cases to compete with us on social media. That was the new customer acquisition challenge for brands on e-com. The other topic I also mentioned was the retention piece. Here also, like talking from our side, customers buy on Zalando 13 different brands. Now, imagine a customer who needs to download 13 different apps to engage with each of these 13 brands. This is most likely not going to happen. The whole move into app moves into this multi-brand environment situation. You have the app fatigue, I think something you've probably heard. People do not download several apps, and if they download apps, they only use a few.
The multi-brand use case gears the whole industry to one fashion app, and that makes it much easier to then engage with the customer on a regular basis. I showed you two big examples or two examples why it's difficult for brands or their e-coms to succeed in the future. Our answer to this is that as much as you like going direct to customers and as much as you like your own e-com, you can like Zalando. What we want to do is we want to replicate all the positive or all the dimensions brands like at their own e-com at Zalando. That's the whole thinking. Our thinking is that we allow brands as much as possible direct access. We have two different business model. We have the Partner Program business model, which is the most direct business model.
In Partner Program, brands own the stock and they do merchandising and pricing on their own. It's the most direct business model we can offer to brands. On top of this, so that they feel it very similar to their own e-com, we add a lot of customer insights. We have a merchant portal where they can interact and learn and cut and slice and dice their customer data as much as legally possible. It becomes very similar to their brand on e-com. The second business model we have is the wholesale business model. It's still the most dominant business model. Nevertheless, it also can have some direct features. It's different to the Partner Program model, but nevertheless, it can also have some direct features.
We have here the retail portal where we allow brands also to engage with their customers, upload own article data, trigger, for example, reorders. There's also a lot of direct components in there. Let's talk about a little bit more in detail about the most direct business model we can offer, our Partner Program model. I think what we learned over the last years is that actually the success of Partner Program heavily depends on ZFS. ZFS is one of the enabling functions of Partner Program. We think about Zalando in two business models, and then we have enabling features, ZFS, ZMS, and so on. ZFS is probably the most important to unleash the platform dynamics as we want to. Therefore, let me dive quickly into ZFS. ZFS is the magic to the whole platform for two reasons. First of all, from a customer perspective.
If you think about our average order, a customer has three to four items in her basket, right? If you think now the extreme, that all those items would be fulfilled by different partners, she would have to carry four boxes home, right? She would have four boxes to carry from different partners because they would all send different boxes to her. Then she would be at home, and then maybe she would keep three or two items out of the four, and then she would have to carry back two parcels to the post. That's not really customer-friendly. That's not what she wants. She wants one parcel and shop it all in one go, also in a physical dimension. Therefore, we figured out that ZFS does the trick.
ZFS combines the convenience of our wholesale model with the beauty of the direct-to-consumer dimension an own e-com has. ZFS, very good from a customer perspective. The second, that is also an important point for the platform, ZFS unleashes profits. If you stay with me in this example with the four different parcels of customers who had ordered four different items. These four different boxes, they would all need to pay for carrier costs, right? The DHL here in Germany would have to come four times to her door, which makes it very costly for all of us. The profit pool in such a situation goes down massively. To put it in reverse, ZFS decreases the shipment cost by 50%.
By 50% because on average, we have one partner article in our baskets, and now we combine them together, and instead of paying DHL two times, we pay DHL, in this German example, one time. That is the whole magic. What it does to the whole platform is, since it is now much more attractive for brands to work with us in the Partner Program, they upload massively more SKUs. I just have here an example with you, a brand before ZFS, a brand after ZFS. It is 3x more SKUs than before. It just comes from the fact that it is economically attractive for them to actually now with ZFS to upload more SKUs. I said that this ZFS is actually the basis for the whole platform dynamics. Let me hand over back to David, who can now show you how it all comes together. Thank you.
Thank you, Moritz. Moritz perfectly explained how that works out for brands. I have to say, whenever we go talk to brands, it is not a hard sell, because actually it makes a lot of sense for them. It has a lot of benefits for the brands. That is what we also see then reflected in the numbers. We do see that all those platform services, they are picking up a lot. The brands, they are getting more and more active. The more they understand, actually, the more they invest into it. I think we are on a very good track. When you heard the numbers before, the Partner Program has picked up. We are now at already 10% of the GMV, you also heard our plans that this will increase quite heavily over the next years. ZFS is super interesting. Moritz explained all the benefits.
We also see that the brands are really signing up for that very heavily. Also, if you look not only the current share of 25% of our Partner Program, the items, also the pipeline. Those brands like Mango, Adidas, Inditex brands, there is a lot of movement also if you look at this year, what will happen. ZMS, I think that is the interesting part. The better we get on the Partner Program, and then with ZFS enabling that, the more we unlock actually profit potential for brands that can reinvest into growth. That is where ZMS comes in, and where we also have many positive examples and a good growth. Mentioned before also those examples like Under Armour, where we enable brands actually to target audiences they would not be able to get to otherwise.
To make it a bit more tangible, we can maybe briefly discuss a concrete example. I think Mango is an interesting and also representative case of what we all discussed, because they care a lot about going direct to consumer. They are vertically oriented. They have a strong brand. They also care a lot about their own e-com. When we launched with them, we launched in Partner Program and they shipped from Spain. It wasn't the ideal situation. Also when they saw the potential, they also started investing more and more into their own capability. Finally, they did not only ship from Spain, they started shipping from Germany. We got better at the customer experience. We grew wider in the assortment, rolled it out further. That worked well in Germany. We started internationalizing and rolled out several countries.
We went further and said: Okay, let's jointly invest into marketing. We did joint campaigns. Even like last year, we even did a joint TV campaign. We worked out exclusive collections with them. They do not even show in their own stores. That went even that far now that recently they even launched in Spain with us, which is their total home turf, and where they worry most about their own e-com. I think that's then the interesting case where we see a brand that actually understands those tools, and really knows how to leverage them, how well along that also goes with their own ambitions. Our goal is very clearly, as we say, for Mango, it's not that we want to be one partner.
Rather, we want to be a significant part of their digital strategy or, for extreme case, we want to be their digital strategy. We want to be the partner, actually, that helps them to be successful. There, I think, we also close the loop to building that starting point, because we very strongly believe by building, you know,— those complementary capabilities or platform services, by doing stuff that really makes sense for brands to invest in. The brands, if they love it, then we know the customer will love it, because the experience gets actually better and better. The more time and money the brands invest, the better the customer experience, the more reason the customers have to actually use Zalando as their starting point. That's somehow how we see our platform at work. By doing that, now we can also go to Q&A.
Wonderful. Thanks, David. Thanks, Moritz. Regarding my conversation I had with some of you during the lunch break, there are some questions around that. I did not forget Jürgen. You have the microphone cube. Please take your postponed question to Moritz and
Yeah, just to follow up what I was asking early on, where do you see still some white spots in terms of product assortment that you would like to increase, i.e., be it specifically in sports or any specific price category even as well?
I'd say, number one, of course, we have some big verticals that are still out there in Europe. Number two, for me, premium brands. Premium is actually super successful for us. We're growing very strongly. I think our proposition is actually getting better and better. There's definitely brands to add. As a third, definitely have in rather specialist areas. For example, specialists in certain sports areas. Also to add the specialist beauty. We just launched it. That is also, of course, something where we can still improve the offer quite a bit. I think on all dimension, I think what's interesting, I think we're moving closer and closer. Like the verticals, everything we described, they very actively support this direct-to-consumer strategy, which should be relevant for them. Premium, the better we get in personalization, in being able to send out targeted messages.
I think there we're also working in very close collaboration with them to do that. On the specialist area, it's the same story.
Further question? Magnus.
Magnus Råman, Handelsbanken . Perhaps I can ask a little bit outside of this brand question. Can you provide an update on the project to connect stores, physical stores? Perhaps share some numbers of how many countries you're live now, how many stores or retailers that are signed up as of now?
Yeah. Sure. I think this is a really interesting future project. We mentioned about those, call it complications in fashion, that we have so much decentralized inventory sitting around everywhere. The majority of the inventory actually lies in physical stores. Actually, we believe, like in the future, it's a huge potential if we able to unleash that. Then, in the long run, even be smart about it and connect local inventory to local consumers. Like super fast delivery or even creating different experiences. This whole thing is, it is early stage. We started connecting. We started connecting first brands. For example, with Adidas, we had pilot cases where we connected stores. We also connected shoe networks, for example, to connect midsize shoe retailers. By now we have a couple hundreds of stores that are already integrated and that are shipping.
I think here it's more about, now we have to, of course, optimize processes, be it data quality, be it the processes to actually handle those volumes. We had those example where there's a store actually, they suddenly have a lot of parcels there that they don't even get out anymore. I think there's many interesting things we can figure out still.
If you speak to leading store-based brands, they describe this as the main potential for them to deliver out of stores, feed the stores, and have really rapid delivery, also out in geographical peripheral locations. What would be the main reasons for you to be that partner for retailers not to do that themselves proprietarily?
I mean, A, actually, the more they do it themselves, the better for us. Because actually, whatever they connect and to connect with their own e-commerce, it's actually easier for us to integrate it as well. That's number one. Number two, the same reasoning we had before. I think in their own e-commerce is limited. We unlock then actually quite some additional potential. If we connect those stores, we already have those proof points, like how much volume it can actually generate additionally. Brands, actually, they have a very strong incentive if they work very closely with us and they have to go digital. They actually have a very strong interest in incentivizing their stores to be part of that equation, and not actually, you know, undermine what the stores are doing.
I think in all sense, from a store manager point of view, from a brand point of view, and from our point of view, from customer point of view, I think it makes sense. Like I said, that said, there's also some hurdles we have to overcome. Like, when it comes to all the economics processes, of course, there's still also a lot we have to develop further.
Thanks.
For sure. Yeah.
Yeah. Tushar from Goldman Sachs. Just in terms of ZFS, the third-party brand inventory, do you keep the inventory only in Germany or do you send that inventory to your satellite hubs as well, in terms of the order fulfillment in Italy or France or in Nordics?
the ZFS logic works very similar to wholesale from an inbound perspective. We are splitting the shipments upfront in order to optimize our warehouse.
A quick comment on internationalization ZFS. I think that was also part of question, right?
Yeah, exactly.
Switzerland, for example.
Switzerland is going live.
We'll be asking Mango to send parcels to Germany, or you'll be asking Mango to send parcels, the whole inventory to all your warehouses in Europe?
We cover then Mango in the same way as we would cover Mango in a wholesale business. We would store it in different locations in order to be as fast as possible to the customer.
Actually, to add, Switzerland, for example, is also an interesting example. Many brands don't even have the capabilities to deliver conveniently to Swiss customers. Open up those capabilities that they can actually do that through us. That's actually another one of those examples where we actually have a stronger network and a stronger infrastructure than the business themselves.
In terms of how many days do you keep the inventory before you give it back to Mango, for example?
How many days we keep the inventory? We have similar targets for the inventory as we have for wholesale. We have stock turnover targets. Then if we are below those targets, then there is a conversation happening. That's standard.
Other questions? Yes, Caroline.
Hi, it's Caroline Gulliver from Jefferies. Could you share a bit more color on the data that you're giving back to your partner brands? In particular, are you giving them data on what their customers, the other brands that they're looking at?
I think the most exciting for the brands is actually to learn what their major competitors do. We cannot, for legal reasons, I think I said this, we cannot share individual customer data. What we can do is we can benchmark. Actually, Zalando is a massive insight center for them because they have no other way to benchmark themselves against their major competitors. Therefore, they're really interested in getting this kind of data. That's what we do. We try to ask them for a peer group. We define with them a peer group together or their major competitors, and then we benchmark their success and their, whatever metric you're interested in, always versus this peer group.
How are you effectively pricing that knowledge that you're giving them? Is it just coming through in gross margin terms or? I mean, it's obviously a huge amount of powerful information that you can give on, but how do you think about that economically?
Economically, we first of all think from a customer perspective. We think the more the brands know, the better they can serve our customers. That's the first way. I think in the long term, there could be potentials maybe to monetize it even further. For the time being, our main focus is to create the best customer experience.
Other questions? Yeah. Oh, we go almost to the last row. Can I help you?
Thank you. Michael Benedict from Berenberg. Are you able to let us know the commission rate you receive for the Partner Program, both with Zalando Fulfillment Solutions and without it?
Sorry, the last part of the question. Commission?
Both with ZFS and without.
Yeah. I think we shared it here that ZFS massively improves the profitability, which improves the profit pool for Zalando and for the partner. Therefore, when we introduce ZFS, we also have a conversation about the commission rates. That's what we do.
In a previous session, you said that you expected to be free cash flow negative in 2021. Is the implication that you expect to be positive from 2022 onwards?
That's not a super partner question. We have to ask Rubin back to the stage, I guess, for stuff like that.
He was spec testing it now. Other questions in the room here? If that is not the case, we are well ahead of time. All questions are answered. Thank you very much for your attention.