Zalando China: China Sourcing in the E-Commerce Era

What better way of testing the future-readiness of China as a sourcing market than through the eyes of a forward-looking online retailer? Zalando, Europe’s leading e-commerce platform for fashion, sources private label products from factories in the Far East through a team of merchandisers, quality control, testing, and ethical trade professionals located in Hong Kong, Dongguan, and Hangzhou. Matthias Hurler, Sourcing Director Far East, explains why sourcing from China will continue to make sense in the foreseeable future, particularly in his main area of expertise: footwear.

Is China still the go-to sourcing market for fashion?

It all depends on the product. For synthetic shoes, I believe China will still be a relevant player in the next 10 years. If you produce in Cambodia or Myanmar, of course labour costs will be cheaper but you would have to import most materials, especially PU, from China. So your margin per unit might seem more attractive at first, but you sacrifice flexibility and speed to produce a smaller ammount because it takes time to get the materials and shoe components in.

Is speed becoming a more important consideration than cost?

Nowadays, you need to react to fast-changing trends and refresh your stores on a regular basis, so yes flexibility and speed are more important than ever. The traditional approach of buying seasonal and focusing on buying larger quantities to achieve higher input margins doesn’t work anymore. At Zalando, we’re focusing a lot on lowering our stock risk. Instead of buying 1,000 pairs of shoes, you buy 500, test them, and if they sell you react quickly. This enables better sell-through rates, so even if your initial cost-price calculation didn’t look so bright, you end up with less waste and better profitability.

Zalando is an online-first player. Does this give you a speed advantage?

Having access to massive amounts of data definitely helps. 26 million active customers shop daily on our platform, and we get to see how they’re reacting to the products of 2,000- 3,000 brands. But essentially, it’s about a mindset shift. The concept of lowering your stock risk by improving your demand forecasting, and feeding this into your supply chain, is just as relevant for a traditional brick and mortar store. And they have the necessary sales data too; you don’t need the fanciest systems.

What about technology on the production side – what improvements are you driving?

We’re looking into 3D design to reduce our reliance on making physical samples, which is time-consuming for shoes. Traditionally you create a design, then based on it you make flat paper patterns, which you then cut to make a prototype. With 3D design, you can create the model in the system, which “flattens” the design for you automatically so that you can send it to the cutting machine and go straight into production.

We also work constantly with our suppliers to help them adopt new ways of production. Within our factory base, many are investing in automation and I would say 10% are switching from traditional, long production lines to faster and more flexible setups. Suppliers are realising that order quantities are not as big as they used to be so it makes sense to scale down on the number of workers and keep production flexible. Finding suppliers with fast, flexible approaches in countries like Vietnam and Cambodia is harder. Factories there often have higher minimum quantities, or higher prices than China for lower quantities.

Besides agility, is sustainability becoming more of a priority?

Certainly, especially in Europe. It’s a strong topic and consumers are often willing to pay a premium for it. Rather than having certain eco-friendly brands in our assortment, we are shifting our focus towards improving sustainability across all labels.

The challenge is not just how to manage the cost of sustainability, but also how you define it. For apparel it’s somewhat easier: you focus on more eco-friendly fabrics such as organic cotton. For shoes, you have more components to consider, so it’s more complex. We’re working on defining sustainability and investigating how we can work together with suppliers to drive improvements.

Amid all this disruption in the retail world, is the purpose of sourcing teams changing?

Sourcing teams nowadays have the crucial role of steering changes on the factory side through effective relationships. For instance, the initiative to invest in flexible approaches rarely comes from suppliers themselves. We often have to drive this process, making them aware of market changes and connecting them with key stakeholders, such as technology providers. We also play an active role in enhancing environmental and social responsibility. Your supplier needs to trust you and know that your business is stable, before you can ask them to improve how they feed their workers, for example.


>> Download full publication: “Sourcing: ASEAN vs China?