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How Europe’s leading fashion e-commerce platform is blending AI, AR and operational resilience to future-proof its strategy?
Technology in Fashion
01 July, 2025
Table of contents
Zalando GmbH, founded in 2008 as an online footwear retailer in Berlin, has since evolved into Europe’s most prominent online fashion platform, serving over 25 markets with an extensive marketplace and direct-to-consumer offering. Over the past decade, the company has navigated the dramatic digital shift in retail by progressively transforming its business model, adopting innovative technologies, and prioritising user-centric experiences. What began as a conventional e-commerce venture has gradually become a digitally immersive, tech-driven ecosystem shaped by personalisation, intelligent logistics, and data-enhanced services.
From 2023 through the first quarter of 2025, Zalando GmbH’s commitment to technological innovation reached a new inflection point. Rather than treat AI, AR, and digital content automation as auxiliary tools, the company embedded them directly into its operational core, impacting everything from image generation and product discovery to size recommendation and fulfillment. This transition was supported by strong financial performance: despite global macroeconomic headwinds, Zalando grew its active customer base, improved profitability margins, and expanded its platform capabilities, especially through initiatives like ZEOS and the acquisition of ABOUT YOU.
The insights in this report are grounded in Zalando GmbH’s most recent disclosures, namely the Zalando SE Annual Report 2024, released on 3 May 2025 and covering the financial year from 1 January to 31 December 2024, and the Q1 2025 Financial Statements and Earnings Call Presentation, published on 6 May 2025 and reflecting the company’s performance from January to March 2025.
A report noted that generative AI could cut campaign production costs by as much as 90% while enabling scalable hyper-personalisation, outcomes mirrored in Zalando GmbH’s rollout of AI-generated content. Meanwhile, immersive tools like AR and VR would become standard across digital luxury commerce, particularly to reduce returns and elevate user experience. Zalando’s initiatives over this period not only align with these expectations, they arguably lead them, offering one of the clearest cases of technology integration in European fashion retail to date.
In this context, Zalando GmbH’s innovation-led strategy represents not only an internal evolution but a bellwether for where the broader industry is heading.
Zalando GmbH began integrating augmented reality into its customer-facing experience in late 2022 through a partnership with Snap Inc., introducing AR lenses for selected in-house brands like Even & Odd and Zign. This feature allowed Snapchat users to virtually try on fashion pieces directly via the social platform. The project was designed to increase digital engagement, offer customers a more interactive product discovery journey, and reduce the psychological gap between browsing and purchasing. According to Snap Inc.’s press release, the campaign recorded over 30,000 users trying out the AR experiences in initial runs, with users often experimenting with different styles and sizes.
In October 2024, Zalando GmbH launched a pilot for its in-house developed 3D virtual fitting room, an initiative that enables customers to create personalised digital avatars using their body measurements. This pilot was rolled out in 14 European markets and targeted users seeking a more tailored online shopping experience. The virtual try-on tool was not only a visual enhancement but a strategic tool aimed at mitigating sizing uncertainty, a leading cause of returns in fashion e-commerce. Zalando reported that early feedback from participants highlighted both the emotional value of avatar realism and the practical utility of more confident size selection.
To scale its AR capabilities further and reduce dependency on third-party platforms, Zalando GmbH acquired DeepAR, a UK-based augmented reality startup, in April 2025. This acquisition aimed to create Europe’s largest digital twin catalogue of apparel and accessories, enabling more immersive and standardised virtual try-on features across the Zalando ecosystem. DeepAR’s technology also equips Zalando GmbH with a proprietary framework to build, test, and roll out new AR tools directly within its native app, giving the company full control over user interface, data flows, and backend optimisation. The purchase of DeepAR marked a strategic evolution from exploratory AR use cases toward infrastructure-level integration.
Together, these initiatives demonstrate Zalando GmbH’s commitment to using AR not as a novelty but as a functional and increasingly essential component of the e-commerce experience. The impact is twofold: externally, customers benefit from enhanced product evaluation and a more playful digital journey; internally, Zalando expects a reduction in return rates and greater conversion efficiency as sizing uncertainty declines.
Zalando GmbH’s most significant shift during this period was in the scale and sophistication of its artificial intelligence deployment. In Q4 2024, the company announced that approximately 70% of its editorial content and marketing imagery had been generated using generative AI models trained on product databases and campaign trends. This rollout was supported through a collaboration with ORENDT Studios, who helped build the underlying digital twin technology necessary for scalable and photorealistic product imagery. The impact was immediate: content production times dropped from 6-8 weeks to just 3-4 days, while campaign development costs were reduced by nearly 90%. This has allowed Zalando to respond faster to fast-moving fashion cycles, optimise seasonal marketing calendars, and maintain visual consistency across a growing product base.
Parallel to its visual content transformation, Zalando GmbH also launched a generative AI-powered conversational shopping assistant in the spring of 2023. Built in collaboration with OpenAI technologies, this assistant enables users to ask natural language questions such as “What should I wear for a spring wedding in Italy?” and receive stylistically curated suggestions. By Q1 2025, over one million users had engaged with the assistant, with Zalando reporting an average of four exchanges per session. More importantly, customer cohorts that used the assistant showed up to 7% lower return rates compared to those who did not, suggesting that AI-enhanced guidance plays a significant role in improving purchase confidence and product relevance.
In addition to serving end users, AI has also permeated Zalando GmbH’s internal planning. Its proprietary “Trend Spotter” system analyses fashion behaviours in eleven major European cities to detect early shifts in style, colour preferences, and seasonal popularity. These insights are used to guide editorial choices, influence inventory forecasting, and shape promotional timing. This localisation at scale has given Zalando a competitive advantage in merchandising responsiveness and relevance.
Overall, Zalando GmbH's application of AI has led to measurable efficiencies, enhanced customer satisfaction, and a data-informed creative pipeline. It has also enabled a greater degree of personalisation, both visually and interactively, and contributed directly to improved marketing ROI and lower operational redundancies.
Zalando GmbH’s financial performance between 2021 and the first quarter of 2025 reflects a narrative of recovery, stabilisation, and selective growth in the face of industry-wide challenges. Following a post-pandemic revenue surge in 2021, the company entered a phase of slower top-line expansion and renewed cost discipline. Gross Merchandise Volume (GMV) grew from €14,33 billion in 2021 to €15,29 billion by 2024, while revenue remained relatively flat, hovering between €10,14 and €10,57 billion across those years. In Q1 2025, Zalando posted €3,49 billion in GMV and €2,42 billion in revenue, a positive start to the year driven by strong spring/summer demand.
Profitability saw a deeper evolution. Adjusted EBIT declined sharply from €468,4 million in 2021 to €184,6 million in 2022, largely due to fulfilment inefficiencies and inflationary pressures. However, strategic shifts in logistics and AI-supported operations contributed to a rebound in 2023 (€349,9 million) and a stronger €511,1 million in 2024. The adjusted EBIT margin recovered from a low of 0,8% in 2022 to 3,7% in 2024. Q1 2025 maintained this trend with a margin of 1,9%.
Zalando GmbH also delivered a strong improvement in free cash flow, from a negative €18,8 million in 2022 to €683,8 million in 2024, reflecting better inventory rotation, disciplined capex, and higher marketing efficiency powered by generative AI. However, Q1 2025 showed negative free cash flow (-€192,1 million), reflecting inventory build-up and strategic spending tied to the ABOUT YOU acquisition.
| Indicator | FY 2021 | FY 2022 | FY 2023 | FY 2024 | Q1 2025 |
|---|---|---|---|---|---|
| Gross Merchandise Volume (GMV) | €14,33 bn | €14,78 bn | €14,63 bn | €15,29 bn | €3,49 bn |
| Revenue | €10,35 bn | €10,34 bn | €10,14 bn | €10,57 bn | €2,42 bn |
| Adjusted EBIT | €468,4 mn | €184,6 mn | €349,9 mn | €511,1 mn | €46,7 mn |
| Adjusted EBIT Margin | 4,1% | 0,8% | 1,9% | 3,7% | 1,9% |
| Free Cash Flow | €283,2 mn | -€18,8 mn | €379,4 mn | €683,8 mn | -€192,1 mn |
Competitor Comparison: Compared to ASOS, which has experienced three consecutive years of declining revenue and negative EBIT margins, Zalando GmbH has delivered a more stable and profitable trajectory. Farfetch, once a digital-first luxury leader, faced existential pressure and was taken private in late 2024 after posting widening losses. Amazon Fashion, though massive in GMV, does not report fashion-specific EBIT or margin performance, and lacks Zalando’s depth of experience customisation. Zalando GmbH’s unique mix of fashion specialisation, tech investment, and margin recovery now positions it as Europe’s most structurally sound fashion e-commerce player.
Zalando GmbH’s customer engagement and experience metrics from 2021 to Q1 2025 reveal a steady progression in user base quality and order economics. Active customer numbers increased from 48.5 million in 2021 to 52.4 million in Q1 2025, highlighting consistent user acquisition and retention strategies, even through periods of flat revenue and margin pressure. Despite macroeconomic headwinds and normalisation post-pandemic, Zalando GmbH maintained a robust customer base across Europe.
The average number of orders per active customer decreased slightly from 5,2x in 2021 to 4,8x in 2024, before recovering to 4,9x in Q1 2025. This suggests that while consumers may have pulled back on frequency due to economic pressures, Zalando GmbH's initiatives in personalisation and loyalty helped maintain stickiness. Meanwhile, average basket size grew steadily, from €56,8 in 2021 to €61,1 in both 2024 and Q1 2025, confirming the success of upselling strategies and AI-led product curation.
These trends were reinforced by Zalando GmbH’s expansion of Zalando Plus, which by early 2025 had reached over 13 countries with more than 15% penetration in live markets. The rollout of the GPT-powered Zalando Assistant, which demonstrated a reduction in return rates of up to 7% among users, also contributed to stronger customer satisfaction and purchase accuracy.
| Metric | FY 2021 | FY 2022 | FY 2023 | FY 2024 | Q1 2025 |
|---|---|---|---|---|---|
| Active Customers (LTM) | 48,5 mn | 51,2 mn | 49,5 mn | 51,8 mn | 52,4 mn |
| Avg. Orders per Customer (LTM) | 5,2x | 5,1x | 4,9x | 4,8x | 4,9x |
| Avg. Basket Size (after returns) | €56,8 | €56,6 | €59,8 | €61,1 | €61,1 |
Competitive Lens: In contrast, ASOS has experienced higher churn and declining customer orders per year amid return policy tightening and promotional fatigue. Farfetch's user experience instability, partly driven by partner volatility, has affected retention. Amazon Fashion excels at scale but lacks refined style personalisation. Zalando GmbH’s combination of data-driven UX and fashion-specific personalisation, amplified by tools like AI stylists and immersive try-on features, positions it at the forefront of customer loyalty and engagement in Europe.
Zalando GmbH's investment in immersive and intelligent technologies between 2023 and 2025 positions it within a cohort of fashion and retail platforms responding to a broader industry shift - one that moves toward hyper-personalised, low-friction, and increasingly virtual shopping experiences. While each platform has approached the deployment of AR, AI, and (to a lesser extent) VR differently, the direction of travel is aligned across the sector.
Zalando GmbH has matured significantly in augmented reality, with its in-house 3D virtual fitting room pilot launched in October 2024 and a Snap Inc. partnership dating back to November 2022. Its acquisition of DeepAR in April 2025 further consolidated its AR infrastructure. In AI, Zalando GmbH deployed generative content creation at scale by Q4 2024 and introduced its GPT-powered assistant in spring 2023, alongside internal tools like the Trend Spotter system.
ASOS previously introduced mobile AR try-ons between 2019 - 2021, but its initiatives have lacked continuity or expansion since then. AI has mostly been applied in sizing tools and discount algorithms. There are no known VR developments.
Farfetch, while positioned more toward the premium and luxury fashion space, experimented with AR via Wanna Kicks in 2021 and integrated AI for style curation but paused much of its roadmap in 2023 - 2024 due to financial challenges. VR has not featured in its consumer strategy.
Amazon Fashion has focused on practical AR tools (e.g., View in 3D, try-ons for eyewear) and has deep AI integration across supply chain, search, and recommendation engines. VR experimentation has been limited to lifestyle segments outside fashion.
Ultimately, each company’s approach reflects different priorities: Zalando GmbH integrates technology for fashion-centric personalisation and operational leverage; Amazon scales utility across categories; ASOS has prioritised agility over infrastructure; and Farfetch’s innovations have been disrupted by restructuring. Rather than a linear innovation race, the landscape shows a spectrum of strategic bets, each with implications for digital experience leadership.
As of mid-2025, Zalando GmbH's forward-looking roadmap continues to balance technological investment, platform expansion, and financial discipline. According to the company’s latest earnings guidance, full-year adjusted EBIT is expected to range between €530-590 million, while GMV is projected to grow by 4-9% for FY 2025. Zalando also plans capital expenditure in the range of €180-280 million, with key allocations directed toward fulfilment infrastructure and digital capabilities.
Zalando GmbH’s strategic focus this year centres around three pillars:
Immersive Shopping: Following the acquisition of DeepAR, Zalando GmbH aims to scale the deployment of virtual fitting and digital twin technologies across more categories and devices. This move supports not only customer experience but also serves the brand's goal of reducing return rates further.
Platform Integration: Zalando GmbH has moved to consolidate ABOUT YOU, having secured over 91,5% of shares by Q2 2025. The integration is expected to yield cross-platform synergies in marketing automation, logistics optimisation, and consumer reach across DACH and Benelux markets.
ZEOS Fulfilment Expansion: Its B2B logistics unit ZEOS became TikTok Shop’s fulfilment partner for Germany in Q1 2025, with broader European expansion in the pipeline. This diversifies Zalando GmbH’s revenue base and deepens its capabilities as a service provider beyond fashion retail.
In contrast:
ASOS has outlined a cost-focused reset strategy, pulling back from unprofitable geographies and minimising capital investment in tech innovation. Its 2025 roadmap leans on operational simplification rather than immersive commerce.
Farfetch, now a private entity under Coupang’s majority ownership, has yet to publish a revised 2025 strategy. Much of its tech roadmap was paused amid 2024’s recapitalisation.
Amazon Fashion continues to prioritise convenience through supply chain optimisation and voice-driven discovery via Alexa. However, there is little evidence of a substantial 2025 pivot toward immersive fashion experiences.
Zalando GmbH’s path in 2025 underscores a more proactive stance: investing in proprietary AR/AI capabilities, onboarding external brands through ZEOS, and enhancing consumer loyalty through Zalando Plus and digital stylists. If execution matches intent, these moves could establish Zalando not just as a European leader, but as a reference point for digitally native fashion platforms worldwide.
Between 2023 and the first half of 2025, Zalando GmbH has successfully transitioned from a traditional e-commerce platform to a tech-enabled fashion innovator. Its strategic adoption of augmented reality and artificial intelligence has reshaped both customer-facing features and internal operations. From digital try-on tools and avatar fitting rooms to AI-generated marketing campaigns and predictive trend spotting, Zalando has created a comprehensive innovation stack that enhances user experience, reduces returns, and improves operational efficiency.
Financially, Zalando GmbH maintained steady top-line performance and engineered a strong margin recovery, with adjusted EBIT rising from €184,6 million in 2022 to €511,1 million in 2024. Despite temporary cash outflows in Q1 2025, the company’s balance sheet remains healthy, allowing room for continued investment in its platform and fulfillment ecosystem.
Customer loyalty and order quality metrics also strengthened over time. The company now counts over 52 million active users, with average basket size at an all-time high. With the rollout of Zalando GmbH Plus and AI-powered assistants, Zalando is not just selling fashion. It’s shaping how Europeans discover, try, and buy clothing online.
In the competitive landscape, Zalando GmbH’s strategy stands out for its integration depth and long-term orientation. While peers like ASOS and Farfetch have either paused innovation or faced restructuring, Zalando has sustained its momentum, building capabilities that align closely with McKinsey and Bain's projections for the future of retail: personalisation at scale, immersive shopping experiences, and AI-automated workflows.
Looking ahead, Zalando GmbH’s continued integration of ABOUT YOU, its partnership with TikTok Shop via ZEOS, and its proprietary tech assets position it as one of the most agile and future-ready platforms in the fashion space. If it continues to execute against this roadmap, Zalando GmbH is well on track to define the next phase of digital fashion commerce in Europe and beyond.
Sources: Zalando Annual Report 2024, Q1 2025 Financials, Zalando EC Presentation May 2025, Snap Inc., TechCrunch, Wired Germany, Zalando Newsroom (2023–2025), McKinsey & Company, Bain & Company
Cover Image: Zalando Augmented Reality poster in Paris, courtesy Le BonBon.