Customer Case |Export Controls |Central Classification |Customs Filing |13 August 2020
Founded in 2008, today Zalando is Europe’s leading online platform for fashion and lifestyle. Zalando can boast around 32 million active customers in 17 markets.
The company has a unique approach in that it acts as a digital shopping mall for clothing, footwear, accessories and beauty products, offering shoppers an assortment of products from 2,500 brands 'under the same roof'.
These range from world-famous labels to brands from the local high street. Zalando essentially recognized that customers typically want to buy as much as they can from a single source and so aimed to act as a one-stop shop for inspiration, interaction and - importantly - purchasing.
Fashion houses and retailers are able to make sales through the company's partner program and Zalando prides itself on trading only with reputable manufacturers providing the highest quality, genuine products.
Customers have also been flocking to Zalando for its innovative approach to customer services; not only does it offer 'payment after delivery' systems and free shipping, but anyone who changes their mind can also return goods for free post-purchase.
Zalando calls itself "Europe's most fashionable tech company" and it's this attention to detail that has allowed it to grow its business at projected double-digit rates for 2020, despite extremely challenging trading conditions.
With Zalando launching a new category “Pre-Owned” in the Zalando Fashion Store soon, it appears as though expansion driven by the ongoing consumer shift to online shopping shows no sign of slowing down.
Challenges in Zalando's e-commerce model
As Georg Knopf, Head of Customs at Zalando, explains: “It is the company's can-do attitude that has made it such a success story; our motto is 'make it happen”, and then with a wink add “somehow.”
However, even with this positive mindset and talent for making good things happen, Zalando began to realize that they could not manage everything alone when it came to logistics and complying to the difficult and often bureaucratic customs regulations of different countries.
"After a couple of years, we reached a situation that we could not handle everything by simply building workarounds," Mr Knopf explained. "A lot of manual work was involved as well with this, so we were looking for a way to make it more professional, with better partners, better solutions and better support."
Most recently, Zalando operated two Customs Management systems in parallel. The necessity was due to the logistics requirements, each of which the provider served with independent solutions. Both systems were highly tailored to Zalando's needs, which meant that the maintenance costs were exceptionally high.
Against this background, the company started to look around for a partner that could bring in solutions to help everything run more smoothly.
Why Zalando chose MIC
Mr Knopf said: “One of the key requirements when it came to a customs and trade compliance software provider was a business that worked globally, offering a global customs and trade compliance platform rather than a solution on a country-by-country basis.”
"We want to grow and have an ambitious and challenging future roadmap; and we want to make sure that our new provider can cover all the capabilities we need when it comes to customs," he added.
Other crucial aspects for the selection of the right provider were solutions for imports, exports, bonded warehouses and more that allow for a direct data exchange with the electronic customs declaration systems of national customs authorities in all the key markets, as well as simplified procedures based on cross-border licenses (centralised clearance) rather than running individual simplified procedures in each single country.
This have already been some of the most important requirements but when talking about Zalando you are always talking about big volumes as well. Any software provider would also need to be able to cope with Zalando's significant volumes of sales and shipments, something that had caused Zalando additional efforts with customs authorities in the past. As you may imagine, customs law is not always built to support and give comfort to e-commerce companies.
"While we have to follow our ideas, we have to follow the law too. We therefore needed a very flexible provider to make it work, even if it is sometimes hard to follow if customs insist on challenging requirements from their side, but customs compliance is very important to us,"Mr Knopf pointed out and continued: “Another hard requirement was that we needed more support than in the past. Our business is ambitious - our customs departments are working from six in the morning to 11 in the evening, they are working Saturdays as well and sometimes even on bank holidays.”
This is where MIC came in. From the outset, Zalando was impressed with the company's degree of country coverage within one single IT platform, ability to provide round-the-clock support, even with customs departments working long hours and during public holidays and MIC’s flexibility which is of utmost importance in such dynamic times.
"Some businesses can only offer solutions for some countries and are not able to run processes as mentioned before. Their support is only available during their own operating hours, but by definition that's not enough for us. Many of the competitors to MIC made it very clear that they cannot fulfil the expectations nor manage the excessive volumes and therefore cannot submit an offer. Finally, MIC was the only provider covering all our mandatory requirements," said Mr Knopf.
What was Zalando's experience with MIC?
From the initial kick-off in 2019, it's fair to say that Zalando expected a lot from MIC.
Technically this was particularly the case when it came to handling large volumes in the way the company wanted, with up to 14,000 items per shipment going out at any one time adding up to approximately 1.5 million export line items per day in one single country.
"MIC was soon able to demonstrate that they can handle our volumes in the way we wanted," said Mr Knopf.
“But even more important was to understand resp. handle the fact that Zalando is not simply a fashion company, it isn't, everybody has to understand that it is an e-commerce company and therefore everything is based on IT in this company. We needed a partner who can start having discussions on the same level as us,” Mr Knopf explained.
"MIC made clear that we will have a dedicated Zalando team. I'm not only talking about the project team - we do have an additional support team, working for us. And these people are brilliant," marvelled Mr Knopf.
This level of communication is unique and allows MIC to provide bespoke solutions for its clients, and it's a service that has already proved invaluable for Zalando.
"MIC has understood, in a short time, our needs and our requests. They have started thinking in the way of 'how can I help this client?', 'how can we make the Zalando way of working relevant to ourselves?' and then matched it with MIC topics. That's what's great and very helpful and these people are very, very solution-orientated," Mr Knopf commented and continued: "And MIC has a brilliant size, it's still possible to talk to, let's say, the top management, if you think it is important enough. And they will never only say 'yes', because you are the customer and you are paying for the service. They will insist on their opinion if they think it's best."
What has changed at Zalando as a result of working with MIC?
Since the beginning of the Zalando/MIC partnership, some projects have already gone live and some are still in the hyper care phase.
"The biggest compliment I can give is that we reached all the milestones so far. We're talking about a three-year project and all milestones have been reached on time so far. I've been running big customs IT projects for more than 20 years, working for some of the biggest consulting companies from this world, and that's really not how it happens in general," Mr Knopf highlighted.
"A lot of systems have now also been optimized and automated. In the past, we needed around 60 minutes for one export shipment from the starting point to the release of the goods at the warehouse. It's now less than 15 minutes. We increased our efficiency in a very, very nice way.Nowadays we know that we can reduce our lead times by 75 percent," Mr Knopf continued and: "We killed many manual workarounds, we feel much more comfortable."
Further, that expensive running of two parallel systems is now a thing of the past - although Mr Knopf pointed out this was never the be-all and end-all.
"We're looking at annual savings of at least €1 million just by removing this second system and there being no need for additional customization. It's very nice, but we didn't start this project to realize savings. We started this project to increase our efficiency and to make sure we will have a state of the art customs compliance."
Zalando currently relies on the following MIC solutions:
1. + NCTS for DE & CH & NO
- To automatically create import and export declarations
- To calculate duties and taxes
- To directly exchange data with electronic customs declaration systems of national customs authorities
- To streamline the entire electronic transit process to save time and money
2. MIC-CUST® GTDC (Global Trade Data Chain)
- To enable the automatic preparation of import customs declarations for the destination market through data conversion of the related export customs declarations
3. MIC CCS | CTC(Customs Tariff Classification) for DE & CH & NO
- To increase the automation level in determining correct customs tariffs classifications for products through intelligent algorithms and according to national customs tariffs lists
- To regularly and automatically update customs tariff content for each country in MIC CCS through MICs Global Trade Content Service (GTCS)
4. MIC DPS(Denied Party Screening)
- To enable screening against sanctions lists
- To enable screening against black lists, white lists and positive lists
- To enable the determination of stop words and keywords
- To send an email notification in case of a match with data from the sanctions list
What next for Zalando and MIC?
As mentioned earlier, Zalando is keen to achieve its projected double-digit annual volume growth in 2020, and it is certain MIC's future-ready technology will allow it to manage this.
"In the next phase, we can reduce our costs from third-party logistics providers that have been forwarding our logistics data to customs authorities," Mr Knopf said.
He's also keen to build on the existing success by retaining what has worked.
"Our future setup is that, even if there is a third-party provider involved, they must make use of MIC’s system. It’s so much easier if you are running the system, if you are the owner of the master data and its quality. It will also be easier to move between third-party logistics providers afterwards and this is why having its own direct communication with customs authorities is so important. This will save us more than €1.25 million per year in Switzerland, for example."
Next, Zalando plans to start importing and exporting with Norway and the UK, as well as preparing the leading practise for its bonded warehouse for implementation in six countries over the coming two-and-a-half years.
"All in all, we expect 15 sub-projects with MIC until we do have our global customs and trade compliance platform in place." Mr Knopf commented.
From MIC's point of view, this means bringing in solutions for wholesale, a returns process for Swiss export to German import, a Zalando dashboard and that all-important Zalando bonded warehouse.
It's clear that the coming times will be busy ones for the already-successful partnership between Zalando and MIC - let's hope they continue to reap the rewards.
Some final remarks by Mr Knopf
“I'm very happy to work with MIC. I know we will face some problems, like in every project, but I have never met such a fair partner. I like that kind of mix that allows you to speak open and honestly in your communication.”
“I know they don't do any legal advisory, but the MIC team has a lot of experience. Our specialists will always find a counterpart on the side of MIC and that's quite helpful.”
“My personal feeling is that they are state of the art if I look into MIC’s IT system architecture. We've made very bad experiences before working with MIC. We have to make sure that our partner provides state of the art architecture and fulfils all its promises, to make sure that there is development every year.”
“Our customs software provider must be able to keep up with our pace, deliver technical innovations, incorporate expert knowledge into automated solutions and deliver projects on time and on budget. Only our "Strategic Partners" can do this - MIC is well on the way to achieving this.”
MIC is the world leader in providing global customs and trade compliance software solutions. The MIC group currently employs 400+ professionals around the world. More than 700 international customers rely on MIC software products for their global customs and trade compliance management solutions.
For more information about MIC and how we could help your operations, please contact us [emailprotected]mic-cust.com.