Zalando, Europe's biggest online only fashion retailer, is working to counteract a fall in average order size and to ensure more returned goods are resold.

The moves come after the company reported the slowest sales growth since it was launched a decade ago. 

Facing rising competition from e-commerce players like Amazon.com and chains like H&M, Zalando cut its 2018 outlook for a second time in as many months in October due to the unusually long, hot summer, sending its shares tumbling. 

The company said its third-quarter sales rose 12% to €1.2 billion, missing average analyst forecasts for €1.22 billion, and well below the 20-25% annual growth it has targeted for years.

In contrast, British rival ASOS last month met its full-year sales growth forecasts and reported a 28% rise in pretax profit, flagging years of double-digit sales growth to come and propelling its shares higher. 

Zalando reported a quarterly adjusted loss before interest and taxation of €39m, which it blamed on a slow start to sales of colder weather clothing, as well as rising fulfilment costs and problems with how it handles returns.

About half of the products Zalando sells are returned, with most of them processed and resold.

Previous changes to the handling of returned goods that needed to be ironed or repaired resulted in fewer of them being refurbished, an issue that has since been resolved, co-CEO Rubin Ritter said. 

Zalando said profitability was also hit by a 7% fall in average order size to €57.50, despite efforts to bolster orders by adding beauty products to its range in the hope that customers would add a lipstick when they buy a dress. 

The company is taking steps to try to increase the profitability of smaller orders, including making size recommendations to reduce the likelihood of returns, and trialling a minimum order value of €25 in Italy, Ritter said. 

He does not yet know if Zalando will extend that to other markets, as some analysts have recommended. 

Higher transport costs and investments in logistics also weighed, although Zalando trimmed its expectation for capital expenditure for 2018 to €300m, from a previous €350m, as projects are spread over a longer period of time. 

Ritter said Zalando planned a new centralised warehouse to process shipments of garments from brands before they are sent to regional centres for delivery to customers, as it seeks to increase the efficiency of its logistics network.