In Trends

Inditex to reduce its footprint and focus on digital

Zara

The owner of Zara Inditex announced that the year-on-year contraction in sales was limited to a 44% decline to US$3.7bn during the first quarter of 2020 – between 1 February and 30 April – despite as many as 88% of the group’s stores being closed at some point during the period due to the Covid-19 pandemic.

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Online sales recorded strong growth of 50% during the period, specifically increasing by 95% year-on-year in April.

The gross margin remained constant at 58.4% of sales, evidencing the flexibility embedded into the business model and its ability to react to actual demand. At the April 2020 close, inventories were 10% lower than in April 2019.

Operating expenses decreased by 21%, thanks to active cost control during the period. The company’s net cash position remains robust, at US$6.6 billion, compared to US$7.6 billion as of April 2019.

Combined, the above factors mitigated the impact on Inditex’s first-quarter, which amounted to an EBIT of US$-227 million and net loss of US$-199 million.

The company has decided to make a provision of US$350 million related to the execution of the plan to boost online and further integrate the store platform. Taking the provision into account, the reported EBIT and net profit stood at US$-578 million and US$-465 million, respectively.

Inditex’s Executive Chairman, Pablo Isla, unveiled the group’s plan for the next two years. Under that plan, the company will accelerate and broaden its forward-looking digital transformation strategy. Isla committed that the group will invest US$1.1 billion in bolstering the online business and a further US$1.9 billion in upgrading the integrated store platform, deploying advanced technology solutions.

Inditex expects online sales to account for over 25% of the total by 2022, compared with 14% in FY19, underpinned by an integrated online-store network that is structurally nimble, sustainable and smart. It will have larger, higher quality stores, higher levels of profitability, and helping generate 4-6% like-for-like growth annually.

Each store will act as a fashion distribution hub in the heart of the most strategic shopping districts of the world’s leading cities, forging an interconnected global distribution network that is responsive to emerging shopping habits.

To that end, Inditex plans to reinforce all of its brands’ e-commerce capabilities. One example is the new www. zara.com studios in Arteixo which will span 64,000 square metres. It will also increase the online customer service teams and the dedicated packaging both from the specific online stockrooms and from the stores. Also, the implementation of the RFID system, which enables garment tracking and integrated inventory management, will be fully deployed across all the brands by the end of 2020.

In parallel, Inditex plans to continue with the store upgrade plan underway since 2012 under which it has opened a gross 3,671 stores that are larger, in more high-profile locations and already integrated with online. From that date, the group, enlarged a further 1,106 stores, refurbished 2,556 with the latest technology and absorbed 1,729 units, 1,024 of which during the last three years.

Ultimately, Inditex plans to to have a total network of between 6,700 and 6,900 stores, from 7,412 today, which will involve opening 450 new stores fitted with all the latest sales integration technology and absorbing between 1,000 and 1,200 smaller-sized stores, which account for 5% to 6% of total sales and are less well positioned to offer the new customer experiences. Most of these smaller stores are older stores belonging to brands other than Zara.

From the customer standpoint, an important development in the pipeline is the ‘Store mode’ concept thanks to which the brands’ mobile apps and websites will provide customers with new services such as the ability to consult store stocks in real time for online purchase and immediate collection, and pinpoint the precise location of a specific item within a given store.

The group continued to forge ahead with its store integration strategy throughout the first quarter: at the close of the period, its online-store platforms were integrated in 72 of the 96 markets in which it has physical stores. Zara launched online sales in Albania and Bosnia and, after the start of the second quarter, in Argentina, Paraguay, Uruguay and Peru, markets in which the group’s flagship brand can now offer its customers a fully integrated shopping experience.

The group also continued to make progress on the target announced by Pablo Isla of having all of the products of all of its brands available for purchase online anywhere in the world by the end of 2020. In parallel, the group’s brands opened 19 new stores during the quarter, as well as expanding and refurbishing some of their flagship stores in markets including Spain, China, Portugal, Morocco, Lithuania, Croatia, Korea and Saudi Arabia.

An upcoming highlight is the opening of Zara’s new store in WangFujing (Beijing, China). Not only will this be the largest flagship store in Asia, it will also be the most advanced Zara store in the world, featuring the latest technology and services to offer a seamlessly integrated shopping experience.

Next autumn, Zara will open a three-storey, 800 square-metre space exclusively devoted to Zara Man in an emblematic building adjacent to the brand’s existing store in Paseo de Gracia (Barcelona, Spain), which was reopened last November following refurbishment and the addition of the latest fashion experience-driven technology solutions.

Once it adds the three-storey smart space devoted to Zara Man in the Casa Rocamora building, Zara will occupy 5,500 square metres of one of the world’s leading shopping locations.

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This store is one of the best examples of opening and expanding spacious, sustainable and diaphanous stores with more room to showcase the breadth of the brand’s collections, all of which seamlessly integrate with the online side of the business.

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