Industria de Diseño Textil, S.A. (Inditex)

Zara owner to close up to 1,200 fashion stores around the world

The owner of Zara will close as many as 1,200 stores around the world as the clothing retailer tries to boost online sales during the chaos wrought by the Covid-19 pandemic. Inditex said it would “absorb” between 1,000 and 1,200 mainly smaller stores, with losses concentrated among older shops from brands other than Zara. The Spanish company’s other brands include Bershka, Pull & Bear and Massimo Dutti. Closures are expected to be concentrated in Asia and Europe. It is understood that the 107 Inditex stores in the UK are less likely to be significantly affected. Sign up for the Fashion Statement email Read more Inditex said that “headcount will remain stable”, with staff offered roles in other jobs such as dispatching online purchases. The total store count will fall from 7,412 to between 6,700 and 6,900 after the reorganisation, which will also include the opening of 450 new shops. Inditex, one of the world’s largest clothing retailers, has been hit hard during the pandemic, with sales down 44% to €3.3bn (£2.9bn) between 1 February and 30 April, the first quarter of its financial year. The company reported a net loss of €409m during the quarter. Almost a quarter of its shops remained closed by 8 June. However, online sales growth made up for some of the sales weakness, Inditex said. Online sales rose by 50% year-on-year during the quarter, and were up 95% year-on-year in April. Bricks and mortar retailers around the world have been forced to re-evaluate their business models during the pandemic, amid expectations of lower footfall in stores for a significant amount of time. In the UK fashion brands Monsoon Accessorize and Quiz said on Wednesday they would close branches, with hundreds of jobs lost. The casual dining sector has also been hard hit, with the Restaurant Group confirming on Wednesday that 125 of its outlets – the majority Frankie & Benny’s and Garfunkel’s – will not reopen after lockdown, putting 3,000 jobs at risk. The company also owns the Wagamama chain, which is unaffected. Inditex said it would accelerate its push to sell more clothes online as it seeks to fend off the challenge of high street competitors such as H&M and the Uniqlo owner, Fast Retailing, and newer online-only rivals including Asos and Boohoo in the UK which have prospered during lockdown. Under Inditex’s new plan online sales will account for more than 25% of the total by 2022, compared with 14% in its 2019 financial year. Larger stores will act as distribution hubs for online sales. Inditex, controlled by its founder, Amancio Ortega, plans to spend €1bn on its online offering by 2022 and a further €1.7bn in stores to allow them to integrate better with websites for faster deliveries and real-time tracking of products. Since you're here ... … we have a small favour to ask. More people, like you, are reading and supporting the Guardian’s independent, investigative journalism than ever before. And unlike many news organisations, we made the choice to keep our reporting open for all, regardless of where they live or what they can afford to pay. The Guardian will engage with the most critical issues of our time – from the escalating climate catastrophe to widespread inequality to the influence of big tech on our lives. At a time when factual information is a necessity, we believe that each of us, around the world, deserves access to accurate reporting with integrity at its heart. Our editorial independence means we set our own agenda and voice our own opinions. Guardian journalism is free from commercial and political bias and not influenced by billionaire owners or shareholders. This means we can give a voice to those less heard, explore where others turn away, and rigorously challenge those in power. We hope you will consider supporting us today. We need your support to keep delivering quality journalism that’s open and independent. Every reader contribution, however big or small, is so valuable.

Spain · 8 Jun 2020

Inditex, It’s Been Fun, but Change Is Coming

Animal prints in muted tones on everything from flowing skirts to shoes are a hot look right now – and they’re out in force in Zara’s technologically advanced store in Westfield’s Stratford mall in east London. But its parent, Inditex SA, is finding it harder to stay ahead of the trends these days. On Wednesday it reported the weakest revenue expansion in four years in the six months through July, though offered reassurance by forecasting that sales growth and profitability will accelerate in the second half of the year. That guidance is welcome, but looks optimistic for several reasons. Firstly, as I have argued, competition is rising. Primark’s cheaper takes on fast fashion, in increasingly sophisticated store environments, has made the Associated British Foods Plc-owned retailer a force to be reckoned with. This is not only in the discount sector – it’s a real issue in the mid-market as well. Though Hennes & Mauritz AB has been on the front line here, it’s also where Inditex’s brands operate. And it isn’t immune. Analysis by Morgan Stanley found that Inditex’s prices were down as much as 25 percent in some markets. That could well be a reaction to the discount players. The company is responding by putting showroom areas, which highlight the most high-fashion items from both the store and online, in a boutique environment in some stores, such as in Stratford, Tokyo and Milan. While that can help differentiate its offering from Primark’s cheap chic, it can’t stem the tide from the value onslaught. Secondly, while Inditex has been at a considerable advantage with its business model that can react quickly to changing trends, thanks in part to its strategy of sourcing about 60 percent of its clothes from Spain, Portugal and North Africa, others are catching up. Rivals from the U.K.’s Next Plc to U.S. retailer Kohl’s Corp. are also working to get trends into stores more quickly. And some British online players, such as Boohoo Group Plc and Quiz Plc also source over 50 percent of their supplies in the U.K., cutting the time from design room to doorstep. What is most surprising perhaps is that Inditex has been able to stay at the cutting edge for so long. Rivals still have a long way to go to catch up, but the increased challenge is unhelpful. Finally, the company’s centralized operations in Spain, and so-called “proximity sourcing,” means that it incurs the majority of its costs in euros, even though its revenues are increasingly coming from outside the currency bloc, according to according to analyst Geoff Ruddell at Morgan Stanley. That currency mismatch is becoming a bigger issue. Inditex is still a class act. It also deserves credit for adapting to the more challenging environment, opening fewer but larger stores, and integrating technology into its operations. This includes the introduction of radio frequency identification tags, so that it can, for example, fulfill online orders from stock in its stores. But life is becoming tougher, even for this superstar. The shares rose about 3 percent on Wednesday, but are still down about 9 percent since Morgan Stanley downgraded the stock to underweight two weeks ago. They trade on a forward price earnings ratio of just under 22 times, a premium to the average 19 times for rivals in Western Europe. But to maintain its leading valuation, Inditex will need to prove that it can see off the twin threats of online advances and discount rivals. Its historically superior performance and strong balance sheet is a good starting point. But this leopard is going to need to change some of its spots to continue to outperform. To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times. ©2018 Bloomberg L.P.

Spain · 11 Sep 2018