Inditex’s Massimo Dutti store in Paris.
by Rose Maramba
Inditex SA, the world’s largest clothing retailer, and Zara’s parent company (see related posts below), has been hit hard by the pandemic, with a sales decline of 44% to €3.3bn/$3.8bn during the first quarter of its financial year (1 February – 30 April 2020). April was the worst month, with sales plummeting 72%. All in all, this translates to a net loss of €409m/$475.75m. It is the first and only time on record that Inditex suffered a loss.
This dismal performance is even worse when juxtaposed with the net gain of €734m/$853.59m that Inditex posted during last year’s first quarter.
When the pandemic dealt in-store clothing retailers a crushing blow, Inditex could hardly have been spared. As a result, it is closing up to 1,200 of its fashion stores around the world in 2020 and 2021, going down from a total of 7412 stores in 93 markets worldwide to between 6,700 and 6,900. The shops that are in for closure are mainly the smaller and older, of brands other than Zara, in Asia and Europe.
On the brighter side of it, this reorganization will include the opening of 450 new, larger and “more attractive stores” in premium locations. So, it’s not all downsizing. The “highly prominent, differentiated stores will be located in Barcelona, Edinburgh, Riyadh and Bogota,” says Inditex.
Considering the sharp downturn in sales, one will understandably wonder about Inditex’s relatively small loss in the first quarter.
Here is why. While nearly a quarter of its shops were closed by 8 June, online sales growth, which rose 50% during the first quarter of 2020 vis-à-vis the same period in 2019, picked up some of the slack. It is worth mentioning that, extraordinarily, online sales jumped 95% during the month of April, relative to the same month in 2019.
By the second quarter of 2020, a 74% surge in online orders boosted Inditex’s overall sales – that, as well as the fact that by then almost all its shops have reopened. The decline in in-store sales has moderated significantly – 11% in the first weeks of the third quarter – and revenue has been gradually returning to normal levels.
According to Pablo Isla, Chairman and CEO of Inditex, the second quarter was a “turning point” for the mammoth retailer.
Multi-billion projects for the post-pandemic era are in the works. €1bn/$1.16bn are budgeted for its digital operations. Brick and mortar stores won’t be left high and dry either. €1.7bn/$1.98bn over three years will be spent on the new premium stores and in developing a “fully integrated store and online model.” The idea is to produce a synergistic relationship between brick-and-mortar and e-commerce whereby the larger stores are tapped as distribution hubs for e-commerce.
Keep in mind that an Inditex hallmark has always been a lean warehouse operation; stores are where the bulk of the stock is kept in a unique logistics and distribution system. Inditex states that “stores will play a stronger role in the development of online sales due to their digitalization and capacity to reach customers from the best locations worldwide.” They will double as e-commerce fulfillment centers for in-house packing.
Inditex’s online sales projection for 2022 is 25% of the total sales, nearly twice as much as the 2019 financial year’s 14%.
Though Inditex is a latecomer to the Internet (2010), the apparel retailer has adopted an aggressive e-commerce policy now that the retailing industry sees an enduring change in how people shop.
Actually, Inditex’s accelerated momentum toward online sales really took off during the first wave of the pandemic. Spain was then confined in a national lockdown that the government declared on 14 March. Despite the admirably nimble supply chain where it can take just five days to prototype a new design, and a total of just 15 days for a new apparel to go from design and production to the store shelves, garments languished on Inditex shelves and in stock rooms. Faced with an unusually inert inventory, Inditex sharply increased its offer of online discounts. And because its employees in Spain have not been furloughed, they were asked to volunteer to gather up and dispatch the garments for the increased online sales.
A winning mix of e-commerce, a very healthy balance sheet amounting to €8bn/$9.30bn, and low inventory is seeing Inditex through the coronavirus crisis. The giant Spanish retailer, whose brands, apart from Zara, consists of Massimo Dutti, Pull and Bear, Bershka, Lefties, Stradivarius, Oysho, Zara Home, and Uterqüe, looks forward to the challenges of the post-COVID19’s new reality with self-assurance and an unmatched retailing savvy.
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