Zara owner reports first ever loss, despite soaring online sales
Lockdown is forcing retailers to acknowledge the digital age has dawned
Inditex S.A. has reported its first quarterly loss since the firm went public in 2001, with sales dropping by 44%.
Lock-downs forced the leading global fashion retailer, which operates multiple chains including Bershka, Stradivarius and Massimo Dutti, to close some 6,000 of over 7,000 shops. This contributed significantly to a reported net loss of €409 million from February to April, compared to a net profit of €734 million during the same period last year.
The rapid drop-off in brick and mortar retail is unlikely to fully rebound to pre-covid levels, as the ‘new normal’ integrates ongoing social distancing regulations. With more space required between shoppers, traditional retail premises will simply be unable to accommodate previous levels of foot traffic.
This reality adds a new dimension to Inditex’s store optimisation programme, which plans to absorb between 1,000 and 1,200 stores between 2020 and 2021, creating “a better customer experience through larger and more attractive stores in key locations.” The company has also set aside €1.7 billion to open 150 new shops annually between 2020 and 2022.
Investment in physical premises will run in tandem with a €1 billion funding injection to optimise Inditex brands’ e-commerce platforms. As Sophie Lund-Yates of stockbroker Hargreaves Lansdown told the BBC, “lockdown is accelerating existing trends, forcing retailers to acknowledge the digital age has dawned… the Zara owners were already working towards improving their online capabilities but lockdown has ushered in a new urgency.”
Online expansion already underway for Inditex brands significantly lessened the blow of the pandemic: the company saw e-commerce sales increase by 50% from February to April, jumping 95% in the final month of the quarter.
A relative latecomer to the e-commerce scene, Inditex used delayed arrival to its ultimate advantage. The Business of Fashion outlines the firm’s agile model, balancing low in-shop inventory levels with increased stock in central stores doubling as online order fulfilment hubs. Implementing technological advancements has also optimised product flow management, with radio frequency identification tags providing “exact, real-time control over… inventory” from stock centre to sale.
Inditex now aims to generate 25% of all sales online by 2022, increasing e-commerce’s share of its overall revenue up from 14% in 2019. Vitally, the company has aligned its sustainability goals with this predicted expansion into online retail, pledging to remove plastic bags from all its brands’ e-commerce operations this year, as well as eliminating client-facing single-use plastics by 2023.
