(Bloomberg)—Online sales are surging at Zara owner Inditex SA, helping to offset slower growth at clothing stores as it scales back its retail expansion.
The Spanish company’s e-commerce revenue surged 41% in the latest fiscal year and its websites are attracting more than 10 million visits a day. Inditex is investing in robotics and expanding its online offering to new markets. Zara is ranked No. 390 in the Internet Retailer 2017 Top 500.
So far, the company has avoided the fate of Swedish rival Hennes & Mauritz AB, whose sales are falling as shoppers defect to online merchants like Amazon.com Inc., No. 1. But total sales grew at the weakest pace in three years and the gross margin fell to the lowest level in a decade, as investors raise questions about CEO Pablo Isla’s strategy. The shares touched three-year lows on Wednesday before rebounding to show a gain of 1.7% in Madrid.
“The profitability of online is the hottest topic in the sector,” wrote Michelle Wilson, an analyst at Berenberg, who said it’s unlikely that the shift to e-commerce will improve Inditex’s margins. Inditex said e-commerce now represents one-tenth of sales, but that’s short of the global average for online retail, Wilson said. Even H&M, No. 409, generated 13% of sales online last year.
Inditex said it’s starting e-commerce in Australia and New Zealand, and its websites serviced as many as 249,000 orders per hour at peak sales periods last year.
The retailer is preparing a new store concept that uses robots to deliver garments to customers from nearby warehouses. As the retailer implements RFID product-tracking technology, it’s making deliveries more efficient by relying on inventory in shops to satisfy same-day or next-day orders.
Zara also opened a pop-up store in London in late January that is its first outlet designed primarily for collecting online orders.
The retailer signaled it’s reducing the pace of store openings, planning to increase new space in prime locations by 4% to 6% in coming years, 2 percentage points below the previous range.
“It does seem sensible to be slowing space expansion given the strength of online,” said Anne Critchlow, an analyst at Societe Generale.
Chief Financial Officer Ignacio Fernandez said the company expects a stable gross margin this year after it narrowed to 56.3% in the 12 months through January. A weaker dollar will make it cheaper for Inditex to buy garments in Asia, offsetting the effect of the strong euro, which hurt the company last year, he said on a call with analysts.
The company’s 81-year-old founder, Amancio Ortega, now ranks as the world’s sixth-richest person as his fortune declined along with Inditex’s stock, according to data compiled by Bloomberg. He was as high as second in August. At H&M, Chairman Stefan Persson’s net worth has sunk to a six-year low, also amid the sustained rout in the retailer’s shares.