Inditex SA, Zara’s parent company, surprised investors with a plan to significantly increase spending on new stores and ecommerce. This comes after it closed more than 1,000 shops over the last three years and amid a wider market slowdown in online growth.
Shares in the operator of the Zara and Bershka chains fell March 14 after the retailer said it planned to invest €1.6 billion in stores and warehouse expansion. The new capex plan come safter Inditex’s operating profit, up 29% in the year through January, missed expectations.
Clothing retailers face tough comparisons in 2023 given last year’s sales boom, which benefited from pent-up demand after pandemic restrictions eased. Online revenue rose 4% in the year through January as shoppers shifted back to visiting brick-and-mortar stores.
Hennes & Mauritz AB said March 15 that sales rose 3% in local currencies in the three months through February, short of analysts’ estimates.
Zara owner Inditex is No. 8 in the Europe Database, Digital Commerce 360’s ranking of the region’s largest online retailers by web sales. H&M is No. 11.
Challenges at Zara and other Inditex brands
Among Inditex’s challenges are reversing declines in profit at the Massimo Dutti officewear and Oysho lingerie chains.
The Spanish retailer has been weeding out its weakest stores. Now, it’s reaping the benefits of a more efficient brick-and-mortar platform, which is reporting higher sales with fewer shops.
That helped boost net cash to €10 billion ($10.7 billion), which will help fund the investments planned for this year. Projects include expansion in major U.S. cities, a new Zara on the Champs-Elysees in Paris and expanding a platform to sell secondhand clothes in France and Germany.
In addition to Inditex’s store-efficiency program, the company stopped operations in 514 stores in Russia and 82 shops in Ukraine last year due to the war.
The company plans to expand its store network for the first time in four years. It has plans to introduce the Oysho chain to the United Kingdom and the Stradivarius womenswear brand to Germany. In the U.S., Inditex is also targeting stores in big cities including:
- New York
- Los Angeles
- Las Vegas
Inditex is also introducing a new technology to replace security tags on products.
Zara ecommerce customers to pay for returns
Last month, Inditex said it will start charging Zara ecommerce shoppers in Spain to return items bought. This mirrors a strategy it had previously rolled out in most of its other markets.
The world’s biggest clothing chain had started charging for returns in the earlier part of 2022 in countries where it has a smaller presence than in Spain, including the United Kingdom, France and the United States. Spain accounted for 14.2% of the group’s overall sales as of July 2022.
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