Omnichannel keeps Inditex on top, names key insider to new COO role

By

Sandra Halliday

Published
Mar 14, 2018

The fashion retail environment may be tough in many countries but Inditex is continuing to be among the big winners globally. On Wednesday, the day its Zara e-stores launched in Australia and New Zealand, the company said that fiscal 2017 was yet another good year.

It also said that its model of focusing on larger stores is working, that its e-sales are surging and that omnichannel remains a major focus. In fact, it named an Inditex insider to a key new post - that of COO - with the specific task of driving that omnichannel strategy further forwards.

But more of that later. For now, let’s look at the figures. The company’s net sales rose 9% last year (or 10% in local currencies) to €25.34 billion and comparable sales rose 5%, with positive growth across all geographic areas and in all concepts. 

Yet the gross margin fell from 57% in 2016 to 56.3% due to the stronger euro. And its comparable sales rise was the smallest in three years, so even Inditex is feeling just a little of the pain that’s affecting its rivals these days.

Meanwhile, back with the good news, e-sales soared 41% and its online sales now make up 10% of its huge total. In those countries where it has an online presence, they make up 12%.

That’s all very well, but what about profits? Well, the rise wasn’t quite so spectacular as that e-tail surge, but profits on a pre-tax/pre-interest basis rose a healthy 7%, or 12% in local currencies, to €4.3 billion. Net profit also rose 7% to €3.37 billion.

The strong performance has continued this year too with store sales up by 9% since the new financial year started on February 1.

INVESTMENT FOCUS

Clearly, Inditex’s vertically integrated fast fashion model is continuing to pay dividends and the retail malaise in many countries seems to have left it largely unscathed. 

And that’s partly due to it spending heavily to make sure it stays on top. In FY17, it invested €1.8 billion in further developing its integrated stores and online model and upgrading its technology. Specifically, the rollout of RFID technology has “improved flexibility and response times by integrating stores and online inventories.”

It had 7,475 stores at year-end with a net increase of 183 stores over the 12-month period. That actually included the opening of 524 stores in 58 markets but that was offset by 341 smaller units that were closed or absorbed as Inditex reflected current retail trends by focusing on larger units in prime locations. It also opened its first stores in Belarus. 

The company carried out major expansion work at many stores in 2017 too. In fact, in the last six years, 80% of its floor space has undergone a makeover.

OMNICHANNEL DRIVE

Chairman and CEO Paulo Isla said 2017 was a “year of solid growth,” and is upbeat for the future saying investments made in technology and logistics, coupled with space optimisation, “mean the company is well placed for continued growth across all its markets.”

He also said that Carlos Crespo has been named to the new position of chief operating officer (COO), in charge of the coordination of the IT, Logistics and Transport, Works, Procurement, and Sustainability departments. 

He will report directly to the Isla and “will focus primarily on the digital transformation of the company and reinforcing the group’s integrated store and online business model.” Its new omnichannel tsar was formerly the group’s internal audit director.

The appointment comes at a time when Inditex is expanding its online reach and last year it launched Zara online in India, Malaysia, Singapore, Thailand and Vietnam. Bershka, meanwhile, launched its e-commerce platform in the US, Japan and South Korea, where Oysho also debuted its online store. 

The group is certainly making an impact digitally. Its websites received 2.42 billion visits in 2017 and at the peak, serviced as many as 249,000 orders per hour, while the social media profiles of its eight brands have amassed 121 million followers. 

And with omnichannel very much in mind, it has added same-day delivery in central Madrid, London, Paris, Istanbul, Shanghai and Taipei, and from today in Sydney. Its next-day delivery service also now operates in Spain, France, the UK, China, Poland and South Korea, and now Australia too, with the intention to gradually introduce this service in other markets. 

It’s expending its click-and-collect offer with a novel automated in-store pick-up point. The Zara store in Stratford, London, which is due to reopen in May following a major revamp, will feature a dedicated online department with an automated in-store pick-up point for online orders. It will be capable of processing over 2,400 orders. 

It all suggests a company with a powerful history but one that’s very focused on the future, so it looks like we should be ready to report more positive results for the next few years at least.