Zara owner bets on big stores to keep sales space growing
Inditex says fashion retailer’s shops serve as showcase for the brand and as warehouses for ecommerce
The owner of fashion brand Zara is accelerating a “go big” store strategy by opening its largest shop in the world in Rotterdam and doubling the size of other flagships to make space for new product lines and ecommerce logistics.
Óscar García Maceiras, chief executive of Spanish group Inditex, said that in November it would open a 9,000 square metre Zara outlet in the Dutch city. The size comes close to matching the 9,900 sq metre average of the UK’s 10 biggest Tesco supermarkets.
While other fashion retailers are switching to smaller stores as inflation drives up costs, Inditex is bucking the trend as it posts robust sales growth.
Investors were disappointed, however, that its latest quarterly results on Wednesday, for the three months to July 31, pointed to a modest slowdown in sales growth, sending its share price down €1.18 — 3 per cent — to €34.61. Shares in the company, valued at €108bn, nonetheless remain up 35 per cent this year.
Announcing the results, García Maceiras said that in addition to the store in Rotterdam’s Coolsingel street, Inditex was doubling the size of flagship stores near Paris’s Hotel de Ville and in Miami’s Dadeland district.
Although Inditex, which has operations in more than 90 countries, has long sought eye-catching stores in landmark buildings, the shift to even bigger spaces serves two new purposes.
It enables the company to accommodate a proliferation of new product lines under the Zara brand, which now encompasses cosmetics, footwear and sports clothes as well as the homeware of Zara Home.
It also allows space for the growing role stores play in online sales, either as mini-warehouses from which packages are shipped out or as sites where consumers can pick up orders and return unwanted goods.
Hailing a new store design also being rolled out in Dubai, São Paulo and Shenyang, García Maceiras said it integrated the “most sophisticated interiors with the functional and digital sections like fitting rooms, self-checkout areas, click and collect points . . . and stockrooms”.
At the same time as opening bigger stores, Inditex is closing down smaller underperformers. Its total number of shops globally stood at 5,745 at the end of July, down from 6,370 a year ago, with the cut in numbers spread across Zara and all its other brands: Pull & Bear, Massimo Dutti, Bershka, Stradivarius and Oysho.
Inditex’s rivals are also reshaping to address changing conditions. UK-based retailer Next has been gradually reducing its store numbers. Abercrombie & Fitch has been closing costly and oversized flagships and replacing them with smaller, more efficient and less expensive ones.
Overall this year, Inditex executives said they expected its retail space to increase by 3 per cent, but stressed that rising “store productivity” was also driving sales.
In a routine trading update published alongside its quarterly results, Inditex said sales in the five weeks starting on August 1 were up 14 per cent from a year ago. Patricia Cifuentes, analyst at Bestinver, described the figure as “weaker than expected” given that sales in the first six months of Inditex’s financial year had been up 16.6 per cent.
The company’s earning figures, however, were more positive. Net income in the three months to July 31 jumped 30 per cent to €1.35bn with margins increasing, allaying concerns that inflation could increase production costs and crimp profitability.