Inditex swings to Q1 loss, recovery under way and omnichannel strategy unveiled

By

Sandra Halliday

Published
Jun 10, 2020

Inditex’s latest results report was different this time. Such reports are usually about a succession of impressive figures, but on Wednesday, the Spanish fashion retail giant presented a strategy update as well as reporting a first-ever net loss.

The affects of the pandemic have been big. For Q1 (the period from February to April), it felt the full force of the outbreak and said that its results were "materially impacted”, even though its initial collections for SS20 had been "very well received by our customers”. 

Its net sales for the period fell to €3.3 billion from €5.9 billion. And its gross profit dropped to €1.9 billion from €3.5 billion, while the gross margin dipped to 58.4% from 59.5%. Profit on an EBITDA basis was just €484 million compared to €1.7 billion a year earlier and it made a net loss of €409 million, compared to a profit of €734 million in Q1 2019. But if it hadn’t been for one-off costs linked to its store optimisation programme, its net loss would have been ‘only’ €175 million.

After the period ended, the company said its online and store sales in local currencies fell 51% during May. And for June so far, they were down 34%. Some 54% of its total stores were open in June and in those markets that were fully open, sales fell 16% between June 2 and June 8. As of June 8, 78% of its stores were operating and all stores in key markets should be open by the end of this month.

OMNICHANNEL STRATEGY

The company’s online sales surged 50% in Q1 and 95% in April, and fast growth (although not at those rates) is expected to continue, with online predicted to reach more than 25% of total sales by 2022. Online accounted for 14% of the total last year.

Which leads us on to the company’s strategy update. Inditex said that over the next few years it will be “very active in developing its unique, fully integrated store and online model”.

The key parts of this strategy will include digitalisation, integration between stores and online, and sustainability. Online sales will be key but shops will be a major part of driving e-sales.

It said the shops will play a "stronger role in the development of online sales due to their digitalisation and capacity to reach customers from the best locations worldwide. It is for this reason that we must focus on those high-quality stores that are best able to deliver on these long-term strategic goals”.

The company will also open new 64,000 m² studios to support online ops for Zara at its HQ by the end of this year. And its RFID product traceability system, full inventory integration and global online development will be completed in all concepts by year-end as well.

It said the growth of gross space between this year and 2022 will only be around 2.5% a year, or around 150 stores annually. It's aiming to create “a higher-quality network of better-located stores in conjunction with online” to help generate long-term annual like-for-like sales growth of between 4% and 6%, and higher profits as a result, of course.

It believes this means a better customer experience in those larger and more attractive stores in key locations and while some stores will be enlarged, it’s likely that smaller locations will be shed over time.

And of course the sustainability part of the new strategy means it will all come with a greater focus on sustainability in the supply chain, more use of renewable energy to create eco-efficient stores, more use of sustainable fabrics and a drive towards zero-waste and recycling.