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The global fashion business journal

19 Sep 201922:54

2018, the year Inditex became a pure player

The Spanish giant shaped its size all through last fiscal year, first with the announcement of its network of stores and then with its jump online.

18 Dec 2018 — 10:00
Pilar Riaño
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2018, the year Inditex became a pure player

 

 

Inditex has had to carry out different strategies during 2018. As a company used to say in character and following step by step, at least apparently, the strategy marked in its road map, Inditex has made clear its adaptation ability, which is part of why it is the fashion industry’s king. When no one expected it, Inditex made an announcement that impacted the whole retail industry: in 2020, the company founded by Amancio Ortega will become a pure player.

 

It has not been an easy fiscal year for Inditex, at least not a comfortable one. If in the past, the group has always received praises from the sector’s analysts and even from its competitors, in 2018 there have been some hesitations surrounding its model. The first step back was produced in February, when the rumours about its results made it drop to minimums of three years in the stock exchange. The second would arrive in August, when a devastating report by Morgan Stanley sank its price again.

 

A “gradual and unavoidable downturn”. That is how the future evolution of Inditex was described by the investment bank, which affirmed that the group is “more sensitive to currencies, has registered falls of margins in the last five years and faces the same pressures to change its channel than most other fashion retail groups”.

 

 

 

 

Inditex reacted with a blow: a new strategy. The group profited from Zara’s reopening in Corso Vittorio Emanuele, in Milan, to announce the strategical change: in 2020, the group set as its goal to sell online in all countries of the world. In practice, this move will entail a change of nature, ceasing to be a retailer to become an online player.

 

To fulfil this objective, Zara jumped ahead last November with the launch of the e-commerce platform zara.com/ww, a global web with which it wants to sell online even in the smallest countries or those in which the group has no physical presence yet, with which it will add a share of 106 online markets more. The Spanish giant’s top chain will thus be present in 202 markets, although Inditex must still develop the online platform of all its other chains too.

 

This transformation, which will allow it to face the web giants, can be elaborated thanks to the group’s refined logistics structure, which has been reinforced during recent years with so-called stock rooms, warehouses dedicated exclusively to the online channel. But, mainly, thanks to the implantation of RFID technology in all its network of stores, which will allow physical stores to become spaces at the service of online distribution.

 

 

 

 

Progressively, the group will implant online spaces in all its physical stores, as it already did last September in the renovated point of sale in Milan. The stores’ online section is framed under the search for a completely integrated stock.

 

In that way, online orders are managed and issued directly from the point of sale, reducing delivery timings. This space also enables a reduction of volume of the clothing items that reach the period of discounts, as an item that previously would exit the exhibition space to be kept for sales discounts now is part of the continuous online stock.

 

 

Margins under the magnifying glass quarter after quarter

Inditex began the year announcing that twelve months of change were coming. In March, on the occasion of fiscal 2017 results presentation, the group astonished the sector explaining that it had been adjusting its network for five years (a process which was regarded as finished) and letting people know about its best kept secret: the online sales. For the first time in its history, Inditex assigned its web business with figures: they entailed a 10% of its whole revenue, with 2.53 billion euros, according to the results of the end of 2017.

 

Between 2021 and 2017, the group underwent a transformation of its distribution network, committing to less but bigger stores and better located. At the end of 2017, all Inditex chains amounted up to 7,475 physical stores in 94 different markets. For the first time in its history, Inditex ended a quarter with net closures: the fourth one of 2017 concluded with 29 closures.

 

After getting results that were not as good as other years in 2017, the first quarter o 2018 ended in a similar way. The Spanish group flagged during the take off of the fiscal year and ended the period between February and April with a growth of 1.53% and a rise of 2.14% in its net profit.

 

 

 

 

In the first quarter, the company presided by Pablo Isla recovered its rate. The group enlarged its business by 3% during the first six months of fiscal 2018, reaching 12.02 billion euros. The net profit, on the other hand, was raised in the same proportion, a 3%, standing at 1.4 billion euros.

 

The first nine months of the fiscal year (between February and October) were finished, again, with a bittersweet taste: the company raised 4% its net profit and 3% its volume of business, but the results did not convince the stock market, which enforced a tough correction to the Spanish company’s shares.

 

Throughout 2018, however, all eyes were set on a specific element: the margin. All companies sail towards a sector with more hardships and the industry’s giants have seen their margins shrink during the last quarters, although it seems that Inditex has managed to revert the trend.

 

 

 

 

In the third quarter, from August to October, the company’s gross margin went up to 60.5% of the group’s revenue. It is the highest percentage during a quarter ever since the third quarter of 2014, when it stood at 61.2%, and the first time it surpasses 60% since the same period in 2015.

 

We have to go back to the third quarter of 2013 to find gross margins above 62%, as this variable has been adjusting itself progressively, touching the ground in the fourth quarter of 2017 (53.5%) and the second one of 2018 (54.7%).

 

No chains and no purchases

Besides the decision of not delving into discounts and promotions to maintain the margin, there are not that many changes carried out by Inditex in its commercial policy. The company is loyal to its strategy of not releasing new chains and even less, of growing by means of acquisitions, although in the last twelve months it has ultimately carried out some adjustments.

 

During the middle of 2018, the company confirmed its decision to close the men’s line in its Stradivarius chain. The young fashion chain announced its entrance to menswear in 2016, although the collections did not reach the stores until February 2017.

 

 

 

 

The physical spreading of Stradivarius Man started in secondary Spanish locations and was later introduced in streets such as Portal de l’Àngel, in Barcelona, or Gran Vía, in Madrid. The line also jumped abroad, and the plans predicted a network of 109 stores by the end of 2017.

 

And from a closure to an anniversary. In 2018, Uterqüe, the youngest chain of Inditex, celebrated its first decade. After giving the group a terrible headache, Uterqüe ended 2017 on the brink of the one hundred million euros of revenue and with a net profit of five million. Following that same line, Oysho had a revenue of 313 million and earned 36 million, whilst Zara Home sold 451 million and gained 55.

 

 

 

 

Executives at the lead

For the second year on a row, Pablo Isla, Inditex’s CEO, headed the ranking of the top one hundred CEOs on a global scale carried out by the magazine Harvard Business Review. Isla is one of the six chief executives who have been qualified every year since 2013. Coinciding with the presentation of annual results, the executive trusted in Carlos Crespo, until then Director Internal Audit, as his number two, occupying the position of general manager of operations, a position of new creation.

 

Furthermore, Isla has found during the last twelve months a new partner to include in the board, Pilar López Álvarez, president of Microsoft Iberia. The executive occupies the position of Carlos Espinosa de Monteros, whose mandate ended on July 15th. However, the most notorious change in the leadership of Inditex is probably the departure of Eva Cárdenas, manager of Zara Home since the chain’s foundation. Cárdenas, who left the company for personal reasons, was substituted by Lorena Mosquera, an executive with almost two decades of history with Inditex and who until now was responsible for knitwear at Zara Woman.

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