Inditex, the Spanish group that owns the brands Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe, wants online sales to represent over 25 percent of the total by 2022, compared with 14 percent in 2019, and to restructure its store network, that will be further integrated with the e-commerce business and have larger stores.
To accelerate and broaden its digital transformation strategy, the group will invest €1 billion in bolstering the online business and a further €1.7 billion in upgrading the integrated store platform. At the end of April, Inditex’s online and store platforms were integrated in 72 of the 96 markets in which it has physical stores.
Its group’s strategy rotates around Inditex’s Open Platform (IOP) project, which involves creating a proprietary IT architecture over which all of the company’s digital operations run. Starting from the e-commerce platform, it layers in all the associated processes, including inventories, purchasing, distribution and orders.
The platform is scalable and is currently 60 percent operational. Inditex plans to fully deploy it by the end of 2022. The group claims it is one of the most technologically advanced platforms in its field and is implemented through microservices to help the specific needs of every department or area involved in the process without changing the whole system.
As part of the two-year business plan, Inditex intends to have larger and “higher quality” stores with the aim of generating annually 4-6 percent in comparable sales growth and higher profitability. Each store will act as a “fashion distribution hub in the heart of the most strategic shopping districts of the world’s leading cities, forging an interconnected global distribution network that is responsive to emerging shopping habits,” it says.
The focus on larger stores will result in the closure of 1,000 to 1,200 smaller-sized stores, which account for 5 to 6 percent of total sales. Most of the stores are older locations belonging to brands other than Zara. In the meantime, Inditex will open 450 new stores fitted with the latest sales integration technology. Ultimately, it plans to have a total network of between 6,700 and 6,900 stores, down from 7,412 currently.
Inditex plans to reinforce all of its brands’ e-commerce capabilities. It will increase the online customer service teams and the dedicated packaging both from the online stockrooms and the stores. The implementation of a radio-frequency identification (RFID) system, which enables product tracking and integrated inventory management, will be fully deployed across all the brands by the end of 2020.
Inditex stressed that its headcount will remain stable as it will offer staff members of the absorbed stores positions in other locations to cover the needs generated by online integration such as dispatching online customer items from store.
The store network will complement the website ranges in real time by coordinating with the online warehouses. Inditex pointed out the Sint project, which enables stores inventory help meet online demand. Under the project, stores prepare e-commerce orders from their stockrooms, which are fully integrated with the online platform. This is translating into more effective stock management as well as faster deliveries, it says.
The project involves the use of high-capacity RFID readers to count inventories in warehouses with high traffic volumes, as well as of a proprietary XWMS system to select the best location for sourcing each order, and of new analytical systems to optimize transport flows and information on product availability.
First-quarter sales down 44%
In the first quarter ended April 30, Inditex posted a 44 percent decline in sales to €3.3 billion as stores were temporarily closed because of coronavirus-related lockdowns. At some point, 88 percent of the group’s stores were shuttered. But, e-commerce partially offset the closures as online sales rose by 50 percent year-on-year during the quarter and by 95 percent in April.
The quarterly gross margin remained constant at 58.4 percent and operating expenses fell by 21 percent. The group managed to adjust to the drop in demand, and at the end of April, inventories were 10 percent lower than a year earlier. Inditex booked a €308 million provision linked to the execution of its business plan and posted a net loss of €409 million.
The group has been gradually reopening stores and had 5,743 operating as of June 8, out of 7,412, in 72 markets.
In May, with 52 percent of stores open, store and online sales were down by 51 percent year-on-year in local currencies. In the period from June 2-8, sales decreased by 34 percent, but in markets that had fully lifted restrictions, sales were down by only16 percent. Inditex highlighted China, South Korea and Germany as the countries standing out as economies reopen.
Inditex noted that as part of its e-commerce strategy, it plans to boost the online sales of some brands, specifically Bershka, Pull&Bear and Stradivarius, in China and Japan.