Pablo Isla defends ‘integrated model’ as a way to differentiate Inditex
Faced with doubts about the long-term viability of the Inditex business model, Pablo Isla reassured investors in a conference with analysts on Wednesday, June 12, after presenting positive results for the first quarter.
The Spanish group has a “highly differentiated business model”, he repeated on several occasions. The CEO doesn’t like to go into detail on the group’s quarterly results, but he revealed just enough to know he has a plan.
“Our integrated store and online strategy, and the way we execute, is unique in the world,” the chief executive said.
The model will be fully integrated by 2020, bringing together the company’s in-store and online inventories to bridge the gap between traditional retailing and e-commerce.
“We are always talking about quality: of the product, of the inventory, the stores, the model ... We are completely focused on a fully integrated and quality proposition,” he explained, adding that the integration will help the company react faster and better adapt to market changes.
He highlighted the “incredible” feedback received about the click-and-collect proposition, which has seen the Spanish group place greater emphasis on its logistics capabilities.
In the first quarter of the year, profits grew by 10% to 734 million euros ($824m) while revenues increased by 5% to 5.92 billion euros ($6.6bn). Pablo Isla was upbeat when presenting the numbers, which he said demonstrate the “strength of the company’s model”.
He was trying to reassure jittery investors, after analysts revealed doubts over the group’s ability to maintain its pace of growth on Tuesday evening. Credit Suisse, for example, thinks the group has been overvalued in recent years. But other specialists seem to be more optimistic, such as Bloomberg, which had predicted an increase in profits, JP Morgan and Banco Sabadell.
And Isla has more tricks up his sleeve. They include the recent launch of two new business projects that Inditex had been developing for several seasons. The first is Oysho_Sport, which has been introduced as an extension of the lingerie and loungewear label with a key focus on sportswear and performance garments. The other is Zara Home Business, a service of the group’s homeware chain that provides customisable product for hotels and companies. Its launch follows the integration of Zara Home into Zara, announced by the company at the end of last year. All of this means that the group is blurring the lines between brands and product categories in a bid to form an “integrated” global business.
Optimising the store portfolio, a fundamental factor for the future
The Inditex chairman and CEO hailed the continued progress of the group’s digital transformation during the first quarter of the year, with fully integrated store and online capacities in a further nine markets. The retailer is spending significant resources in implementing the transformation plan, launched in 2012, across its stores. Store openings, refurbishments and closures (which the group refers to as ‘absorptions’, because they usually involve opening a large store to replace a smaller one, whilst the old unit is taken over by one of the group’s smaller brands).
The strategy is built around having less stores, but more trading space. And this is key for the group, not only because it helps it have more visibility in the world’s top shopping destinations, but also because it plays a key role in its integrated stock inventory approach.
By the end of the 2018 financial year, the Inditex store estate reached 7,490 locations worldwide, recording 15 net openings during the period. The chairman estimates that the company’s total trading area now reaches 5 million square metres.
“We have invested a lot of money in optimising the portfolio,” Pablo Isla said in March.
In the first quarter of the year, the group continued to shrink its store estate by closing 43 locations. It had a total of 7,447 at the end of April. The store closure programme was led by Stradivarius, which closed 15 stores and has now less than a thousand sites at 996.
It was closely followed by Zara Home, which ended the quarter with 595 stores, 8 less than the prior year’s period. Meanwhile, Oysho and Massimo Dutti totalled 5 net closures each, reaching 761 and 673 stores, respectively.
Bershka was down by four to 1,103 stores, while Zara closed the doors of three locations and now trades from 2,128. Pull&Bear shut two locations, totalling 972 and Uterqüe closed one shop and now has 91. The only Inditex brand that was not affected by the closures was Zara Kids, often showcased within Zara stores, which continues to have 128 retail spaces.
The period also saw the group open new stores in 23 markets, including some high-profile openings such as the new Zara shop in Hudson Yards, New York, as well as the new stores in Cannes and at the Time World Mall in Daejeon, South Korea.
Meanwhile, Massimo Dutti signed up to open one location in Ibiza, a further one in Bahrain and several new locations in Seoul, Korea, and Vladivostok, Russia, where Oysho, Stradivarius, Bershka, Pull & Bear and Zara Home also took up residence.
Finally, Oysho launched in Latvia and Singapore, Stradivarious opened on the French Riviera and Zara Home made its bricks-and-mortar debut in Bulgaria
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