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Updated March 16, 2017 12:15 a.m. ET
Patricia Kowsmann
Zara’s New Focus: Bigger Bricks, More Clicks
Fashion retailer signaled it will speed up closures of smaller stores to open
bigger ones
Inditex SA, the retailer behind the Zara fastfashion chain, reported a 10% jump in fullyear profit on record-high sales. Brendon
Thorne/Bloomberg News
LA CORUÑA, Spain—Zara’s new flagship store in its hometown here illustrates part of the
fashion retailer’s strategy to stay ahead of its rivals: focusing on bigger brick-and-mortar stores
and an online expansion.
Zara’s new store, with over 54,000 square feet and five stories, opened in September and
replaced four smaller ones spread around town.
It serves as the model for other Zara flagship stores the company is rolling out around the world.
The retailer hopes the new stores, which will contain full range of its collections, will persuade
customers to browse and ultimately buy more.
The changes at Zara come as traditional retailers are struggling to catch up with rapidly changing
consumer purchasing habits, as more shoppers shun stores in favor of online purchases.
Such pressure helped prod Neiman Marcus Group Ltd. into its decision this week to begin talks
to sell itself to the parent of Saks Fifth Avenue. And some analysts have suggested that it is time
for Gap Inc. to explore strategic alternatives for Banana Republic, including a potential sale or
shutting down the brand.
An urgent question for most retailers is the right brick-and-mortar strategy to adopt. For
instance, Macy’s Inc. is shutting hundreds of stores even as Gap is expanding its network after a
big retrenchment.
Inditex SA, ITX 1.00% Zara’s parent and the world’s largest fashion retailer by sales, hasn’t said
how many such stores it will open.
The company’s strategy, supported by a rapid-fire production system that lets it replenish its
stores more quickly than rivals, is aimed at setting itself apart in an industry struggling to
identify the right brick-and-mortar strategy.
Inditex seeks to have “full integration of the brick-and-mortar stores and online businesses, with
store openings that are increasingly more relevant,” said Inditex Chairman and Chief Executive
Pablo Isla said in a press conference Wednesday.
Despite a difficult year for retailers, Inditex saw net profit jump 10% last year, while sales hit a
record of €23.31 billion ($24.76 billion), according to figures released Wednesday. That
momentum has continued this year, with 13% growth in store and online sales in constant
currency terms over the past six weeks.
Sales at Inditex stores open at least a year rose 8% in the first six weeks of this fiscal year,
according to calculations by Société Générale analyst Anne Critchlow. The Spanish retailer’s
main fast-fashion rival, Hennes & MauritzAB, reported same-store sales fell 1% in February.
For years, H&M and
Inditex raced around
the world opening
stores. But last year,
Inditex started to
slow down its
expansion. H&M,
instead, kept up the
pace, but the push
failed to pay off, with
the Swedish retailer
reversing its
expansion plans in
January after
reporting a 2016 fall
in profit.
Inditex, which also owns the Pull&Bear and Bershka brands, on Wednesday said it plans to open
between 450 and 500 new stores in 2017 while absorbing 150 to 200 smaller ones. In 2016, it
opened a net 279 stores, bringing its total to nearly 7,300.
The Wall Street Journal traced a garment’s journey from design workshop in Spain to retail
display rack in Manhattan, giving an inside look at the fast-fashion model that has helped make
Inditex the world’s largest fashion retailer by sales.
Analysts say Inditex’s new strategy leaves plenty of space for the online platform to expand
without cannibalizing the brick-and-mortar shops. By closing smaller stores and focusing on
flagship stores, customers who aren’t close to these stores could be prodded into shopping
online, according to analysts at Berenberg.
Inditex, which doesn’t break down online and store sales, is trying to integrate the two services.
For instance, customers can pick up and return online store-bought purchases. They can also
order online with the help of a store clerk.
“Inditex is the best-in-class omni-channel retailer, complementing its flagship stores with a
highly convenient ecommerce proposition,” Berenberg analysts wrote in a note.
For all of 2016, Inditex reported a rise in sales at all of its eight brands, including Pull&Bear and
Bershka, and across all regions. Zara alone was responsible for 66% of total sales.
Analysts welcomed a plan to raise the dividend payout by 13% to €0.68 a share, reflecting the
company’s €6.1 billion cash pile.
“Inditex is sitting on a very large cash pile and this looks set to increase over the years to come,”
Ms. Critchlow said.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com
QUESTIONS:
1. Describe the characteristics of the new Zara flagship stores.
2. Why is closing smaller stores part of Zara’s strategy?
3. What does it mean when a company integrates its e-commerce and brick-and-mortar business?
4. Review the trends in the retail sector by discussing store closures, mergers and other challenges.
5. Evaluate Zara’s strategy to quickly incorporate new designs and replenish stores.
6. How can Zara grow its online business without cannibalizing brick-and-mortar sales?
7. To better understand fast-fashion design and supply chains, click on the link in the online article titled “How A Zara
Coat Went From Design To Fifth Avenue In 25 Days.” Discuss the unique aspects of the company’s design and
supply chain strategy.
…
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