Zara Owner to Invest $3 Billion to Expand Amid Covid-19 Crisis
Inditex Has First Quarterly Loss Since Zara Owner Went Public
(Bloomberg) -- Inditex SA plans to invest 2.7 billion euros ($3 billion) to boost e-commerce operations of chains like Zara and Bershka and expand store space to gain an edge on rivals as the pandemic snarls the clothing-retail industry.
The Spanish retailer aims to get more than a quarter of its sales from the web by 2022 after online growth helped mitigate a 44% drop in first-quarter sales. Inditex delayed a special bonus dividend after reporting its first quarterly loss since it went public two decades ago.
“We have total confidence in our business model and long-term perspectives,” Chairman Pablo Isla said on a call with analysts.
Two months after lockdowns forced almost 90% of Inditex’s stores to close, the company is already looking at how it can surpass rivals and gain market share in the post-lockdown world. Part of the effort includes devoting 1 billion euros to online investment and 1.7 billion euros in store expansion over three years.
The stock swung between gains and losses Wednesday morning in Madrid. The shares have lost about a fifth of their value this year.
Saving Grace
Internet shopping has been a saving grace for retailers. At Inditex, e-commerce rose 50% in the first quarter as about 6,000 of its more than 7,000 stores were shut at one point in April. The company got 14% of total revenue from online sources last year.
Inditex announced the plan to open 150 stores a year before signs of any rebound in brick-and-mortar stores overall. Total revenue fell 51% in May and 34% in the first days of June, excluding currency shifts.
The company, which also operates Massimo Dutti and Stradivarius, plans to expand its best-performing stores and absorb as many as 1,200 through next year. Inditex often operates stores of its various formats next door to each other. When such shops start underperforming, Inditex has sometimes merged them with the neighboring location.
Inditex took a charge of 308 million euros related to depreciation of underperforming stores, which swelled the first-quarter loss. The bulk of the lockdowns in key markets for the owner of the Zara brand, such as Spain and Italy, occurred in April. More than three-quarters of its stores are open now after confinement rules were eased. In markets that have fully reopened, sales fell 16% in the first few days of June.
Isla said he expects most key markets will have resumed business by the end of this month. All stores in Spain have reopened this week. Revenue over the past 10 days has been at the prior-year level in China, Japan and South Korea, Isla said.
Inditex’s flexible purchasing model is giving it an advantage over competitors. The company’s inventory level dropped 10% in the first quarter.
©2020 Bloomberg L.P.