Zara Owner Inditex Rides Online Boom While Avoiding Markdowns
(Bloomberg) -- Inditex SA forecast a boom in online sales to continue after e-commerce surged to represent a third of the Zara owner’s total revenue last year.
As it expands selling through websites and mobile apps, analysts have noted the risk that the Spanish retailer is exposing itself to a market segment that’s even more price-competitive. According to Chairman Pablo Isla, that won’t be a problem. The company is targeting a stable gross margin this year after improving it last year.
Inditex’s online revenue surged 77% to 6.6 billion euros ($7.9 billion) in the 12 months through January. That was a boon considering that the retailer had one in four of its stores on average temporarily shut down throughout the pandemic. Inditex is navigating the more competitive sector with success so far as it has a more integrated business model than competitors, sourcing both stores and e-commerce from the same inventory.
“When the stores were closed, we were able to offer to the online customers the clothes in the stores,” Isla told analysts on a call. “Five years ago this would have been impossible.”
The shares were little changed as of 10:20 a.m. Wednesday in Madrid. They had gained 13% in the past month.
Inditex has “stuck to its guns” avoiding markdowns as it expanded online, Sanford C. Bernstein analyst Aneesha Sherman wrote. She said Zara offers free shipping for orders exceeding 50 euros, which is double that of some competitors such as Zalando SE in some countries.
Online is still crucial for clothing retailers to make up for a shortfall in store visits. Inditex’s fourth-quarter operating profit missed analysts’ estimates by about 30%, which is Inditex’s biggest earnings miss in many years, according to Geoff Ruddell, an analyst at Morgan Stanley.
Inditex reached a target to get 25% of revenue from e-commerce two years earlier than planned as the pandemic changed shopping behavior. The company is spending 1 billion euros between 2020 and 2022 to expand its digital business, and shoppers have downloaded 132 million apps that are in active use.
As of Monday, 15% of Inditex’s shops were still shut due to restrictions. The retailer should get a respite next month, when it expects all of them to be open.
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