Inditex 2018 Financial Results (2)

Following last post about Inditex 2018 financial results, the aim of this post is understanding the leading fashion retailer performance in a deepest level.

Retail Physical Footprint

If we analyse the chart below we can make two deductions:

  • Inditex is reducing its physical footprint growth from an average of +5% to approximately 0% from the period 2014-2018.
  • Not every brand is showing the same strategy in terms of CAPEX as Oysho and Uterqüe increased their investment in physical stores from 2016 to 2017. In 2018, the corporate guidelines are clear: no more physical footprint growth.

Inditex brands store count growth 2014-2018

Inditex Store Count Growth by brand 2014-2018.png

Store count by concept or brand at Inditex

Inditex Store Count by brand 2014-2018

Inditex Store footprint 2014-2018

Retail Footprint Inditex

According to its annual report, Inditex confirms that the year was marked by the ongoing effort to enhance the sales footprint: larger stores and new technology to offer an integrated shopping experience in which the store and online offerings virtually coincide. Not a big surprise when retail is changing and it´s not only about the product but the experience. It´s about the “how”, not only the “what”.

In fact, the new stores opened in 2018 are on average 39% larger than those opened in 2012. If in 2014, the average commercial area per store was 567 m², in 2018 it reached 662 m² (+17%).

Inditex Commercial Area per store

Inditex Commercial area growth

The shift is more significant at Zara, whose average store size has increased by 50% over the same time frame: from 1,452 m² in 2012 to 2,184 m² today. That growth has been driven by new store openings – larger flagship stores – as well as the fact that many of the new openings have entailed the absorption of one or more older, smaller units in the same catchment area. The average size of the new store openings by the Group in 2018 was 39% larger than in 2012, and 50% bigger in the case of Zara.

Inditex is creating new lines and capsule collections such as Zara SRPLS, Oysho Sport, STR Essentials, among many others, so its large format strategy could respond to the idea of presenting a wider assortment in the same space.

Inditex editorial pieces sub brands capsule collections

To be honest, I wasn´t expecting the “larger format strategy” from Inditex. This megastore strategy was implemented by other fashion retailers such as Mango to benefit from higher traffic and higher cross-selling, but results are uncertain. I can understand that a company is searching for operational efficiencies and decides to centralize its supply chain, creating more hubs and closing residual warehouses or fulfillment centers.

But in retail, there is a big opportunity to open smaller stores with localized assortments. This is what we described in Nike by Melrose new store format, a curated store. Stores that renew their assortment every week/month according to what the customer, in the area, is looking for (offline and online). And then, of course, large flagships in highstreet presenting a wide and deep assortment for online customers that want to “experience” the collection. This is the case of Nike House of Innovation 000.

Grocery retailers strategy is based on having different store formats according to location. On the one hand, smaller stores presenting local brands, fresh food with a last-mile approach (e.g. Carrefour Market), and then, large hypermarkets where you will find a wide assortment including all international brands and private label. Another recent example is Nordstrom Local: convenient hubs for online order pickup, onsite alterations, fast and easy returns, free personal stylists, and much more.

Inditex brands financial analysis

Inditex – EBIT contribution by brand in 2018

Inditex EBIT Contribution by brand 2018

Zara (and Zara Home) represent 71% of the EBIT at Inditex in 2018. The Pareto rule is almost accurate as 2 brands out of 8 (so, the 25%) gives more than 71% if the corporate EBIT.

Inditex brands EBIT by Net Sales margin in 2018

Inditex EBIT and Net Sales by brand 2018

Inditex Net Sales by brand (Zara not included) 2013-2018

Inditex Net Sales by brand 2018

Zara and Zara Home Net Sales 2013-2018

Inditex Zara and Zara Home Net Sales 2013-2018

Zara is clearly the most important brand at Inditex with €18 Billion sales (including Zara Home) out of €26 Billion at Inditex. So, 70% of Inditex group net sales are coming from Zara.

Inditex Net Sales growth by brand 2014-2018

Inditex Net Sales growth by brand 2018

All brands at Inditex are slowing down their growth levels, but still growing between 1 % and 4%. It´s important to compare the chart above with the Store Count by brand, as sales is highly correlated to physical footprint (today, also online). The less volatile brand in terms of net sales growth seems to be Massimo Dutti, even if its EBIT/Net Sales margin is the second lowest within Inditex brands. Just to mention that Massimo Dutti is selling to a higher segment in the fashion pyramid, and its margin should be much higher than the other brands.

Inditex Number of market with online sales

Inditex Number of markets with online sales 2018

From 2017 to 2018, Inditex increased in 232% its online footprint. Online sales represent 12% of total Inditex sales in 2018. To enrich the shopping experience they have been adding valuable services, such as: Click&Collect (order online and pick-up in-store); self-service checkouts; automated online order pick-up points in several Zara stores; Same-Day Delivery for online orders in 12 cities around the world at year-end 2018 and Next-Day Delivery in eight markets (2018, Inditex Annual Report).

One of Inditex milestones is having all of its brands available online worldwide by 2020.

Some key success factors of Inditex business model in regards omnichannel (a word Inditex doesn´t mention in its 434 pages Annual report. They mention integrated offline-online store network) are:

  • Same-Day (12 metropolitan areas) and Next- Day Delivery (8 markets) of online orders.
  • RFID fully deployed at Zara, Massimo Dutti, Pull&Bear and Uterqüe.
  • Integrated stock management in 49 of Zara’s markets with online sales.

Zara new Westfield Stratford store

Zara store of the future integrated offline and online

Among the flagship store openings and expansions completed in 2018, which have been equipped with the latest technology to enable integration with the online platforms, the Zara stores in Stratford in London, on Bilbao’s Gran Vía and on the Corso Vittorio Emanuele in Milan, stand out.



5 thoughts on “Inditex 2018 Financial Results (2)

  1. I am very glad that I found this blog. Every post is so beautifully described weather it is related to fashion wholesale or about any related industry. Here you explained every detail on the graph with facts and figures. Thanks for sharing with us!

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