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Jump in online sales boosts Zara owner’s profits

Surging online sales have boosted Zara parent’s Inditex’s net profit in the past fiscal year by 7 per cent.

Inditex, which also owns brands including Pull & Bear, Bershka and Massimo Dutti, reported an increase in net profit for the 12 months ending January 31 to €3.37 billion (A$5.27 billion) from €3.16 billion a year earlier.

Sales rose 9 per cent to 25.34 billion euros in the fiscal year, with revenue for online sales growing by 41 per cent.

In FY17, Inditex invested €1.8 billion in further developing its integrated stores and online model and upgrading its technology. Specifically, the rollout of RFID technology has improved flexibility and response times by integrating stores and online inventories, the company said.

Pablo Isla, chairman and CEO of Inditex, described it as a year of “solid growth”, and highlighted, “the unique strength” of their integrated stores and online model and its significant growth potential.

He added that “the prescient investments made in technology and logistics in recent years,” coupled with space optimisation, had positioned the company for continued growth across all its markets.

The group, which during 2017 opened its first stores in Belarus and launched its online sales platform in India, Vietnam, Singapore, Thailand and Malaysia, was founded in 1975 by Amancio Ortega and has become the world’s largest clothes retailer with eight brands.

Inditex owns 7,475 shops worldwide, an increase of 183 stores from the previous year when factoring in shop closures, but 29 less than three months earlier.

Florence Allday, beauty and fashion associate at Euromonitor International, said Inditex faces a period of uncertainty as the changing retail environment and globally volatile currencies make this rapidly evolving market sector even more competitive.

The fashion conglomerate may be one of the most dynamic players in the industry, Allday said, but the past few months have seen Zara and its direct global competitors vie to remain in favour with their female, millennial demographic in a market that is fast-maturing and reaching saturation.

Currently, Zara has the fourth largest global market share in the apparel and footwear category, behind Hennes & Mauritz (H&M), Adidas and Nike. Other significant competitors include Asos, Boohoo and Primark.

Allday said rankings and shares in the global apparel and footwear market remained static in 2016, with sportswear giants taking the top two spots.

Inditex ranked fourth, maintaining its positioning as one of the leading non-sportswear companies in the world. Inditex’s key rival is H&M, which slightly outperformed Inditex due to more dynamic store expansion and an aggressive pricing strategy. H&M also utilises far more visible marketing, including collaborations with high-profile designers that attract widespread fashion press.

“Although Inditex does rank higher than H&M in the global footwear market the company will need to utilise its vertical operations and exploit its widespread geographic coverage, to overtake H&M in apparel, capitalising on the narrowing gap between the two rivals,” Allday said.

“Further still, players such as Fast Retailing [Uniqlo parent] continue to move up the ranks, capturing consumers’ demand for value-orientated product offerings, threatening the dominance of Inditex and H&M.”

Allday said despite Zara’s status as the world’s largest fast fashion retailer, its sales slowed last year due to a lack of distinction between seasonal collections, and general market saturation.

“To continue to be a key player in the fast fashion arena, Zara needs to ensure that its constant, uninterrupted flow of new designs and products is matched by a digital retail experience that is equally seamless,” she said.

“With competitors like Asos, Amazon and Missguided enjoying enormous sales and growth, thanks to their sleek online platforms, Zara must streamline its payment and delivery options to ensure that its online shoppers remain loyal. Consumer attitudes are shifting, preferring to pay more for quality over quantity.”

“To ensure that it remains relevant, Zara must emphasise the quality and longevity of its garments and justify its low price points to ethically-conscious consumers.”

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