Inditex outlines its post-COVID-19 retail world

Inditex future plans

Inditex reported its first quarterly loss on June 10, 2020, confirming that, unsurprisingly, it has been “materially impacted” by the COVID-19 pandemic. However, in April the group saw online sales up 95% year-on-year. This arguably gave it the upper hand when compared to purely store-based chains such as Primark, which has reportedly lost about €715m a month since early March, when it shut down its stores. In comparison, between February 1, 2020 and April 30, 2020, Q1 of Inditex’s financial year, the group recorded a net loss of €409m. It later confirmed that the possibility of selling online allowed it to partially mitigate the headwinds caused by the pandemic.

As well as its strong online presence, during the challenging times Inditex has relied on its local manufacturing located in countries such as Portugal, Spain and Morocco, a good European network based around centres in Spain which re-distribute items to outlets worldwide, and stores doubling up as e-commerce fulfilment centres from which shipments to customers are executed.

Furthermore, Inditex sees its inventory management as crucial for its business. For example, since 2008 it has introduced radio-frequency identification tracking inside the alarm tag that transmits data from a garment to a reader. The tags become active when a product enters a stock centre and is then deactivated when the item is sold. This seemingly simple system provides Inditex with real-time visibility on the actual levels of its stock. Zara, one the group’s most renowned brand, has seen its inventory fall 10.0% in April 2020, and it requested employees to gather apparel items from its bricks-and-mortar shops to fulfil e-orders. In contrast, H&M said its unsold stocks had reached €3.5bn in late April 2020.

Now Inditex is heavily preparing for the post-COVID-19 world and plans to push the online side of its business; prior to the pandemic, its online business generated about up to 15.0% of its total sales. The group said that moving forward, it expected 25.0% of its sales to be online by 2022. Part of this roadmap includes the “absorption” of up to 1,200 smaller stores, especially of brands other than Zara, and staff to be re-deployed to tasks such as dispatching online purchases. The group confirmed it will open 450 new shops and larger stores will be acting as distribution hubs for online sales.

Albeit Inditex confirmed in May that sales were still not at pre-COVID-19 levels, the company has managed to take advantage of a resilient supply chain with presence of local manufacturing, an ample network of stores used as fulfilment centres and a tight stock control to limit its losses, further taking the chance to enhance its online presence and accelerate its digitalisation plans. The group has announced an app allowing shoppers to browse stock in specific stores, find them through a map and buy items for next-day collection, reserve a changing room, and finally self-check-out through QR codes.

It might be that other retailers will look at Inditex’s example to imagine a post-COVID-19 more agile retail supply chain, especially since a new age demographic has come online and social distancing is likely to stay in place for some time, making online shopping the choice for most consumers.

Source: Transport Intelligence, June 11, 2020

Author: Caterina Ciccone