Inditex’s new growth strategy – cut stores, boost space
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Inditex’s new growth strategy – cut stores, boost space

Spanish fast-fashion giant Inditex is in the throes of a successful transformation. The company is pushing all its brands online, and pumping money into ecommerce, while at the same time winding down its number of offline stores. But don’t be fooled into thinking Inditex is giving up on brick-and-mortar retailing – despite a lower number of stores, the company’s amount of physical retail space is actually continuing to climb!

Inditex’s share price has climbed 14% so far this year

Inditex June 26

Source: Yahoo Finance

While Inditex has shrunk its number of stores in domestic market Spain by 297 since 2012 (that’s about a 15% reduction) the amount of space it commands has actually risen, as it commits to the creation or expansion of flagship properties. Likewise, while the number of stores has dropped, no store staff has been made redundant, just relocated. This shows that Inditex is bucking an industry trend, which is seeing more and more retailers diminish their offline presences. But why?

Alistair Wittet, a European equities portfolio manager at Comgest, which (like Dominion) invests in Inditex, said: “Consumers are changing shopping habits. Instead of shopping in secondary locations they're shopping online but they're still valuing the super-prime flagship stores. That's the thinking behind the Inditex strategy - to close the secondary stores and enlarge and improve their flagship stores.”

This is an important point. Despite its push into digital retail, Inditex’s vision for the future of fashion doesn’t appear to be entirely virtual. Rather the company seems to be pushing into an “omnichannel” experience, where customers combine their digital and analogue shopping. If the group’s financial reports are anything to go by, this strategy is already seeing results. In its latest local-currency revenue growth (2018) came in at 7% for the year. That’s impressive in a tough market, and easily outpaces rivals like H&M, which delivered 3% over the same period.

Disclosure

Dominion holds Inditex in its Global Trends Luxury Fund.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.