Inditex's sales during the first quarter of 2020 –between February 1 and April 30– have limited their fall to 44% less than the income of the same period of the previous year, to 3.303 million euros, despite that in the period up to 88% of the total store park has been closed, due to the Covid-19 pandemic.
Online sales have grown strongly by 50% in the quarter, with an increase of 95% in the month of April compared to the previous year. The gross margin has remained at 58,4% of sales, which reflects the business model's ability to react to adjust to demand, with inventory that at the end of the quarter was 10% lower than the previous year.
At the same time, operating expenses have been reduced by 21%, as a result of active control management, which has not prevented the company from contributing to help in the health emergency by providing specific financing and all its logistical resources to transfer from China to Europe more than 120 million units of medical and sanitary equipment from different public and private donations, including those from Inditex itself.
Inditex accounts
The company maintains the strength of its net financial position, which stands at 5.752 million euros, compared to 6.660 a year ago, as a result of the strong operating performance over the years and the maintenance of the financial culture and policy of the group.
All these factors have made it possible to limit the fall in the Operating Income to (-200) million euros and the net profit to (-175) million in this quarter. The company has decided to provision 308 million euros for the execution of the plan to boost online and update stores, so the final Ebit is (-508) million, and the net profit, (-409) million.
Isla announced that 1.000 million euros will be invested to boost online activity and another 1.700 million euros for the corresponding update of the integrated store platform, with the incorporation of technologically advanced tools.
In the words of Pablo Isla, this plan “supposes the completion of the project whose foundations have been progressively established with significant investments since 2012, which will significantly transform the company's profile. The goal between now and 2022 is to advance the full implementation of our integrated store concept, whose future will be linked to permanent customer service wherever it is, on any device, and at all times ”.
With its own digital platform
Particularly noteworthy within the plan is the Inditex Open Platform (IOP) project, the creation of its own technological base on which all the company's digital operations operate and which has been designed to carefully adapt to all of them with quality, precision and immediacy required by the company's business model.
Starting from electronic commerce, it is incorporated into all related processes, such as inventories, purchases, distribution or orders, which adds flexibility and, very importantly, scalability. This aspect is essential to maintain service excellence in times of high traffic, such as during sales times, and is key to the expected increase in online sales.
The platform, which began to be defined in 2018, has been confirming its effectiveness in different phases, it is already 60% active, and its implementation will be completed during the 2020-2022 plan. It is one of the most advanced technological tools in the world in its field and has the advantage of the possibility of segmenting the specific needs of each area through microservices without having to modify the whole.
Online, more than 25% of sales
The plan foresees that online sales will reach more than 25% of the total in 2022, from 14% in 2019, with a more agile and sustainable integrated store network, which will incorporate new technological tools, with an average surface area per larger store , higher levels of profitability, and that it will grow between 4% and 6% in comparable stores.
Each of the stores will act as a small fashion distribution platform from the most strategic commercial locations in the main cities around the world, a global capillary distribution network integrated with online to meet new shopping habits.
To this end, the online commerce capabilities of all brands will also be strengthened, one of which is the new Zara.com studios in Arteixo, which will occupy more than 64.000 square meters. In addition, the online customer service teams will be expanded both from stores and from specialized centers, and throughout 2020 the implementation of the RFID system for garment traceability and integrated inventory management will be completed in all the Group's brands.
The store update plan will continue, whereby 2012 stores of the new concept of integration in larger and more fluid spaces have been opened since 3.671, 1.106 stores have been expanded, 2.556 refurbished for their technological adaptation, and 1.729, 1.024 of which have been absorbed. them in the last three years.
In this way, a network of between 6.700 and 6.900 stores will be reached, after opening 450 stores with the latest commercial integration technology, and the absorption of between 1.000 and 1.200 smaller stores, representing between 5% and 6% of total sales, and that they have a lower capacity to provide the new services to the customer. These units correspond fundamentally to the oldest establishments of the chains other than Zara.
By region, the plan will allow chains such as Bershka, Pull & Bear and Stradivarius in China and Japan to definitely boost online sales, in Spain to continue the process of the last three years with the opening of more relevant stores and absorption of small stores as has been done. seen in Bilbao or Pamplona, while in America and other European countries it will consolidate the strategy of full integration between the physical and digital world.
The workforce will remain stable and, as in the 2012-2020 period, new positions will be offered to all the workers of the absorbed establishments, to cover the new needs generated by online integration and individualized shipments to customers.
This capillary network will be able to constantly complement the offer of the web pages and to be coordinated with the online stores to reinforce the customer experience with new services through advanced technological tools. Through innovation, increasingly informed and demanding expectations are being met with a unified view of the stock, which requires real-time processing of item movements, thanks to the implementation of the Inditex Open Platform (IOP).
Through this system, with the data received from RFID, all creative novelties can be offered in real time and in a coordinated manner from any device, know the demand immediately, manage inventories with maximum efficiency and adjust accordingly. precise production, also in line with the Group's sustainability objectives.
One of the initiatives that best sums up the advantages of this proprietary digital platform is the Sint project, which provides store inventory for online demand.
In addition to serving direct sales to the customer, the stores prepare e-commerce orders from their own warehouses, fully integrated with the online offer to the customer, which guarantees greater efficiency in inventory management, as well as faster delivery times. shipments.
This project is supported by a series of logistics technological innovations that facilitate greater precision in integration and complementarity between stores and online. Thus, high-capacity RFID readers have been developed to compute inventories in warehouses with high volumes of items, the XWMS system has been implemented, also developed internally by Inditex, which manages the warehouses at all times to select which point of origin It is the most suitable for delivery, and analytical systems have been incorporated to optimize transport flows and the availability of items.
A new store model
With regard to the customer, especially noteworthy will be the so-called 'Store mode' which, through mobile applications, will allow customers to consult in real time the stock of an item in the store for its online purchase and immediate collection; access the pool of changing rooms when they need it or can precisely locate where a garment is located within a store.
At the same time, the company will continue to give a strong boost to environmental sustainability, since all stores will adopt the Inergy platform to control environmental parameters, will also use 100% renewable energy, will incorporate the ticketless system as standard, and will recycle or reuse all material surplus such as cardboard, plastic or packaging that you receive.
Likewise, in the three years of implementation of the plan, practically all single-use plastics will have been eliminated for the customer in the store, where the promotion of the circularity of the garments will have a special relevance by means of the collection of those clothes that have finished its first life cycle. The objective is to reuse or recycle all the garments collected through the channels that Inditex has already been articulating internationally with organizations such as Cáritas or the Red Cross, and financing with research on recycling techniques such as that coordinated by MIT in Boston.
These measures will be accompanied by the commitments established in the 2019 Shareholders' Meeting regarding raw materials, by which all the fabrics of the garments of the eight Inditex brands will be sustainable, organic or recycled in 2025 and specifically the fabrics from raw materials. sustainable vegetable premium such as viscose will be in 2023.
The investments made for technological innovation, the promotion of sustainability in all areas, the exclusive identification system for each garment (RFID) and its characteristic inventory centralization allow Inditex to have the ideal starting point to successfully anticipate this store of the future.
Increase in online stores
During the first quarter, the Group continued to promote its integrated store and online platform, which already reaches 72 of the 96 markets in which the Group has a presence. Zara started local online sales in Albania and Bosnia and, already in the second quarter, in Argentina, Paraguay, Uruguay and Peru, markets in which the brand now offers this integrated experience to its customers.
The Group thus also continues its development in line with the objective announced by Pablo Isla that the products of all its brands will be available for purchase online from any corner of the world in 2020. At the same time, the Group's brands have starred in 19 openings during the quarter, as well as extensions and reforms of flagship stores, in markets such as Spain, China, Portugal, Morocco, Lithuania, Croatia, Korea and Saudi Arabia, among others.
The opening of Zara in I-Park in Seoul (Korea), in the Arribat Center in Rabat (Morocco) and two stores in the cities of Riyadh and Dammam, in Saudi Arabia, stand out. In the latter, in the Nakheel Plaza shopping center, Massimo Dutti, Bershka, Stradivarius and Oysho have also opened their doors. Likewise, Uterqüe opened the doors of its new store on Calle Larios, in Malaga (Spain) and Stradivarius in Espacio León (León, Spain).
During the month of May, Zara opened its doors in the Bahrain City Center in the city of Manama (Bahrain) and, during the next few months, significant openings are scheduled, in line with the plan outlined. When it opens its doors in the coming months, Zara in WangFujing (Beijing, China) will become the largest flagship store in Asia and the most advanced in the world in incorporating the latest technologies and services to offer a complete integrated experience. This opening will be joined during the year by the Zara Place Vendome in Doha (Qatar) as well as the extensions and reforms of Zara in Paseo de Gracia (Barcelona, Spain), or the store on Calle 82 in Bogotá, (Colombia).
The rest of the Group's brands are also already working on openings and expansions aligned with this strategy, such as those of Massimo Dutti in Amoeiras (Portugal), Shanghai, (China), Barranquilla and Medellín (Colombia); Bershka in Brasov (Romania) and Belgrade (Serbia); Stradivarius in Rotterdam (The Netherlands); Oysho in Moscow (Russia) or in the district of Chaoyang, in Beijing, (China); or the opening of Uterque in Almaty (Kazakhstan)
Sustainability
In line with this total commitment to Sustainability, all the Group's chains have continued with determined progress in the use of more sustainable and recycled raw materials, many of them under the Join Life label, which also distinguishes those for whose production they have been used processes that are especially respectful of water and energy consumption.
Likewise, in its stores, the Group has continued to deploy the used garment collection program, through containers that customers already find in 2.299 stores in 46 markets, in collaboration with 45 organizations receiving the garments, which process all the material to give it a second life or use it for treatment and recycling.
Likewise, as a next step in the eco-efficient store plan that was completed in recent years, the Group continues to increase the number of stores connected to the centralized control and management system for energy and water consumption. Thanks to the technology with which the stores are equipped and their high connectivity with the central platform, a total of 3.587 stores are already within this program called Inergy.
On the other hand, Inditex has remained in permanent contact with its suppliers during the Covid-19 pandemic to guarantee that the factories follow the sanitary recommendations for the protection of the workers' health. The Company has also guaranteed the payment of all orders completed or in production process since the beginning of the pandemic, according to the original payment conditions.
Additionally, Inditex has publicly adhered to the initiative of the International Labor Organization (ILO) to mobilize support for manufacturers and workers during the economic situation caused by Covid-19. The initiative has the participation of the International Organization of Employers (IOE), the International Confederation of Trade Unions (ITUC), IndustriALL Global Union and other international brands.
Second quarter sales
The beginning of the second quarter of the year has been marked by the gradual reopening of stores in different markets and by the growth of online sales.
During the month of May, stores in different markets have been gradually opened and as of June 8, Inditex has 5.743 stores open in 79 markets, out of a total of 7.412 in 96 markets.
Sales have been gradually recovering as these stores have been opened, with very notable examples such as the cases of China and Korea or, already in Europe, Germany. With 52% of stores open on average in May and still with capacity limitations in most markets, sales in stores and online at constant exchange rates were -51%. In the week of June 2 to 8, sales in stores and online at constant exchange rates were (-34%). Fully open markets without restrictions accounted for 54% of the total and their sales reached (-16%).