INDITEX'S Zara Brand'S Epidemic Impact Performance Declines

On December 15, INDITEX, the parent company of Zara (demand area: 1000-2500 square meters; representative projects: Kunming Aegean shopping park, Shenzhen coastal city, etc.) released the third quarter financial report of fiscal year 2020 (August to October). During the reporting period, the group's net sales decreased by 14% to 6.05 billion euro, and the net profit decreased by 26% to 866 million euro; in the first three quarters, the net sales decreased by 28.7% to 14.08 billion euro, and the net profit decreased by 75% to 668 million euro.

(comparison chart of INDITEX Omni channel sales in 2019 & 2020 source: INDITEX financial report)

According to the above figure, INDITEX's Omni channel sales rebounded significantly after the first quarter directly hit by the epidemic, and the decline rate continued to narrow. However, the net loss of 195 million euro in the first half of the year still makes INDITEX seem unable to cope with the epidemic. To this end, the group announced that it would close 1000 to 1200 stores in the next two years, mainly focusing on the following three categories: stores with small scale, profitability less than 260000 euro, and stores that can be replaced by online or peripheral stores and will not affect the group's turnover after closing.

In fact, this move of closing stores is more like INDITEX's strategic transformation for stores while helping to reduce the internal expenditure of the group.

For brands such as Zara, which are owned by INDITEX, stores have always been brands. By the end of October, the group has more than 7000 stores. In order to comply with the development trend of the fast fashion industry, INDITEX said that creating high-quality collection stores as online drainage can benefit the group for a long time. Zara's Asian flagship store in Wangfujing, Beijing, in October could be seen as a step in the transformation. INDITEX Group expects that the subsequent large-scale collection stores will bring 4% - 6% same store growth.

INDITEX plans to invest 2.7 billion euros over the next three years in order to better broaden the channels for its core brands. Among them, 1.7 billion euro will be used for store upgrading to increase the influence of offline stores, while the remaining 1 billion euro will be used to promote the digital transformation of the group.

Since the establishment of its first official website for Zara home in 2007, INDITEX has made great efforts in building an online platform. Zara's official website, which was established in 2010, quickly covered the core markets including China and the United States in a short period of time.

However, as the core brand of the group, Zara's online strategy in China is often criticized. In 2012, Zara * * opened its official website in China. However, due to the online and offline strategy of the same price, it was difficult for consumers who were more price sensitive at that time to accept it. In addition, UNIQLO, a fast fashion giant, has been in tmall's flagship store since 2009. Although Zara officially entered the Chinese market in 2007, the "hindsight" of its e-commerce platform in 2014 has made consumers more inclined to buy Zara offline. According to the data of tmall double 11 in 2020, Zara ranks ninth in the list of women's clothing brands, but does not enter the top ten in the men's wear list.

However, digital transformation is still a powerful weapon for INDITEX to deal with the impact of the epidemic. In the third quarter, the group's online sales soared by 76%, and the online visits in the first three quarters increased by 44% year-on-year, exceeding 3.4 billion times. At the end of this year, Zara's new 64000 square meter online studio at headquarters will also be put into use. The Group expects online sales to account for more than 25% of total sales by the end of 2022.