Inditex strides ahead: its in-detail plan to drive further growth and fend off the competition

Inditex, the Spanish fashion giant and parent of the formidable fashion force that is Zara, continues to defy a challenged global fashion market achieving a 10.4% sales growth (or 14.1% on a constant currency basis) to €35.9 billion in FY2023.

Furthermore when most fashion brands are looking ahead with trepidation, Inditex (and indeed industry watchers) is confident it can maintain this upward trajectory, so much so that it is planning to plough €1.9 billion of Capex into the business to supercharge its technology platform and its logistics operations. It will also continue to upgrade its store estate with a focus on fewer, bigger, digitally connected and higher-grossing stores.

In its annual results revealed this week, it noted that it had achieved its sales growth with 2% fewer stores in number but with 2% greater commercial selling space, while its digital retail will be boosted by huge investment in technology and warehousing. Furthermore it intends to continue its focus on "creativity, quality and design" when it comes to product.

Analysts are referring to Inditex's approach as the "Shein Shield". Unlike rivals, such as H&M perhaps, Inditex will be steering well clear of the Chinese fast fashion behemoth by providing an elevated experience at all brand touch-points and a higher quality product offer that will set it apart from the bargain basement end of the market.

Here's how it intends to keep its global fashion juggernaut powering on.

Retail stores: Flagship focus

This table indicates the total global selling space across all over Inditex's brands. Every single one of them has increased their store space over the past 12 months, but significantly they have done so with fewer stores (2% fewer across the board). For Inditex, flagships which offer an elevated experience, are the way forward.

In 2023, Inditex opened stores in 41 markets. During the year, Zara opened its first store in Cambodia extending its global reach future still. The group remained very active in store optimisation activities (192 openings, 231 refurbishments which include 84 enlargements and 315 absorptions). At the end of FY2023 Inditex operated 5,692 stores. As such store sales were up 7.9% during the year.

Zara Battersea: digitally optimised

For an example of what a flagship looks like, head to Battersea Power Station in London where Zara opened its largest commercial space in the UK last autumn. Its size, 4,500 sq ft, is only one aspect of what makes this store impressive. The digital connectivity is market leading with the ability to self-checkout, book fitting rooms, search for items available in-store, drop off returns and collect e-commerce orders with a matter of just two hours. Also it's architecturally stunning.

This is next level stuff and its rivals have a long way to go before they can catch up. And will they ever? By the time they reach this level, Inditex will be on to the next one.

Online sales grew by 16%

E-commerce: Optimised online experience

Not so long ago I placed an order for some kids clothes from Zara on a Saturday afternoon. I went out for breakfast on Sunday morning, came back and there was a box on my doorstep. I stared at it for a moment and found myself whispering "they've been already". It was almost like I had been visited by aliens. How on earth did they do it? I honestly don't know how, but get used to this. As we've learned above, you can pick up an online order in your local Zara flagship in just two hours. These guys are not hanging around.

Inditex is ploughing €1.9 billion into its business over the next couple of years and technology for e-commerce and logistics is going to eat up a fair amount of that. Plans for 2024 include a new 286,000 sqm distribution centre Zaragoza II for Zara, as well as increased distribution centre capacity of 123,000 sqm in Lelystad (Netherlands). Bershka will also get a new 116,000 sqm distribution centre in the Valencia region.

The group tells us that online sales also grew "satisfactorily" at 16% to reach €9.1 billion in the last financial year. Don't you just love the understatement? App users reached 152 million. Online visits during the financial year grew 10% to 6.5 billion, meanwhile across the board, Inditex brands have 251 million followers on social media. And it's only "satisfied".

In 2024 we can expect to see further innovations to drive growth further with weekly livestreaming services in the US and UK planned this year.

Concepts: Building strong brands

Every brand in the Inditex portfolio has a distinct perspective and every single one of them is recording strong growth. Flagship Zara is motoring along at 10% growth (which is extraordinary given its size, it's now notching up €26 billion in sales), along with Pull&Bear and Bershka. Massimo Dutti, which offers a more refined (and expensive) product is fast establishing a name for itself as a go-to for high quality, minimalist dressing and is steaming ahead at +15%.

While they vary in scale, no brand in the group is letting the side down. They are all earning their keep.

Zara Pre-Owned is expanding into the US

Sustainability: ramping up resale

Zara is one of the most popular brands in the resale space, Its strategy of not repeating styles means, like brands in the luxury space, there is often a scarcity around must-have pieces meaning it holds its resale value.

As such Inditex is taking control of the resale process and now has a Zara Pre-Owned platform, which is currently available in 16 European markets, including in the UK. In 2024 it will expand to the US. Customers can also use the platform for repairs.

Elsewhere on the sustainability front, its Sustainability Innovation Hub is currently working with more than 350 start-ups. Some of these projects are now contributing to its current collections. An example of this is LOOPAMID® x ZARA. ZARA Studio has developed a single-material jacket made entirely with LOOPAMID®, a polyamide created entirely from textile waste.

However, Inditex does still find itself under scrutiny when it comes to its supply chain with investors recently calling for more transparency. None are considering divesting but want more reassurance there is no forced labour in the supply chain, so there is still some work to be done here.

Inditex employs 700 designers

Product: Elevated design

As pointed out above, one of the reasons Zara is so popular on the secondary market, is its superior design. This design centric approach spans all of Inditex's brands and it has no plans to cut back costs here, recognising that differentiated and elevated design is what will set it apart from the pack. And in particular those rather generic online fast fashion giants.

Inditex employs some 700 staff in design alone and a further 630 in product prototyping, which "utilises a meticulous design process that attends to every small detail of our garments and collections." Initiatives for 2024 include, Zara Woman The Leather Edition, Massimo Dutti Venetian Veil, Pull&Bear the Summit, Bershka TBTailoring, Stradivarius Poplin, Oysho Back to Training and Zara Home Linens.

Looking ahead with confidence

All things considered, it's no surprise Inditex is looking ahead with confidence.

"Inditex continues to see strong growth opportunities," it said when releasing its figures. "Our key priorities are to continually improve the product proposition, to enhance the customer experience, to increase our focus on sustainability and to preserve the talent and commitment of our people. Prioritising these areas will drive long-term organic growth.

"The flexibility and responsiveness of our business in conjunction with in-season proximity sourcing allows a rapid reaction to fashion trends and a unique market position. Our business model has great potential going forward."