PARIS — Signaling progress on the all-important digital front, Zara owner Inditex said online and store stocks will be integrated into the same system by year-end, raising the stakes not only for fast-fashion rivals but also dominant online retailers.
“This is very strategic for us, full integration of online and stockrooms,” said capital markets director Marcos López, citing the ability to offer products in stores to online consumers.
Speaking on a conference call with analysts following the release of first-quarter results, executives said Wednesday that the project was first introduced in Spain last year before adding 20 other markets. The goal is to offer the service in all markets with online business by the end of the year.
Questioned whether this meant the company would be using space in its stores, which often sit on valuable real estate, Inditex executives estimated the impact of the cost was “neutral.”
“From a physical point of view you only need a table and a chair,” in a stockroom, added López.
But analysts said they expect the move should help the fast-fashion retailer avoid stocks of unsold clothing. It will be pushed forward, they noted, thanks to radio frequency identification technology, which tracks products and is commonly referred to as RFID.
Swedish rival Hennes & Mauritz, which more recently has embarked on rolling out RFID, has struggled under the weight on unsold inventory.
Inditex was an early adopter of the technology, which was fully implemented for the Zara brand in 2016, which the group expects to follow with smaller brands Massimo Dutti and Pull & Bear this year, and the rest of the group by 2020.
Inditex continues to invest in logistics, but said the amount of capital dedicated to the task should ease up in the future. Investments in two logistical centers topped 150 million euros. One is in Spain, just a stone’s throw from the sprawling, modern complex that houses the company’s headquarters. The 90,000-square-meter space complements existing logistics platforms and is scheduled to start operating this summer. The other is in the Netherlands.
The rise of internet commerce has prompted retailers to invest heavily in high-tech distribution centers, including online specialists ASOS or Germany-based Zalando, which has been opening new sites across Europe including France, Sweden, Poland and Italy with an eye to reducing delivery time.
“Demand for modern space to support automation and e-fulfillment operations maintains a strong upward trajectory,” noted retail specialists from JLL in their annual market insights report on European logistics.
At Inditex, online sales grew 41 percent and account for around 12 percent of sales in markets where it has online operations.
The retailer reported a 2 percent rise in first quarter net profit, as currency rates weighed on sales growth across regions.
Sales growth in the last six weeks of the quarter was “surprisingly weak despite a strong rebound in underlying market trends in April versus February-March in countries such as France and Germany,” noted Cedric Lecasble, analyst with Raymond James in a note to clients. The analyst estimates like for like sales growth was merely flat in the second part of the quarter after around 4 percent growth in the first.
Net profit totaled 668 million euros for the February-April period, while sales rose 2 percent to 5.65 billion euros. The increase came to 7 percent in local currencies, as the company opened new stores in 36 markets and expanded and refurbished existing units.
Analysts flagged margin improvement, which improved by 68 basis points from the same quarter last year to 58.9 percent, as beating expectations.
The first quarter results were “broadly impressive,” said Barclay’s in an e-mailed note. The analysts noted that while sales figures slightly missed expectations, profits were between four and five percent ahead of expectations.
The retailer, with a stable of brands that also includes Bershka and Oysho, said it launched online sales in Australia and New Zealand.
Sales increased by 9 percent in local currencies between May 1 and June 11, it said. The Spanish retailer has widened its distance from Swedish rival H&M, which has struggled to adapt to online consumption fast enough to catch up with rivals.
Profit at H&M last year declined 13 percent and the company has said it doesn’t expect an improvement in sales and profit until the second half of 2018.
Inditex said it has distributed 42 million euros in April to 88,000 employees in various activities who have worked at the company for at least two years.