Zara owner Inditex on Thursday said it will close 1,000 to 1,200 stores over the next two years, at a pace of 500 to 600 each year. "The optimisation plan focuses on stores at the end of their useful life, especially young concepts whose sales can be recovered in nearby stores and online," the company said.
The fast-fashion giant said it expects online sales to reach more than 25% of total sales by 2022, with a "higher quality network of better located stores in conjunction with online" generating long-term annual like-for-like sales growth of 4% to 6%.
The COVID-19 pandemic battered results in the first quarter, when net sales fell 44% to €3.3 billion ($3.8 billion) from €5.9 billion ($6.7 billion) a year ago. With 88% of stores closed at some point in the period, online sales rose 50%. Gross profit fell to €1.9 billion, from €3.5 billion last year, and gross margin held fairly steady at 58.4% from 59.5% last year. The company swung to a €409 million loss, from €734 million in net income last year. Inventory was down 10%.
Inditex over a year ago staked its future on expanding e-commerce and integrating stores with its digital channel, in order to reach shoppers in every corner of the world.
That plan is now 60% operational and will be fully deployed between now and 2022, according to a company press release. Inditex said it will invest €1 billion in bolstering its online business and another €1.7 billion in upgrading its stores and integrating its brick-and-mortar platform with its proprietary technology. The company aims to run fewer but larger stores, and said that "Each store, whether online or physical, will become a sustainability hub: they will use less and renewable energy, eliminate single-use plastic, recycle all materials and foster the reuse of all garments."
The company's brands also opened 19 new stores during the first quarter, and expanded and refurbished stores in several markets, including Spain, China, Portugal, Morocco, Lithuania, Croatia, Korea and Saudi Arabia, with plans for more. Massimo Dutti will open stores in Portugal, China and Colombia; Bershka will open stores in Romania and Serbia; Stradivarius has plans for the Netherlands; Oysho for Russia and China; and, Uterqüe will reopen a location in Kazakhstan.
Despite mass store closures, the company expects its headcount to "remain stable," with store associates offered positions created by the integration plan.
Inditex has been gradually reopening stores globally in the second quarter, and as of June 8, 5,743 were open in 72 markets. Sales have been especially robust in China, South Korea and Germany, the company said. With 52% of stores open in May, with capacity restrictions in most markets, combined brick and mortar and digital sales were down 51% compared to last year. Between June 2-8, that improved to down 34%, and in markets with stores fully open, sales were down 16%.
CEO Pablo Isla emphasized that stores will open when it's deemed safe, and will follow safety protocols when they do. "Our priority through the crisis has been and continues to be the health and safety of our people and our customers," he said in a statement, adding, "As we have always said, people is what really matters for Inditex, beyond any other consideration, and I believe that the current situation we are living, prove it so."