The five keys to Zara’s money-making and whopping 17% sales growth
Thursday, September 20, 2012/
At a time when local retailers are struggling, Inditex, the parent company of Spanish fashion retail sensation Zara, has just released a very enviable set of figures in its half year results.
Inditex, which also owns retailers Pull& Bear, Bershka, Stradivarius, Oysho, Uterque and Zara Home, reports sales growth of 17% and earnings before tax growth of 35%.
That translates into net sales of 7,239 million euros ($A9.023m) up from 6,209 million euros ($A7.739m) last year.
Zara’s Australian stores come under the “Asia and Rest of the World” category in the Inditex report, making up a fairly minor part of the Zara empire. But the news is good here as well, with sales up 20%, an increase on 17% last year.
We’ve had a look at just what Inditex and Zara have done to achieve this sterling set of numbers.
1. Fuelling fast fashion fever
Zara attracts the fashionistas’ attention, as it is so on-trend thanks to its constant stock turnover.
The retailer is seen as the inventor of the fast fashion concept, with the latest catwalk trends reflected in Zara’s product range almost instantly.
Brian Walker, chief executive of the Retail Doctor Group, says Zara designs and starts selling products based on the latest catwalk shows in just three or four weeks.
Before Zara, Australian retailers were taking 12 to 16 weeks to do the same.
The retailer does this by owning and controlling its supply chain and by not keeping stock on hand.
Store managers pick stock out of a catalogue and then it is essentially made to order and dispatched from Spain.
At Zara there are no seasons, instead the retailer responds instantly to customer demand.
2. International growth
Zara started out as a small Spanish clothing store founded by railway worker Amancio Ortega but it has taken the world (including Australia) by storm.
It now operates 5,618 stores in 85 countries and opened 33 new Zara stores worldwide this year along with 15 Zara Home stores.
The Inditex report notes Zara’s store expansion is “on track” with the retailer recording capital expenditure of 1 billion euros on new store openings.
3. Keeping tabs on cost control
At the same time as Zara is rapidly expanding it’s also keeping a sharp eye on its costs.
Inditex reported “high operational efficiency and cost control” as one of the driving factors behind Zara’s healthy profits.
In Spain where Inditex is based, the retail giant has made “significant investment” with 450 million euros aimed at commercial and logistics activities, on which the retailer’s international growth is based.
It keeps costs down by rarely outsourcing manufacturing and when it does it uses cheaper Eastern European companies which are able to quickly deliver stock to Spain.
Fabrics are cut in house in Zara’s headquarters in Northern Spain then sent out to local cooperatives to be sewn the whole process is speedy and localised.
4. Making a splash with flagship stores
Zara only has two stores in Australia but both stores are in prime locations, with the Melbourne store right next to Myer in the Bourke Street mall.
Zara takes the location of its stores seriously and the Inditex report notes extraordinary capital expenditure of 192 million euros for the acquisition of “unique retail premises” in London’s legendary high end shopping strips of Oxford Street and Bond Street.
The retailer is prepared to splash the cash on a top quality location that drives foot traffic to its stores as well as brand recognition.
5. Looking to the future with online sales
With online sales now making up 7% of total retail spending, Zara does not want to miss out.
So at the same time as opening up new bricks and mortar stores at a rate of knots, Zara is positioning itself as an omni-channel retailer with a strong online presence.
The Inditex report notes that Zara’s online sales rollout is “on track”, with the retailer expanding Zara’s online sales globally, including the launch of a Chinese online shopping site on September 5.
It notes a “progressive rollout in all markets”, so keep an eye out for an Australian eStore opening soon for Zara.