Inditex has unveiled plans to better integrate its online and offline propositions, invest in larger flagship stores and harness RFID technology within its new ‘in-store mode’ app. But what do such plans tell us about the direction of travel in fashion retail?

From being responsible for each season’s ‘it’ dress to its lack of marketing budget, Zara owner Inditex has become renowned for doing things differently.

While the Spanish fashion giant’s latest quarterly results reveal that even it is not immune to the struggles of the sector amid the coronavirus pandemic, Inditex’s plans for the next few years set out a blueprint for how fashion retailers could operate and grow in this new world.

The group suffered its first ever quarterly loss in the three months to May 31. It slipped €409m (£363m) into the red after sales slumped 44% to €3.3bn (£2.9bn) during lockdown. But rather than dwell on a challenging quarter, in which 88% of its global store portfolio was shuttered at one stage, Inditex is learning lessons that will better equip it for the future.

Inditex, which owns a host of fascias including Pull&Bear, Bershka and Massimo Dutti, currently operates 7,412 stores worldwide, but it has already embarked on a strategy to downsize that portfolio by around 500.

“Inditex has always been good at identifying the cash-generating locations, whereas there are so many retailers out there who simply have too many unnecessary stores”

Chloe Collins, GlobalData

Key to this plan is closing between 1,000 and 1,200 smaller stores, “which account for 5% to 6% of total sales and are less well positioned to offer the new customer experiences”, by the end of next year.

It will instead shift focus to bigger flagship stores in key global city locations, which will better integrate its online proposition and boast greater technological capabilities. It plans to open up to 450 of these larger stores. 

Zara jpg

Zara intends to shift its focus to flagship stores in city-centre locations 

“Inditex has always been good at identifying the cash-generating locations, whereas there are so many retailers out there who simply have too many unnecessary stores in the wrong locations that they don’t put investment into to keep them updated,” says GlobalData senior retail analyst Chloe Collins.

“Inditex also refurbishes its stores often – Zara in particular has recently seen the introduction of self-checkouts – and it’s things like that that drive footfall in the longer term.

“For the next few months, there may be some difficulties with their large city-centre locations as consumers will continue to choose to shop locally, but in the longer term customers will want the better experience they desired pre-Covid-19.”

Creating flagship destinations had became a priority for a number of retailers prior to the coronavirus pandemic as they aimed to increase dwell time and improve the customer experience.

The “world’s biggest Primark” launched in Birmingham last year, for instance, and the retailer will open a similar store in Manchester on June 15.

Lush’s Mark Constantine also told Retail Week that he would only operate larger, department-style concepts for the health and beauty brand if he could, following the debut of its Liverpool flagship in 2019.

Inditex plans to combine its online and offline propositions by using its larger stores as distribution hubs for online orders. Where smaller stores nearby are closed, the fashion group will redeploy staff to larger shops to help fulfil that digital demand. 

The ship-from-store model is yet to become mainstream in the UK, but with online penetration in fashion now standing at 43% in 2020, compared with 29% last year, according to GlobalData, combining online and offline channels more seamlessly will become more important than ever for apparel retailers.

Inditex itself is planning for online sales to comprise 25% of its total global revenues by 2022 – a figure that currently stands at 14%.

“Online penetration is going to be significantly accelerated from what it was before, so I think bringing the channels together is a wise idea,” says Collins.

“As a result of the stock problems we’ve seen during the pandemic, I think we’ll see other retailers follow suit, integrate their channels and narrow their buying books, so they aren’t left with unsold stock in stores.”

Inditex is also investing in RFID technology so that stock in both stores and warehouses can be better managed for online orders. 

The tracking will also form a key part of Inditex’s ‘in-store mode’ app, which allows customers to view real-time stock information and pinpoint the exact location of a desired item in the store.

While in-store mode has already been used by retailers such as H&M and Nike in the past, Collins believes it will become more desirable and practical in a post-pandemic world as shoppers seek to get in and out of stores quickly. 

“In the short term, people won’t want to spend time browsing in stores, so at least if they can check what’s in stock beforehand that makes them more keen to return, so they can shop efficiently,” she says.

“On the other hand, it may reduce the amount of add-on purchases made in store, and it can be quite a hard system to manage.”

Even for a company the size and scale of Inditex, ensuring that the app is constantly updated in real time to offer shoppers accurate information will be no easy task

Collins points to the criticisms H&M received from some of its customers when in-store stock levels weren’t completely up to date.

The struggles of its great fashion rival suggest that, even for a company the size and scale of Inditex, ensuring that the app is constantly updated in real time to offer shoppers accurate information will be no easy task – but this is something its customers will demand. 

In addition to its digital drive, Inditex has made a fresh series of sustainability pledges, committing to removing all single-use plastic and recycling surplus materials such as cardboard and packaging, although it did not provide a timeframe for achieving those targets. 

Although Collins suggests that the sustainability agenda may have “taken a bit of a backseat” for many retailers during lockdown, consumers have in fact become more acutely aware of the impact their habits have on the environment at a time they are making do with “less stuff”.

Inditex’s ‘clothing circularity’ concept, in which it encourages customers to donate used clothing to be reused or recycled, may therefore become even more popular, particularly among younger, eco-conscious consumers.

As fashion stores prepare to reopen on Monday, Inditex is certainly not relying on returning to its former glories. Its plans to capitalise on lockdown online shopping habits by building a genuinely digital-first operation offer lessons for all.