Astronomically successful, impossibly on-trend, killing the little people and the high street alike – Zara has barely stopped for breath in the last few years.
Which is why news of its full-year profit fall in the UK has made waves.
Pre-tax profits dropped from £58.3m to £39.2m in the year to January 31, 2017 despite sales rising 13% to £602.7m.
The results were in stark contrast to Zara’s last UK figures, when pre-tax profits jumped from £49.1m to £58.3m.
Aside from the schadenfreude involved, profits falling at an apparently infallible retailer seems pretty significant. It is – but not for Zara itself.
Factors to consider
Zara’s parent company Inditex has been pretty tight-lipped on the reasons behind the retailer’s profits, drop but disclosed that investment, especially to “keep the stores’ layout and atmosphere in line with the Zara brand image”, had been a factor.
Global Data group retail research director Maureen Hinton points to Zara’s policy of using stores to promote the brand as costly, but maintains that it’s the right approach.
“Has its competitive edge been eroded over the last year or so? No. And that’s what counts”
Richard Hyman, Richard Talks Retail
“Zara’s stores are very premium considering their place in the market,” she says. “They are investing a lot in brand-building stores and keeping them really up to date. It’s essential to use a store as the essence of a whole brand now.”
However, she adds that the rising cost of doing business in the UK must have also had an impact.
“That will be a challenge for most retailers,” she says. “Inditex isn’t immune from that.”
She adds that this fall in profit – hefty as it might be – “doesn’t denote a decline” and is just part of the fabric of a functioning business.
“So they’re human and can’t walk on water?” questions Richard Hyman of Richard Talks Retail. “They’re still the best retailer in this market by a long way.
“Has its competitive edge been eroded over the last year or so? No. And that’s what counts.”
Zara – incredibly profitable with a cast-iron business model and rising sales – may not have reason to worry, but many competitors that are not as well equipped for these difficult times could be in real trouble.
Less schadenfreude, more auf wiedersehen, perhaps?