A shift is in the making in the global clothing market as Inditex posted some of its weakest ever results, amid signs that growth of its Zara banner may be flagging.

Inditex is likely to revitalise Zara after posting modest results

First-half net income climbed slightly to E951m (£800m) from E944m (£794m) a year earlier.

Net sales in the first half reached E7.66bn (£6.44bn), up 6%. On a like-for-like basis, sales rose 2% in the half year to July 31. These relatively modest results from the Spanish fashion retailer come after years of strong performance.

Is this the beginning of a pattern of slower growth for the Spanish clothing giant? Not according to Inditex, which reported that sales had risen 10% at the start of the third quarter. Nevertheless, Inditex seems to be entering a new phase of development, which is likely to revolve around building up its three main pillars of growth - ecommerce, reinventing the Zara concept at its flagship stores and expanding its other retail brands.

Inditex has recently launched ecommerce for Zara in Russia following its launch in China last year. There is even speculation the group is preparing to go further into Chinese ecommerce with an online store at shopping website Tmall.

Inditex’s steady market-by-market approach to rolling out ecommerce will increase the probability of local success, but it may risk losing out to faster rivals such as Asos.

It’s interesting to note that for the first time, Zara Home closed the first half with sales up by 30%, a result significantly greater than the 4% reported by Zara. Massimo Dutti was another strong performer with sales up 17%. The retailer’s Bershka, Stradivarius, Oysho and Uterqüe brands put in far less convincing performances, and that has to be a worry for the group.

Inditex opened 95 stores during the first half, notably down on the 166 that it opened in the same period last year.

However, it is always worth reflecting on the fact that Inditex already operates Zara in a staggering 86 markets around the world and this means it is harder to sustain such rapid sales growth as it has done in the past.

Inditex is certainly doing the right thing by sustaining profitability through revitalising its important Zara brand. After all,
the retailer needs to stay ahead of its rivals in the competitive fashion space.

However, Inditex has a number of fascias that can fulfil several different types of shopper clothing needs and these will also support growth for the retailer should anything go wrong with Zara.

  • Isabel Cavill, senior analyst, Planet Retail.

Planet Retail

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