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Plans to permanently close 1,200 stores, bidding farewell to the golden era of fast fashion!

Fast fashion Zara bids farewell to its golden age. As one of the world’s largest fashion retailers, Zara’s parent company Inditex has been hit hard by the epidemic. According to Fashion Business New…

Fast fashion Zara bids farewell to its golden age.

As one of the world’s largest fashion retailers, Zara’s parent company Inditex has been hit hard by the epidemic. According to Fashion Business News, in the three months to the end of April, Inditex sales fell 44% year-on-year to 3.3 billion euros, gross profit margin dropped to 58.4%, and operating profit was only 484 million euros, compared with 1.7 billion euros in the same period last year. , and recorded a net loss of 409 million euros for the first time in history, compared with a net profit of 734 million euros in the same period last year.

Due to the huge impact of the new crown epidemic , resulting in a sharp decline in its sales. As of the end of April, the group’s net loss was 409 million euros ($465 million), and sales fell to 3.3 billion euros from 5.9 billion euros in the same period last year.

Inditex said that the epidemic lockdown measures forced it to close most of its stores around the world, which had a serious impact on its first fiscal quarter results. However, sales momentum began to improve in May and most markets began to gradually reopen.

In addition, Inditex stated that it plans to close 1,000-1,200 small stores in 2020 and 2021, accounting for 13%-16% of the total, and strengthen the development of popular business districts. large-scale stores and accelerate the expansion of its online business over the next three years.

Less than one-seventh of the stores are closed

The company said that in order to cope with the impact of the epidemic, it has adopted business models such as nearby procurement and single inventory locations to maintain operations. The supply chain is functioning normally. In addition, the company has taken other measures to control operating expenses.

However, no matter how timely and effective the method is, it is difficult to defeat the impact of store closures. At the end of April, the company had 965 stores open in 27 markets around the world, which was less than one-seventh of the number in a normal month. In the first two months of this year (January and February before the outbreak), the company opened about 7,000 stores. Starting from the third week of March, the number of Inditex stores has declined significantly.

However, the company expects that most stores will reopen by the end of this month.

By brand, as of the end of April this year, the number of Inditex brand stores was actually not much different from the same period last year (7412 VS 7447). Therefore, although the number of Inditex stores opened plummeted in the first fiscal quarter, after the stores resumed operations, Inditex was in a good position to usher in a sharp rebound in sales.

In addition, although large-scale store closures have led to a decline in the company’s revenue, judging from some indicators, Inditex’s cost-saving measures are not ineffective.

First of all, from the perspective of gross profit margin, the company’s gross profit margin in the first fiscal quarter was 58.4%, a decrease of 1.1 percentage points from the first quarter of last year, indicating that the company did not launch large-scale discount sales in the first quarter.

Secondly, the company’s operating expenses during the fiscal quarter were 1.448 billion euros, a year-on-year decrease of 21%. In the absence of a significant decline in the number of actual operating stores, although the decline in operating expenses is far less than the decline in sales revenue, considering the global impact of the epidemic on the first four months, Inditex’s cost-saving measures have been considered effective.

Furthermore, after adjusting its business model, the company’s inventory did not increase due to unsalable sales due to the epidemic, but instead fell by 10%. Operating free cash flow decreased from a net outflow of 2.536 billion euros in the first quarter of last year to 604 million euros.

The company’s cash and cash equivalents were 3.401 billion euros, a year-on-year decrease of 35.9%; short-term investments were 2.506 billion euros, a year-on-year increase of 69.7%. After including current liabilities and non-current liabilities, the company’s net financing cash of 5.752 billion euros is not too different from the same period last year (6.66 billion euros).

The company has not announced a suspension of dividends due to the epidemic. A dividend of 35 cents per share for fiscal 2019 will be paid in November this year. Dividends in 2020 and 2021 (78 cents per share) will also be declared in 2021 and 2022 as promised.

Finally, a blessing in disguise is that the company’s online sales increased by 50% in the first fiscal quarter compared with the same period last year, and by 95% in April.

Therefore, from the above indicators, the general performance status of Inditex in the first fiscal quarter can be roughly concluded: revenue/profit has been greatly affected by the epidemic. However, after adjusting its operating methods, the company’s inventory, capital and are still operating. of stores actually did not deteriorate much.

A blessing in disguise is a blessing in disguise

In May, the company’s store and online sales in local currencies still fell 51% year-on-year. The year-on-year decrease on the 8th was 34%. In markets where lockdowns have been fully lifted, the company’s sales revenue fell 16% year-on-year.

Combined with the above-mentioned expectation that most stores will reopen at the end of this month, Inditex, which has not been damaged, is expected to rebound after the impact of the epidemic gradually subsides. Judging from the sales performance of the current fully unblocked market, there will be a rebound, but it may be difficult to return to pre-epidemic levels in the short term.

The company also gave a development plan from 2020 to 2022 in the financial report, which mainly includes annual capital expenditure of 900 million euros, of which a total of 1 billion euros will be invested in digital investment in the next three years.

Inditex stated that its three major development strategies in the future are…Transformation, integration of online and offline stores and sustainable development.

At the end of this year, Zara will open a 64,000-square-meter online live broadcast room at its headquarters; the offline store operating area will maintain a growth rate of 2.5% in the next three years, with an average of 150 new stores opened per year. During this period, many stores will be expanded.

The company expects that better-located stores combined with online marketing will increase same-store revenue by 4% to 6%, improve profitability and reduce the company’s capital intensity.

The epidemic in the first quarter of this year caused a huge blow to Inditex and its subsidiary Zara. However, the surge in online sales in the first fiscal quarter may also make the company more determined to combine online + offline sales strategies.

Everyone has seen Zara offline a lot. Many people may not have imagined a Zara headquarters with a live broadcast room. Experience tells us that live streaming can drive considerable sales.

As the saying goes, poverty leads to change, and change leads to success. After less than one-seventh of its stores were closed and heavy losses were recorded in the first fiscal quarter, coupled with a decline in consumer spending, it is almost impossible for Inditex’s sales to rebound significantly this year to last year’s levels.

But starting next year, Inditex, which is accelerating its digital transformation, will release greater room for imagination.

In the Spanish stock market, Inditex’s stock price inevitably fell sharply in the first quarter, but the company’s stock price began to rebound in mid-March, and has recently returned to the level at the end of August last year.

In the long run, it is the general trend for offline stores to go online. In a few years, the epidemic in the first fiscal quarter of this year will be another blessing in disguise for Zara and Inditex, which are determined to embrace online digitization. , how do you know it is not a blessing? </p

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Author: clsrich

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