Zara growth is slowing substantially and analysts fear worse is to come.
The fast-fashion brand’s Spanish parent Inditex says the slowing growth is due to a stronger euro, flat margins, less-frequent discounting and a store optimisation strategy that focuses on larger stores in prime locations and online growth at the expense of smaller stores.
While the retail giant reported a 7 per cent sales increase at constant currency rates year on year to €26.1 billion, this was less than half the rate of growth the company reported a few years ago, Morgan Stanley said in a note, reported by Reuters.
“[W]e believe it is evidence that the group’s growth profile is slowing sharply,” Morgan Stanley said.
Like-for-like sales grew 4 per cent in last financial year, compared to 5 per cent in 2017. Online sales grew 27 per cent to €3.2 billion, or 12 per cent of net sales. This is on the low end for an apparel company, where online penetration tends to be higher.
Inditex opened 370 stores during the year, and closed 355, which was nearly twice as many as the 200 stores it said it was planning to close last year. This may have had an impact on sales growth , an investor told Reuters, but could prove to be the right strategy long term.
The group increased gross new space in prime locations by 8 per cent and is continuing to roll out its omnichannel store format, which integrates bricks-and-mortar and online channels. The group said it sees strong opportunities for growth in this space going forward.
Inditex said global online sales are on track. Zara launched online in Australia and New Zealand last March and entered an additional 106 markets online in November, bringing the total number of markets it sells online in to 202.
The company has reported a profit of €3.44 billion for the year, up 2 per cent on the previous year.
In its first five weeks of the new fiscal year, the group lifted store and online sales 7 per cent at constant-currency rates. The company said it expects like-for-like sales to grow between 4 and 6 per cent this fiscal year, and gross space in prime locations to grow between 5 and 6 per cent.
The fashion giant expects to open around 300 stores and close around 250 in the year ahead. As at January 31, Inditex had 7490 stores worldwide across the Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterque brands.
This story first appeared on our sister site Inside Retail New Zealand.