Practitioners, students and of supply chain management are likely quite familiar with Spain based fashion clothing retailer Inditex and its various retail brands including Zara. Many supply chain management case study curriculums include the notions of how this retail chain pioneered what is today termed “fast fashion.”

Supply Chain Matters has often highlighted Inditex’s ongoing business performance not only in supply chain innovation but also in overcoming industry challenges in good times and not so good. Of all of our featured blog content in 2021, our most read blog was our March 2021 commentary: Zara Provides The Benchmark For Supply Chain Digital Transformation.

 

Latest Accomplishments

The latest accomplishment occurred earlier this month with the retailer reporting quarterly revenue growth of 36 percent to upwards of $7.2 billion, exceeding market expectations. Further reported was the highest profitability performance in a decade in the midst of high inflation and disrupted global transportation and logistics networks. Last year, the retailer reported a tripling of profitability in the midst of a declining apparel sales market. The company further initiated added charges related to apparel returns.

Bloomberg reported that the retailer, operators of the Zara, Bershka, and Massimo Dutti fashion brands, made a conscious decision to increase overall inventory levels by 27 percent among suppliers located across Spain, Turkey and Morocco to provide added business agility. That was counter to Inditex’s prior stance to operate a very lean inventory levels. In the latest report of quarterly financial performance, the company CFO told analysts that a decision to accelerate inventory inflows was made to increase product availability in the face of supply network disruptions. The strategy is noted as one where inventory levels can be further adjusted as fashion choices change in the coming months.

Brand reputation did not deter customers from paying higher prices for trendier fashion to satisfy what the Economist coined as “revenge buying” after a considerable period of pandemic related temporary physical store closings.

Company founders continue to attribute success to “proximity sourcing” where a significant portion of offered fashion products are designed and produced within Spain, Portugal and Morocco as well as distributed from Spanish warehouses. The other noted and envied capability is the agility of being able to design and produce a garment with high fashion appeal in a matter of a few weeks.

Interesting enough, online sales during the recent quarter took a dip compared to year-earlier levels, but the decline was noted by company executives as slower than expected.

In our Supply Chain Matters blog published in June of 2020, Zara Begins to Pivot to the Future of Post COVID-19 Retailing, we highlighted that Inditex was already focusing on what fast fashion response would likely need to be in a post pandemic Omni-channel world. Since that time, the retailer has additionally invested in digital transformation in unifying its online and physical stores inventory management in a singular data store, and by tagging its offered products with RFID enabled labeling for multi-channel tracking needs.

 

Business Outlook

All of that stated, the global fast fashion retailer faces continued challenges.

The company incurred an added 216-million-euro charge related to the closing of retail operations in Russia and Ukraine.  The recent Covid-19 Omicron virus  outbreak among large cities in China had forced brick and mortar outlets in the country to temporarily close.

Industry watchers continue to cite a condition among large retailers for having excess inventories at a time where consumer spending may shift to more muted levels. However, Inditex executives indicated to Bloomberg that they were “very confident” in their inventory position of high-quality apparel. Then again, this retailer’s continued success has been its abilities to pivot or respond to product demand or supply network challenges much faster than other apparel makers.

Having now invested in digital transformation and integrated multi-channel response capabilities, this retailer may continue to set the global benchmark.

 

Bob Ferrari

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