Less may be more as Inditex cuts stores but boosts space in home market Spain

Madrid

THE list of retail casualties shutting shop seems to grow by the month but Inditex, the world's largest clothing retailer, is still betting on its network of physical stores to drive growth.

The Zara owner has shrunk its network in its home market of Spain - by far its biggest portfolio globally - by 297 stores, or 15 per cent, since 2012.

Shutdowns have led some investors and analysts to worry about slowing sales growth at a company whose business has been built on a rapidly expanding store network.

However, despite the store closures, the company has actually increased its overall selling space in Spain since 2012 by opening or expanding flagship outlets in prime locations, according to a source with knowledge of the matter.

Inditex's net retail space in Spain also increased in the last financial year on an annual basis, said the source who declined to be named because the figures are confidential. No store staff have been cut due to the closures, with employees instead reassigned to other outlets, according to company and union officials.

Inditex's strategy of expanding net space could be risky at a time when shoppers are increasingly chasing bargains online, industry profit margins are declining and Amazon has become the biggest seller of clothing in the United States and Britain.

The retailer is bucking the trend in an industry where companies are shrinking their real estate portfolios, either by shutting shops or reducing store sizes.

US firm Gap Inc said earlier this year that it would close 230 of its namesake brand's stores, the latest in a string of apparel retailers from Victoria's Secret to New Look that have shut stores without expanding net space.

Meanwhile, Abercrombie & Fitch, Target and Sephora are experimenting with slimmed-down stores in neighbourhood locations. The success or failure of Inditex's plan could help determine whether combining online sales with a large store network can prevail in mass-market fashion, where blazers sell for under 30 euros (S$46) and midi dresses for under 50 euros.

"Consumers are changing shopping habits. Instead of shopping in secondary locations, they're shopping online but they're still valuing the super-prime flagship stores," said Alistair Wittet, European equities portfolio manager at Comgest, a top 20 Inditex investor according to Refinitiv data. "That's the thinking behind the Inditex strategy - to close the secondary stores and enlarge and improve their flagship stores."

In Bilbao, for example, Zara opened a three-storey store last year in a historic building in the centre of town - complete with chandeliers, marble columns and stained-glass windows - while shutting three smaller stores in the city. Inditex, whose executives are famously tight-lipped and rarely grant interviews, declined to officially comment on whether it had expanded retail space in Spain.

Inditex has nearly 7,500 stores globally, over a quarter of which are fast-fashion leader Zara, with its other brands including Bershka, Stradivarius and Pull & Bear. That is almost twice as many as both Gap Inc and Uniqlo owner, Japan's Fast Retailing, and around 2,500 more than Sweden's H&M.

Spain has by far its largest network, with more than 1,600 outlets, and accounts for about a sixth of group sales, but the reduction in store numbers is not limited to its home market.

Last year, for the first time, Inditex shut more outlets than it opened in China - its biggest network outside Spain. Globally, though, Inditex is still increasing overall store numbers - but the rate is slowing. REUTERS