Zara owner to close up to 1,200 stores worldwide

Madrid

ZARA owner Inditex said it is permanently closing as many as 1,200 stores - 16 per cent of its outlets worldwide - as the world's largest fashion retailer moves to boost online sales after posting its first-ever loss due to the Covid-19 pandemic.

The closures are expected to be concentrated in Asia and Europe, and affect mainly smaller stores and Inditex brands other than Zara, such as Pull&Bear, Oysho and Stradivarius, the Spanish company said on Wednesday. The aim is to transfer their profit contributions to bigger shops or online.

Inditex has already been closing smaller outlets, while opening a few larger stores.

This will accelerate over the next two years as the Spanish company doubles down on e-commerce, investing one billion euros (S$1.58 billion) on its online platform over the next three years.

It is also spending 1.7 billion euros on upgrading its stores and further integrating them with its digital platform. Larger stores will become distribution hubs for online sales, as well as places that customers can browse and buy products.

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The company said it expects online sales to account for a quarter of its business by 2022, up from 14 per cent in 2019. Online sales surged 95 per cent during the global lockdown in April.

Inditex said that "headcount will remain stable", with staff offered roles in other jobs such as dispatching online purchases.

The total store count will fall from 7,412 to between 6,700 and 6,900 after the reorganisation, which will also include the opening of 450 new shops.

Inditex has been hit hard during the pandemic, booking a net loss of 409 million euros for February through April compared to a net profit of 734 million euros for the same period last year. This is after sales tumbled to 3.3 billion euros, down from 5.9 billion euros a year ago.

Inditex's quarterly loss included a 308 million euro provision to close up to 1,200 smaller stores in 2020 and 2021, part of its shift to bigger stores.

Inditex, the cash-rich owner of other fashion brands like Massimo Dutti and Bershka, said the rapid drop in sales had slowed, with sales at constant currencies falling 34 per cent in the June 2-8 period over a year earlier, versus a 51 per cent slide in May.

Despite tumbling sales, inventories still fell by the end of the February to April first quarter compared to a year ago, underscoring Inditex's ability to respond to demand.

Meanwhile, Guess says it plans to close about 100 stores worldwide, or about 9 per cent of its network. The closures will be in North America and China over the next 18 months.

The company's chief executive officer Carlos Alberini said on Wednesday that many of the retailer's leases are set to expire soon, which gives management a chance to renegotiate terms.

"The recent stock performance and expected demand under our new-normal model made very clear that our store portfolios around the world could be optimised to increase profitability," Mr Alberini said on a conference call with analysts.

When excluding currency fluctuations, sales fell 50 per cent in the company's first quarter that ended May 2, largely due to prolonged store shutdowns during the virus outbreak.

Guess reduced expenses during the shutdown by furloughing all store workers and half its corporate workforce while laying off 150 employees at its Los Angeles headquarters.

Management also cut some salaries by as much as 70 per cent and cancelled all capital expenditures that are not "mission critical". The fashion retailer suspended rent payments in April and is now in negotiations with landlords.

Chief financial officer Katie Anderson said Guess has "made progress" with multiple landlords and is optimistic about what can be done to cut rental costs. About 70 per cent of the company's leases globally are set to expire in the next three years.

In the US and Canada, one-third of Guess stores have their leases ending soon and 15 per cent of its European shops will come up for renewal in the next year.

Mr Alberini said not all of these stores will be closed since there are some that are "very healthy". As at Feb 1, the company operated 1,169 stores, with partners operating an additional 560, according to a company filing.

Other major retailers are also on track to downsize their physical operations. Jared and Kay owner Signet Jewelers, J C Penney and Victoria's Secret have all announced permanent store closures over the past month. As many as 25,000 stores are expected to shut this year, a record rate, according to Coresight Research. BLOOMBERG, REUTERS