Retail and consumers

Zara owner Inditex keeps door open to Russia return

Inditex, the Zara owner that is selling its business in Russia, said it remained willing to return to the country if “the situation changed” as it unveiled a €1.6bn investment plan aimed in part at conquering the ultra-competitive US market.

Óscar García, chief executive of the world’s biggest fashion retailer, said that while it is offloading its 502 stores in Russia — once Inditex’s second biggest market after Spain — it retained the option to return in partnership with the Middle Eastern acquirer.

Following Vladimir Putin’s invasion of Ukraine, the Spanish group said last October that it would sell the Russia business, which employed 9,000 people, to the Daher Group of the United Arab Emirates. García said on Wednesday that “the process is still progressing”.

“If we made the decision to resume our operations in Russia because the situation changed — and of course I don’t think this will happen in the short term — we could resume our activities with precisely those stores that we are transferring to the Daher Group,” he said.

In those circumstances Inditex would “carry out our operations with our own formats with Daher as a franchisee”, he explained. Inditex does not do many franchising deals, but it has several in the Middle East and one partner is Azadea, a group in which Daher has a stake.

Inditex, whose brands include Massimo Dutti and Bershka, has not disclosed the value of its transaction with Daher. The deal precludes the sale of any Inditex products at Daher stores unless the Spanish group formally returns to the country, although experts say there is a risk of goods being imported from elsewhere and counterfeits.

Following the shutdown in Russia, the US became Inditex’s second biggest market by sales. But García said its presence remained relatively small — the company has only 100 US stores, compared to more than 1,200 in Spain — as he announced bold expansion plans for the country.

“[The US] is a market in which for every $100 of fashion sold we take less than 50 cents of that. So we see very strong growth opportunities,” he added.

The move means Inditex will try to avoid the errors of other European retailers that have struggled to gain a foothold in the US, a lucrative but tough market that some analysts say already has too many stores. Its smaller Spanish rival Mango has similar ambitions in the US but is also encountering consumers whose budgets are squeezed by inflation.

Marcos López, Inditex’s capital markets director, said it would embark on 30 projects in the US in the next three years. They comprise 10 new stores across New York, Boston, Charlotte, Los Angeles, Las Vegas, Dallas, San Antonio and Baton Rouge as well as 20 renovations and expansions.

García said “the bulk” of €1.6bn in capital expenditure planned for this year would go to opening or expanding stores around the world, noting that Inditex was moving away from smaller outlets. “We want bigger stores. We’ve increased our average surface area by 30 per cent,” he said.

But he added that Inditex, which has a cash pile of €10bn, would also invest in improving its distribution system.

Patricia Cifuentes, analyst at Bestinver, said the bigger-than-expected plan for capital spending, along with lower cash generation, helped push the company’s shares down more than 5 per cent on Wednesday after it unveiled its results. The broader Spanish market dropped nearly 4 per cent.

For the 12 months to the end of January Inditex posted record figures with sales up 17.5 per cent to €32.6bn and net profit climbing 27 per cent to €4.1bn. In the final quarter of the period Inditex posted a net profit of €1bn on sales that grew 13.4 per cent to €9.5bn.

Shares in H&M, one of Inditex’s main rivals, fell more than 8 per cent on Wednesday after it reported weaker-than-expected sales growth in the three months to the end of February. It sales were up 12 per cent from a year ago at just under €5bn.


Business Asia
the authorBusiness Asia

Leave a Reply