MADRID (BLOOMBERG, REUTERS) - Zara owner Inditex said it is permanently closing as many as 1,200 stores - 16 per cent of it's 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 (June 10). 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 1 billion euros (SGD 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.
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.
Clothes retailers from H&M to Gap have reported a sharp drop in sales as shoppers hunkered down at home during global lockdowns to halt the spread of the coronavirus.
Rival H&M warned it would make its first quarterly loss in decades in the March to May period.
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.
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 compare to a year ago, underscoring Inditex's ability to respond to demand.
With additional information from The Guardian.