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 loss ever 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.
The Spanish company will double down on e-commerce, investing €2.7 billion (S$4.26 billion) on its e-commerce operations, including €1 billion on an online platform with proprietary technology, which will be rolled out over the next three years.
It is also spending €1.7 billion 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 where 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 first-quarter net loss of €409 million compared to a net profit of €734 million for the same period last year.
Despite the online boost, sales for February through April tumbled to €3.3 billion, down 44 per cent from €5.9 billion 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.
It still has "tens of thousands of employees" on short-term leave throughout the world, a spokesman said. Sales plunged by 46 per cent in March.
Zara, H&M and Gap may be slowly reopening their stores, but the coronavirus pandemic has had a devastating financial impact on the fast fashion sector, which needs a radical overhaul if it is to recover, experts say.
Nearly 40 per cent of businesses in the sector are expecting the impact to be "much worse" than that of the 2008 financial crisis, a Euromonitor International survey showed. It expects sales of clothing and shoes to fall by at least 12 per cent this year.
At the same time, most fashion groups have seen their online sales soar, with Inditex seeing its first-quarter sales up 50 per cent, Gap seeing a 13 per cent increase, while H&M sales rose 17 per cent in the first quarter with greater increases in April and last month.
Euromonitor analyst Marguerite Le Rolland said the crisis has definitely fuelled a shift towards online sales. They have enjoyed a lockdown boom with interest from new consumer groups, such as the baby-boomer generation.
Inditex said its proprietary technology platform will make it easier for customers to track the items they want, blurring the lines between online and in-store shopping.
Using its app, shoppers will be able to browse a specific store's stock to buy items for collection the same day, reserve a changing room, find garments in store via a map and self check-out using QR codes.
The idea is that sophisticated control of stock and high-tech tools for shoppers to locate items both in store and online will lead to more sales at full price.
In response to queries, a spokesman for the Al-Futtaim Group, which manages Zara in Singapore, told The Straits Times: "Our stores are planning to open as usual in Phase 2 in line with the government measures."
BLOOMBERG, REUTERS, AGENCE FRANCE-PRESSE