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77% online sales growth cold comfort as Inditex sees 70% slide in profits in 2020

Zara’s retail space in Brussels is a product of careful consumer testing.

Online now accounts for 77% of sales and contributed €6.6bn in sales for fashion retail giant Inditex. Overall, however, the company has recorded a worse than expected 70% slide in profits due its vast portfolio of stores being closed across Europe.

Throughout 2020 online visits to Inditex brands reached 5.3 billion, an increase of 50% on the previous year. The Group also reached 200 million followers on social media and some 132 million active app users.

But the lockdown has pushed hard on the retailer. As of 31 January 2021, 30% of stores were in full lockdown (versus 8% on 31 October 2020) and 52% had restrictions.  

Despite the disruption caused by the lockdowns and restrictions, however, the group did manage high sales productivity, the company says. Trading hours were down 25.5% versus 2019, seeing total store and online sales in constant currency were down 24.5% versus 2019.

Across 2020 group sales reached €20.4 billion, with gross profit hitting to €11.4 billion, down on 2019’s FY of €15.8bn. The gross margin reached 55.8% (-6 bps). The gross margin in constant currency in FY2020 increased +170 bps to 57.6% (+257 bps in 2H2020).

Outlook looks brighter

Inditex continues to expand its global, fully integrated platform underpinned by the key strategic pillars of store and online integration, digitalisation and sustainability.

According to its full year report, Inditex’s global online sales launches continued at pace through 2020, with Zara launching online in 25 markets. This is set to continue in 2021, with total annual capital expenditure during the period 2020-2022 set to be around €900m in a plan that includes digital investments of some €1bn over the three years.

The retailer says that store and online sales between 1-7 March 2021 were -4% vs -4% in same period in 2020. Excluding the five most relevant markets in lockdown at the moment (Brazil, Germany, Greece, Portugal and UK) sales grew 2%. Inditex says it hopes that almost all of stores will be open by 12 April.

The company also stresses that its sustainability push will continue despite the downturn in profits. As per its Sustainability Roadmap Goals, the retailer has achieved all of the targets set for 2020. In particular, outperformance was seen in two main areas: Join Life and renewable energy. The Group has also set ambitious new targets for the year 2023.

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