Zara Parent to Close 1,200 Stores and Invest $3 Billion in E-Commerce
Zara-owner Inditex is closing up to 1,200 smaller-sized stores, as the fashion giant unveils a proprietary digital platform and pivots to accelerate its digital transformation.
Inditex, which also owns the Bershka and Pull & Bear chains, said it will broaden and complete its store technology upgrade plan, as it continues opening larger stores and absorbing smaller ones. Inditex plans to ultimately have 6,700-6,900 stores, down from 7,412, which will include opening 450 new stores fitted with all the latest sales integration technology and absorbing 1,000-1,200 smaller-sized stores, most of which belong to brands other than Zara. It also noted headcount will remain stable, as the Group will offer all associates from closed stores positions covering the needs generated by online integration, such as dispatching online customer items from store.
a post-pandemic digital future
The apparel retailer unveiled its 2020-2022 plan, in which it will accelerate and broaden its digital transformation strategy. The plan includes capital expenditure of €1 billion to boost online and an additional €1.7 billion to further integrate the store platform (a total of 2.7 billion euros or $3 billion). It also gave details of its proprietary digital platform, a tailor-made IT architecture for the integrated store and online business model, which will be completed by 2022.
Inditex saw a 44% decline in year-on-year sales during the first quarter of 2020, which ended April 30. Up to 88% of its stores were closed at some point during the period due to the Covid-19 pandemic. Online sales jumped 50% during the period, up 95% year-on-year in April.
Inditex is pivoting to a more digital future, as it expects online sales to account for more than quarter of total sales by 2022, compared with 14% in FY19.
“This strategy is a culmination of the project the company has been investing in steadily and significantly since 2012, a project that will transform its profile notably,” said the Group’s executive chairman Pablo Isla. “The overriding goal between now and 2022 is to speed up full implementation of our integrated store concept, driven by the notion of being able to offer our customers uninterrupted service no matter where they find themselves, on any device and at any time of the day.”
Inditex’s Open Platform (IOP) project
Inditex’s Open Platform (IOP) project has involved creating a proprietary IT architecture over which all of the company’s digital operations run. The platform is currently 60% operational and will be fully deployed between 2020 and 2022. Starting from the e-commerce platform, it layers in all the associated processes, including inventories, purchasing, distribution and orders, injecting flexibility and scalability. Inditex said it is “one of the most technologically advanced platforms in its field.” It’s implemented through microservices to help the specific needs of every department or area involved in the process without changing the whole system.
Scalability is crucial for Inditex to maintain service during periods of peak traffic, such as sales seasons, and is key to readying the company for the anticipated ramp-up in online sales, it said.
Inditex also noted its stores will each act as a fashion distribution hub. To that end, Inditex plans to reinforce all of its brands’ e-commerce capabilities. For example, the new www. zara.com studios in Arteixo, Spain, will increase the online customer service teams and the dedicated packaging both from the specific online stockrooms and the stores.
Inditex said the implementation of its RFID system, which enables garment tracking and integrated inventory management, will be fully deployed across all the brands by the end of 2020.
The unified vision of the integrated stock needs real-time processing and it has been implemented through the IOP. Thanks to the platform, using the data generated by the RFID system, Inditex can seamlessly bring up all of the latest fashion creations on any device in real time; track demand with no time lags; manage stocks with the utmost efficiency; and accurately fine-tune production.
One of the initiatives that best sums up the advantages of this proprietary digital platform is the Sint project, which is enabling stores inventory to help meet online demand. In addition to handling direct customer sales, the stores are preparing e-commerce orders from their stockrooms, which are fully integrated with the online platform; that is translating into more effective stock management as well as faster deliveries.
This project is underpinned by a series of technology developments increasing the precision of logistics operations and added synergies into online-store operations. For example, high-capacity RFID readers have been designed to count inventories in warehouses with high traffic volumes; the XWMS system, similarly developed in-house, manages the warehouses so as to select the ideal location for sourcing each order for delivery purposes; and new analytical systems are optimizing transport flows and garment availability information.
“Store mode” will allow the brands’ mobile apps and websites to provide customers with new services, such as the ability to consult store stocks in real time for online purchase and immediate collection, and pinpoint the precise location of a specific item within a given store.
The investments made in technological innovation, in fostering sustainability across the board, in the exclusive RFID-enabled garment tracking system, coupled with its unique approach to stock management, position Inditex for the online-store model of the future, it said.
The Group began opening stores at the start of May and 52% of its stores were open in May with capacity restrictions in most markets. Store and online sales in local currencies were down 51% compared to last year’s revenues. Sales in stores have been recovering gradually, the retailer said, with certain markets such as China and South Korea and, in Europe, Germany, standing out.