The Fashion Retailer A guide for potential double digit long-term growth in a mature environment
Pau Almar is an expert in fashion and apparel retailing that has held several senior management positions in Mango and Zara menswear for the last 10 years in commercial areas optimizing decision-taking, stock efficiency and in-store operations. Additionally, Pau is the editor of Very Good Retail a LinkedIn weekly newsletter about retail and the author of two books on strategy.
This is the second part of the article that was published a couple of weeks ago: Why nobody speaks about Inditex growth levers? (part 1)
A guide for potential double digit long-term growth in a mature environment, by Pau Almar for the fashion retailer (part 2/2)
9 opportunities to drive double digit growth
1. ECONOMIES OF SCALE AND SYNERGIES. Inditex is a house of fierce competition. Every role in the organization competes against other roles to make a perfect balance. Brands in the group are considered rivals and commercial information is confidential. However, that makes little sense when we are talking about making the most of economies of scale.
2. BARGAINING POWER – or example, Inditex has a higher bargaining power as a whole company than if every buyer in every department of every brand bargains on its own. Currently, it is very common to find similar products bought at a different cost. Does it make sense? Probably not.
3. RETAIL ECOSYSTEM. Another example is to make the most of the network effect of the eight brands Inditex has. For instance, imagine that all stores from Inditex brands move away from a high street to a different street. All of a sudden, the old high street loses traffic and Inditex’s new location gain relevance. This type of movement can create new commercial streets with better locations and are less expensive. Planning new ways of real estate expansion might have a significant impact on P&L.
4. LOYALTY & CROSS-SELLING ACROSS GROUP BRANDS. Moving from physical to online, Zara products can be used on Massimo Dutti’s website. Or the other way round. Tendam, Inditex’s local competitor, is doing it with excellent outcomes. Imagine you are watching a Men’s suit in Zara. Maybe you would pay a little more for an Massimo Dutti (MD) higher quality one. Products are “owned” by Inditex, not Zara or MD, so any customer should leave a website if the right product is on another brand. Cross-selling among brands is the solution.
But if we move forward, Inditex is suffering from fierce competition from Asos, Zalando and Amazon. All these marketplaces offer access to multiple brands at multiple price points. Some of them already host some of Inditex brands. Doesn’t it make sense to build an Inditex marketplace to compete?
Maybe you didn’t know but you can buy a Zara gift card and use it on any other brand of Inditex. But chances are that if you try to pay in a different brand, they would not be able to process. The process is so complicated that is almost impossible to use it. Believe me, I tried several times. So, the thing is, from a commercial point of view what is more appealing: a Zara gift card or an Inditex gift card to be used in 8 brands?
5. ONLINE IS THE PLACE TO BE. The pandemic helped skyrocket the weight of sales. Now online is more relevant than ever before. But still, there are many things to be done in this key area. First, expensive videos should shift to engaging marketing. The current shootings are based only on the image of the haute couture, but they do not convert as much as many small players do. Understanding that selling online is not only about the image, but also about engagement is crucial to fostering growth. Metaverse, NFTs, TikTok and gamification are what Inditex needs to keep up with the future trends online.
6. CURATION. In 2022, no technical person understands the poor customization of Inditex websites. Zara only started changing landing pages according to gender last year. It is a piece of vital information that has been there for the last 20 years or so! It does not make sense that a company like Inditex is not paying attention to providing custom content using AI. If I buy casual shirts and tees 80% of my visits, why are you showing me 10 suits in a row? Really? Even segmentation and profiling are dead. Tik Tok is moving forward in this direction and it is making a difference!
7. SIZING AND RETURNS CHALLENGE. Make sensible use of the sizes. It is very common to find that you are an S in one t-shirt and M in another. So, what do many people do? They buy both and return one. In many countries, online returns can get up to 40%. Can you imagine the cost of it? We are talking not only about the financial performance, but the carbon footprint. It is enormous. Many options exist for reducing returns due to size mismatch from image recognition, quizzes, measuring…
Online is the place-to-be. Ok. But the competitive landscape is getting worse. Now it is more difficult to grow than 12 months before. Even some of the online biggest players are starting to see negative numbers. As a consequence, NASDAQ is going down for weeks and getting closer to pre-pandemic levels. New economic scenarios forecast a sharp increase in physical retail while a less growing eCommerce.
8. LOCATION, LOCATION AND LOCATION. The presence of Zara, the largest brand in Inditex, is not as good as Uniqlo or H&M in the United States for example. Both of them have larger stores in better locations in New York, Los Angeles and San Francisco, to name a few. South-East Asia, Chile, India and the Middle East continue to markets with still high growth possibilities if the product is adapted to their needs.
But Inditex is not about Zara. The exit from China of all brands but Zara and Zara Home do not make any sense. You might say that they are online. But while physical stores weigh more than 80%, the real competition is on the street. A country that sells millions in tee shirts with Disney cartoons or western rock groups just cannot afford to let brands like Pull-and-Bear, Stradivarius or Bershka away. More effort has to be made to understand the local customer needs because, a great deal of future growth will come by increasing the presence of the rest of the brands, not Zara’s.
9. SUSTAINABILITY. And last but not least, the new Green Deal EU directives are trying to deter the fast fashion by increasing standards of duration, repairability and recyclability. The proposed change is so huge that will have a significant impact on every fashion retailer it might be Inditex’s great opportunity against SheIn’s ultra-fast fashion and Primark’s ultra-low price.