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Zara’s parent company sees growth despite signs of recession

Zara store
Zara’s store in Varna, Bulgaria. Image source: Maryia_K / Shutterstock

Inditex, the owner of Zara, as well as Bershka and Massimo Dutti, have seen an increase in sales and profits this year. This follows growth trends throughout the retail sector despite the unstable economic backdrop. The group reported profits in the first three quarters of 2022 at €3.1 billion from just over €2.3 billion in the same period of 2021, representing an increase of over 24%. Sales saw a similar increase jumping by 19% to €23.1 billion, topping the company’s previous record figures prior to the pandemic.

The multinational fashion company attributed the increase in sales partly to successful autumn and winter collections. Known as a dynamic and reactive brand, Inditex has historically focused processes on reducing lead times, with almost two-thirds of manufacturing carried out locally. These approaches helped the company navigate the challenging economic conditions seeing increased footfall in stores and strong sales both in-store and digitally.

Economic uncertainty throughout Europe had led to questions about consumer behavior in the retail sector. This has partly been caused by the war in Ukraine, which has been connected to rising inflation and spiraling energy costs up by more than 40% compared to the previous year. This cost of living crisis led to Europeans cutting back on spending with concerns among analysts about the consequent impact on the retail sector.

Inditex CEO Óscar García Maceiras discussed the successful business period on an earnings call earlier in the week. Maceiras discussed how the company bounced back in the US whilst citing Covid-19 lockdowns in China as a critical barrier to the company’s growth in that market. Taking a longer-term view, Maceiras stated that the company remained optimistic about future sales in China.

Despite the overall growth this year, Inditex’s sales slowed in the most recent quarter of 2022. The company saw growth of 25% in sales figures over the first six months of the year, dropping by 6% by the end of October. This year saw pricing hikes by retailers in response to increases in business costs. Supply-chain issues, energy costs and other logistical challenges have all contributed to rising costs for businesses.

This has led many businesses to balance rising operating costs with consumer purchasing power. Inditex has discussed increases of 17% in the first nine months of 2022. As a contingency plan for potential supply chain disruption, the company has also ensured additional inventory stocks are available and accessible, with stocks 15% higher than at the same time last year. With plans to increase product prices throughout the last quarter of 2022, Inditex continues to navigate the commercial challenges of an uncertain economic landscape.

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