Inditex Seeks To Widen Technology Gap On European Apparel Rivals

Inditex Seeks To Widen Technology Gap On European Apparel Rivals

1. Online expansion helps drive fastest sales growth in two years

2. Zara owner plans to make inventory management more efficient

Tech-savvy retailer Inditex SA, whose online sales have put it ahead of its European clothing rivals, is trying to widen the gap further. The owner of the Zara chain plans to expand its online offering to new markets and upgrade its inventory management technology. The moves are aimed at securing the Spanish company's fast-fashion lead over rivals like Hennes & Mauritz AB of Sweden after the fastest earnings growth in almost two years.

"Inditex is one of very few non-food retailers that find themselves well-adapted for the online world," wrote Anne Critchlow, an analyst at Societe Generale. Inditex so far has defied the gloom afflicting other European apparel retailers contending with sluggish domestic economies, the rise of e-commerce and a shift in consumer spending away from clothing. H&M has warned of price cuts to clear inventory, while UK apparel chains like Next Plc and New Look Retail Group Ltd. have struggled to align their offerings with changing consumer tastes.

Inditex has adopted one of the retail industry's most advanced inventory-tracking systems across all Zara stores. Inditex's Massimo Dutti office-wear chain has also started using so-called radio-frequency identification tags, which automatically track the location of individual garments and help prevent theft. The retailer plans to introduce the technology in other formats in coming months, and all of its stores will use the system within three years, Chief Executive Officer Pablo Isla said on a conference call.

Higher Prices

Internet sales are also enhancing margins at the company while weighing on those of H&M, Societe Generale's Critchlow said. Zara's prices are higher than the Swedish retailer's, which makes it easier to offset free delivery, while a centralised inventory system and efficient supply chain speed up its response to fashion trends.

H&M has also said it's investing in RFID, though it has given few details as to how that's progressing. The Swedish company plans to add six markets to e-commerce in its first half as it tries to narrow its gap with Inditex. Inditex offers online sales in 43 countries, having added Singapore and Malaysia recently. The H&M chain had e-commerce in 35 markets at the end of February, but analysts have been questioning the profitability of that business. Credit Suisse analyst Simon Irwin has said that H&M trails Zara as it only recently began talking about testing click-and-collect services, where online shoppers can reserve products in a store.

The Zara owner put greater emphasis on online expansion last year, cutting its target for new brick-and-mortar stores. This year, the chain will add e-commerce in India, following introductions in Thailand and Vietnam. Inditex CEO Isla is seeking to maintain the retailer's momentum after delivering the strongest same-store sales growth in 14 years in fiscal 2017, despite higher garment costs and increasing competition. The company's shares have more than doubled in the past five years, putting founder Amancio Ortega's net worth just 7% less than Bill Gates's.