Fashion giant Zara's parent company, Inditex, has revealed that it will shrink its store footprint down to between 6,700 and 6,900 stores globally.
Reducing its store network from its current 7,412 will involve opening 450 new stores fitted with all the latest sales integration technology and absorbing between 1,000 and 1,200 smaller-sized stores over the next two years.
Most of the smaller stores set to close are older stores belonging to brands other than Zara that account for 5-6% of the Group's total sales.
How these closures will impact Inditex's Australian operations is yet to be confirmed.
The reduction of stores comes as part of the business' two-year plan to ramp up digital offerings.
In its first quarter 2020 (1Q20) results, Inditex said that it will invest €1 billion (AUD$1.6 billion) in bolstering the online business and a further €1.7 billion (AUD$2.8 billion) in upgrading the integrated store platform by launching advanced technology solutions.
Inditex’s executive chairman Pablo Isla said that the plan has been in the works since 2012.
"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.
"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," he said.
Inditex expects online sales to account for over 25% of the total by 2022, compared with 14% in FY19, underpinned by an integrated online-store network that is structurally nimble, sustainable and smart.
The business will have larger, higher quality stores and higher levels of profitability, helping generate 4-6% like-for-like growth annually.
The significant investment comes as Inditex reports its 1Q20 results, where online sales recorded strong growth of 50% during the period, especially in April where the business saw a 95% uptick year-on-year.
The overall year-on-year sales at Inditex declined by 44% to €3.3 billion (AUD$5.4 billion) during the first quarter of 2020 (between 1 February and 30 April) despite as many as 88% of the Group’s stores being closed at some point during the period due to the COVID-19 pandemic.
The gross margin remained constant at 58.4% of sales, while at the April 2020 close, inventories were 10% lower than in April 2019.
The company’s net cash position for 1Q20 is €5.8 billion (AUD$9.5 billion), compared to €6.7 billion (AUD$11 billion) in April 2019.
Inditex’s first quarter resulted in an EBIT of €-200 million (AUD$330 million) and net loss of €-175 million (AUD$289 million).