The wedding of Ricardo Gómez-Acebo Botín, a nephew of Banco Santander chair Ana Botín, was a high society affair outside Madrid this month, attracting gushing Elle magazine coverage of guests’ flower-topped hats, swishy capes — and the fact some people wore Zara.
So noteworthy was the presence of two “inspiring looks” from the Spanish brand, costing €129 and €36, that it became headline news. But the results of Zara-owner Inditex a few days earlier suggested the wedding showpieces were no freak occurrence.
Inditex, which hails from an unglamorous Galician town far removed from the Spanish capital, posted a 13 per cent jump in first-quarter sales that followed a 17.5 per cent rise for the whole of 2022. The growth helped lift its market value to €105bn, still below its 2017 peak but the highest since a pandemic from which Zara has emerged as one of the retail world’s winners.
Although it still sells basics like T-shirts, Zara has tried to differentiate itself from Sweden’s H&M and escape the tag of disposable “fast fashion” by becoming a designer of stylish partywear. Last year American singer Selena Gomez wore a €150 electric blue Zara suit to Britney Spears’ wedding. Inditex’s sales reflect the shift.
Óscar García Maceiras, who became chief executive last year when former chair and CEO Pablo Isla stepped down, said Zara did not have a new strategy of going upmarket. “But we are always striving to improve quality, style and design, and we want to make room for nonconformism in our fashion. That’s never changed,” he told the Financial Times at Inditex headquarters in Arteixo.
Patricia Cifuentes, analyst at Bestinver, said: “They have repositioned themselves slightly upwards to reach the events arena. In the past in Spain you could never wear Zara to a wedding. But now with all the influencers and celebrities wearing Zara you can. Inditex has reinforced the idea that Zara sells fashion.”
In the UK, gossip websites have been tracking the Zara outfits worn by Kate Middleton, now the Princess of Wales, for more than a decade. But the change in consumer perceptions is more recent.
It is partly to do with Marta Ortega, daughter of founder Amancio Ortega and the company’s non-executive chair since last year, who has helped launch premium fashion collections with partners such as the New York designer Narciso Rodriguez and the South Korean brand Ader Error.
Another factor is its increasing use of high-end catwalk photography on its website. “Customers can see the clothes in situations that they would have never seen in the store,” said a member of Zara’s online team. “Ecommerce is the best billboard we can have.”
All the while Zara has maintained its ability to move quicker than its competitors. Because it has its own factories in Galicia and suppliers in Portugal and Morocco, it can design new catwalk-inspired outfits and get them into shops in as little as three weeks.
One analyst, more cautious on Inditex, said a key risk over the next two years was that inflation would keep pushing up operating expenses but customers enduring the cost of living crisis would resist price rises.
Rivals such as Cos, & Other Stories and Arket — all owned by H&M — plus Spain’s Mango, face the same challenge. But in the past quarter at least Inditex’s gross margin rose to 60.5 per cent of revenues, 10 percentage points higher than H&M. García Maceiras said Inditex was always focused on maintaining stable prices “and protecting our own margins”.
Inditex, which reported €33bn of sales and €4bn of net profit last year, has a number of high-street brands, including Massimo Dutti, Pull & Bear, Bershka and Stradivarius. But Zara is the juggernaut that accounted for 73 per cent of revenue.
What it wants is more balance around the world. It operates in more than 90 countries but Spain is still its biggest market, with more than 1,200 Inditex stores and 14 per cent of sales last year.
The big shock was the disappearance of its second-biggest operation, Russia, where Inditex froze and eventually sold its 500-store business after the country’s invasion of Ukraine. The last figures it gave on the Russia exit, in a trading update for February and March, were that it had reduced sales growth by 4 percentage points to 13.5 per cent. The fact it did not cause more damage was a testament to its strength elsewhere.
The new number two market is the US, which Cifuentes estimates accounts for 9 per cent of sales. Although Inditex does not like to expand at breakneck speed, García Maceiras said it was capitalising on an unexpected consequence of Covid-19.
“The appetite for fashion in the US has spread further around the country as people have moved around due to the pandemic and away from New York and California,” he said. “That’s one reason why we’ve opened stores in places as Nashville, Salt Lake City, Denver or San Antonio.”
Analysts reckon that Inditex’s third biggest country is Mexico, followed by the UK, France and Italy, each estimated to contribute about 5 per cent of sales. China is in that bracket too, and what happens there will have a big influence on Zara’s future.
Jie Zhang, a Paris-based analyst at Alphavalue, said Zara had long positioned itself at a higher end in China than in Europe, because it wanted to stay out of a market segment crowded with “so many different, cheaper local brands”.
China’s slowing economy might also provide a boost. “We are seeing some trading down among wealthy consumers. People who might have bought a luxury brand dress are now happy to buy one from Zara,” said García Maceiras.
After her own wedding, one Chinese influencer named Saneiei posted a picture of herself at the after-party and wrote: “No one would have guessed that this expensive-looking silver sequin dress is actually from Zara!”
Additional reporting by Adrienne Klasa in Paris and Xueqiao Wang in Shanghai