Zara owner in surprise decision to invest big despite cost-of-living crisis

The new capex plan comes after Inditex’s operating profit, up 29% to €5.5bn in the year through January, missed expectations. Picture: Collins

Zara clothing chain operator Inditex surprised investors with a plan to significantly increase spending on new stores and e-commerce despite closing more than 1,000 shops over the last three years and amid a wider market slowdown in online growth due to the cost-of-living crisis.

Shares in the operator of the Zara and Bershka chains fell as much as 3.6% on Tuesday after the retailer said it planned to invest €1.6bn in stores and warehouse expansion.

The new capex plan comes after Inditex’s operating profit, up 29% to €5.5bn in the year through January, missed expectations.

The Spanish retailer has been weeding out its weakest stores and now it is reaping the benefits of a more efficient brick-and-mortar platform, which is reporting higher sales with fewer shops.

That helped boost net cash to €10bn, which will help fund the investments planned for this year. Projects include expansion in major US cities, a new Zara on the Champs-Elysees in Paris and expanding a platform to sell second-hand clothes in France and Germany.

Clothing retailers face tough comparisons in 2023 given last year’s sales boom, which was helped by pent-up demand after pandemic restrictions were lifted. Online revenue rose 4% in the year through January as shoppers shifted back to visiting brick-and-mortar stores.

Among Inditex’s challenges are reversing declines in profit at the Massimo Dutti officewear and Oysho lingerie chains.

Meanwhile, H&M, the world's second-biggest fashion retailer, reported a 12% increase in December to February net sales while, measured in local currencies, sales were up 3%.

The Swedish group said net sales for the period, its fiscal first quarter, were up 12% from a year earlier to 54.9bn crowns (€4.9bn).

H&M saw profits tumble for last year as it did not fully pass on soaring raw material, freight and energy costs to its price tags.

• Bloomberg, Reuters