On cried a lot on May 19 in Villeneuve-d’Ascq, in the North, when the director of Pimkie announced the disappearance of the fashion subsidiary of the Auchan group. After Vivarte, France is losing one of its main representatives in a sector that seems to be taking on water from all sides. Rise in raw materials, supply disruptions, disaffection of young people against a backdrop of bad green conscience, the low-cost fashion sector is suffering. Even the American Gap and the Swedish H&M had to concede poor results and gloomy prospects at the start of the year.
And then, in this ruined landscape, dominates a figure that seems stainless. The Spanish group Inditex, owner of the Zara brand, announced breathtaking results on Wednesday June 8. Its operating profit exploded by more than 80% in the first quarter of its fiscal year, combining the months of February, March and April. At the same time, its sales rose by 36% to 6.7 billion euros, and its profit margin is at its highest for ten years. Inflation is eating away at buyers’ wallets, the war in Ukraine is closing important markets, but the world leader in clothing, born 47 years ago, continues on its way, unperturbed.
Draconian cost control
Its recipe has not changed since its creator, Amancio Ortega, opened his first Zara store in La Coruña in the far west of Spain. A production as close as possible, in the Iberian Peninsula but also in Morocco and Turkey, at the service of unparalleled responsiveness. The successes of the big houses are copied at the speed of light and produced in record time according to customer appetite. And, of course, a draconian cost control, very much in the Galician mentality. The group has not hesitated to charge for returns of purchases on the Internet, unless customers move to the store. And the latter returned after the confinements. In 2021, the company recorded a spectacular profit of 3.2 billion euros, benefiting from its development in the United States.
For now, Inditex plays inflation and shortages of all kinds. It even benefits from it, thanks to its model that is not very dependent on Asia for its supplies. But like many of its competitors, it had to inflate its stocks so as not to miss sales, which is not its habit. Because a new danger is already looming for the kings of low-cost fashion. That of a flood of unsold goods which forces people to sell off when all prices are rising. This is what is happening at the moment in the United States and is threatening in Europe. In the ephemeral and fragile world of fashion, this is a mortal risk.