By Michael Northcott Thursday, 22 March 2012

Zara profits from eastern promise

The recent financial woes in the eurozone are no barrier to growing your profits - if you take your inspiration from Zara, that is. The owner of the Spanish fashion giant, Inditex, has announced 12% year-on-year growth in profit.

The group has enjoyed impressive growth given shaky economic circumstances: revenue has hit €1.9bn to 31 January, from €1.73bn the previous year. The group’s massive expansion into the explosive Asian market is no doubt responsible for a large portion of this growth, which was also accompanied by the creation of more than 9,300 new jobs. Zara will be opening an online store to cater for the Chinese market too, and 30 new store openings this year take the Zara total in China to more than 100.
 
The company is expanding at an impressive rate: 483 stores in 49 markets opened in 2011, (to a total of 5,527 stores globally) and like-for-like sales, which exclude new store openings, still posted an increase of 4%. Zara now has 1,631 stores across Africa, Asia, Europe, North & Central America, Oceania, and South America, as well as 199 Zara Kids stores. The majority of its outlets are in Europe. In its international portfolio, the group also owns Pull & Bear, Massimo Dutti, Bershka, Stradivarius and Oysho.
 
In contrast, major competitor H&M reported that its like-for-like sales to February were down 1%. Some may put Zara’s statistical lead on H&M down to Zara’s fast turnaround production model which enables it to respond more quickly to changes in the fashion landscape by rolling out additional lines at short notice.
 
It seems that despite biting austerity cuts and the international obsession with the ‘ailing eurozone’, it is still possible for the right business model to do well. Inditex is not standing still for anyone, and with its investment in the Asian market (as well as everywhere else) scaling fast, its competitors must be worried.

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