Inditex, the owner of Zara which is selling its business in Russia, said it was ready to return to the country if “the situation changes” as it unveiled a €1.6bn investment plan as part of conquering the ultra-competitive US market.
Oscar Garcia, chief executive of the world’s biggest fashion retailer, said that while it was offloading its 502 stores in Russia – once Inditex’s second-biggest market after Spain – it retained the option to return to a partnership with a Middle Eastern acquirer.
Following Vladimir Putin’s invasion of Ukraine, the Spanish group said last October it would sell the Russia business, which employs 9,000 people, to the United Arab Emirates’ Dahar Group. Garcia said on Wednesday that “the process is still progressing”.
“If we decide to resume our operations in Russia because the situation has changed – and of course I don’t think this will happen in the short term – we will certainly be able to resume our activities with the stores that we are transferring to the Daher Group. ,” he said.
In that scenario Inditex “will carry out our operations with our own format as a franchisee”, he explained. Inditex does not do many franchising deals, but it has several in the Middle East and one partner is Azadia, a group in which Daher has a stake.
Inditex, whose brands include Massimo Dutti and Bershka, did not disclose the value of its deal with Daher. The deal also prevents the sale of any Inditex products at stores unless the Spanish group formally returns to the country, although experts say goods are imported from elsewhere and are at risk of counterfeiting.
Following the shutdown in Russia, the US became Inditex’s second largest market by sales. But Garcia said its presence has remained relatively small — the company has just 100 U.S. stores compared to more than 1,200 in Spain — as it announced bold expansion plans for the country.
“[The US] There is a market where for every $100 of fashion sold we take less than 50 cents of it. So we see very strong growth opportunities,” he added.
The move means Inditex will try to avoid the mistakes of other European retailers that have struggled to gain a foothold in the US, an attractive but tough market that some analysts say already has too many stores. Its smaller Spanish rival Carrey has similar ambitions in the US but is also facing customers whose budgets have been squeezed by inflation.
Marcos Lopez, director of capital markets at Inditex, said it will launch 30 projects in the US over the next three years. They include 10 new stores as well as 20 renovations and expansions in New York, Boston, Charlotte, Los Angeles, Las Vegas, Dallas, San Antonio and Baton Rouge.
Garcia said a “large part” of the €1.6bn in capital spending planned for this year would go to opening or expanding stores around the world, noting that Inditex was moving away from smaller outlets. “We want bigger stores. We have increased our average surface area by 30 percent,” he said.
But he added that Inditex, which has a €10bn cash pile, will also invest in improving its distribution system.
Bestinver analyst Patricia Cifuentes said the larger-than-expected capital spending plan, along with lower cash generation, helped push the company’s shares down more than 5 percent after unveiling its results on Wednesday. The broader Spanish market fell nearly 4 percent.
For the 12 months to the end of January, Inditex reported sales rose 17.5 per cent to €32.6bn and net profit rose 27 per cent to €4.1bn. In the final quarter of the period Inditex reported a net profit of €1bn on sales, which rose 13.4 per cent to €9.5bn.
Shares in H&M, one of Inditex’s main rivals, fell more than 8 percent on Wednesday after reporting weaker-than-expected sales growth in the three months to the end of February. Its sales were up 12 per cent from a year earlier to just under €5bn.