April 1, 2022
Inditex opens a new chapter in its history. Unexpectedly announced last November, the executive changes of the group founded by Amancio Ortega will take their final form this Friday, April 1, following a transition period the company has already announced. experienced in the past few months.
Marta Ortega, the youngest daughter of the businessman after her second marriage to Flora Perez, assumed the position of non-executive president of the group, which last year recorded a 36% increase in revenue to 27,716 million euros and today boasts a total of 6477 stores and more. more than 165,000 employees worldwide. The heiress and graduate of the London Business School has 15 years of corporate experience, particularly in the Zara retail chain, during which she was actively involved in its repositioning into a high-end market. than.
Passionate about equestrian sport, having a good relationship with relevant fashion industry players such as Pierpaolo Piccioli or Steven Meisel and a trend expert, Ortega takes on the position this spring to ensure the company’s generational transition while ensuring the viability of a successful business model in the face of the unprecedented threats of a new era. We analyze the major challenges facing the Spanish fashion giant.
The legacy left by Pablo Isla
“I have full confidence in the new era Inditex is entering, with Marta as president and Oscar as chief executive officer. It’s a promising new chapter for the future. Marta has been with the company for 15 years. year, knows it very well and has a lot of criteria Óscar is an impressive CEO When you look at the 2021 annual results, considering everything that has happened, you realize the solidity of the company company and the quality of the team,” said the group’s president, Pablo Isla, in presenting the group’s annual results on March 16. A press conference was held at Inditex headquarters in Arteixo (A Coruña). ).
While Ortega’s takeover always seems like the logical development the fashion company is heading towards, the announcement of the departure of its top executive coupled with the appointment of Óscar García Maceiras as CEO is surprising. Under the leadership of Isla, who succeeded José María Castellano in 2005, Inditex implemented a company-specific integration model and fueled international growth, in addition to multiplying the stock market value tenfold. time. “I think the work we have done together in recent years has been amazing and we have overcome very difficult challenges such as the financial crisis and the Covid-19 pandemic,” the chief executive officer said. Madrid-born announced when he announced his “voluntary resignation” late last year.
Isla leaves a well-run company that, despite a 2% drop in revenue in 2019, has grown Ebitda by 58% to €7183 million in 2021, increasing net profit to €3242 million and recording profit margins highest gross profit in the last six years, at €15 814 million. “I’ve been completely focused on the transition,” Isla revealed in her last public appearance when asked about her professional future. “It’s been a very stressful and beautiful few months personally, it’s been a very natural process. I’m not retiring, obviously, but I can’t say more,” he said with a smile. laugh freely in an informal conversation that included jokes that accompanied his final farewell as well as García Maceiras’ presentation of the first results.
According to the company’s annual salary report, Isla received 23 million euros when leaving the group. A substantial amount, of which 19.7 million euros corresponds to a non-compete clause, under which the executive agrees never to work for another company in the clothing sector again. When he joined the corporation, the term was only for two years. In the first half of April, Isla will receive an additional 3.25 million euros in compensation for termination of the contract. Over the past year, the chief executive officer, who is often considered the best CEO in the world, received a salary of 12.4 million euros, more than double that of the previous financial year.
A companion from outside the Inditex family
When changes at the company’s leadership were announced last November, the resignation of former CEO Carlos Crespo came as a surprise. Similar to Isla and with over two decades of experience in the company, the chief executive has been transitioned to the position of chief operating officer of operations, sustainability and digital transformation, just two years after being hired. promoted to the position of executive director. His successor, García Maceiras, assumed the role immediately. A state attorney with extensive banking experience, the executive has only been with the company for a few months before being appointed general counsel and secretary of the board in March 2021.
“Pablo has set the bar quite high, but I hope to have the opportunity to present the company’s results over the next few years. Without his work, I would not be able to understand the present or the future. of Inditex. García Maceiras said at the start of his speech on March 16, praising his predecessor’s work over the past 17 years. same in his professional career,” he continued, emphasizing that “Inditex is a global, digital, integrated and sustainable company.”
A delicate global scene
The group’s sales are up 33% compared to 2021 and up 21% from the “historic high” reached in 2019. Meanwhile, revenue in the Russian Federation and Ukraine, where Inditex has suspended operations. from February 22 and March 5, respectively, representing 5% of total sales. “We believe these strong strength numbers underline the commercial strength of the company,” the CEO said, noting that with the exception of these two markets, all regions have recovered. about “the extent and speed we had before the pandemic.”
The Russian market, which accounts for about 8.5% of the group’s global Ebit, represents a “non-financial investment” for the company anyway, as the 502 stores it operates (86 of which are retail stores). Zara store) has been rented. Second only to Spain, the Russian market has the highest number of stores of Spanish companies with 9,000 employees. In Ukraine, the number of stores is limited to 80 and the number of employees exceeds 1,000. “Our primary goal is to support our workforce through a special program in both countries. This is a temporary shutdown, but our goal is to continue operating. act as circumstances permit,” the executive stated, not wanting to make “guessions” about the possible course of the situation.
In addition to instability in Eastern Europe, there is also instability in China, marked by the supply chain crisis of the past few years, as well as recent weeks that have seen ongoing restrictions and restrictions. out in this country. The Chinese market is extremely suitable for business, where Inditex has a presence with more than 300 stores after gradually restructuring its retail network over the years.
Conquer the US market
Among the most surprising data from the company’s latest financial presentation was the growth in sales in the United States, making it the group’s second-largest market in terms of sales volume. products, second only to Spain, accounting for 14.4% of total sales. “We see a lot of growth potential in the North American market. It has grown very favorably and we believe it will continue to do so in the coming years,” Isla said of the commitment. of Inditex for the region, where it only works physically with Zara while other chains sell exclusively online. This market is not in the company’s top 10 in terms of number of stores, with a limited network of 99 stores. “We believe they have their own growth potential and we do not anticipate a spectacular expansion during the year, but rather continue to explore the existing stores and continue to focus on improving the location. ours,” added García Maceiras.
“In all the markets in which we are present, we have the potential to continue to grow and deliver a business model for our customers: high-quality, sustainable fashion at the best prices,” the CEO said. know when asked about the strategies implemented to deal with the impact of the sales suspension in Russia and Ukraine. “We have an international presence in 90 markets with physical stores and among them are able to guarantee solid, sustainable growth and absolutely healthy earnings reports,” said García Maceiras. is at the beginning of the campaign,” said García Maceiras.
How high can prices go in response to inflation?
“Price stability is one of our corporate policies and we intend to keep it that way,” said García Maceiras, adding that “in markets where there is physical inflation or currency depreciates”, “selective adjustments” can be made. This price increase is about 2% in Spain and Portugal from Spring/Summer onwards. Meanwhile, Isla added: “There are obviously inflationary pressures and the company wants to protect margins, be very selective, moderate, and act very cautiously when making adjustments.”
However, the increase in the prices of the company’s brands, and more specifically that of Zara, has been closely linked with a progressive increase in quality, towards a more premium positioning through the launching limited collections offering products that are more refined in appearance and manufactured using higher quality materials. The Group’s strategy is to engage customers strongly, enhance the perceived value of the brand through strategic partnerships with well-known brands or creators, and carefully market and enhance the quality of its fabric. In other words: a company can selectively raise prices, of course, but it’s important to ensure that customers believe these products are worth buying.
Online growth and sustainability in focus
In 2021, the group’s online sales grew 14% to €7.5 billion and already accounted for 25.5% of total sales. During the pandemic, e-tail accounted for 32%. However, the group’s top executives view these metrics as overall performance metrics. “We look at sales in general,” Maceiras explains. Omnichannel at Inditex is a reality. Our stores serve as the logistical support for online sales and vice versa. Last year, the company’s online visits grew 13% to 6.2 billion, followers on social media platforms totaled 228 million, and active apps reached 146 million.
“When it comes to Inditex’s online sales, we’ve always had to put the data in a way that means the sales are fully integrated. A very high percentage in all markets, over 60%. , profits happen in-store; we understand that this gives tremendous power to an integrated approach.This is our differentiating factor and Inditex’s online sales cannot be compared. with the online sales of a purely online retailer,” Isla said.
While the group insists on emphasizing a “sustainable commitment” to specific strategies communicated such as its promise to become a greenhouse-neutral company by 2040 or exclusive sourcing of “cotton, linen, polyester and viscose from sustainable sources”, Inditex faces a significant challenge in combining its economic ambitions and production model with the needs of increasingly savvy customers and the needs of a planet that requires change to survive. This is by no means an easy feat and it remains to be seen how the company performs under the leadership of the new CEO.
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