Zara-owner increases production over supply chain concerns

Inditex, owner of Zara and Pull & Bear, has reportedly started to stockpile inventory and increased its sourcing of fashion items from Asia ahead of potential supply chain issues.

According to the Financial Times, the Spanish fashion group was facing “possible supply chain tensions”, and as a result had temporarily increased production “in order to increase product availability without any change to commitment levels”.

Oscar García, Inditex’ chief executive told analysts the move concerned garments made in Asia, where it procures basic items such as underwear and T-shirts in China, India and Bangladesh. While, he did not disclose the nature of the supply chain issues he foresaw, the move follows disruption caused by the pandemic and comes as retailers face rising raw material and energy costs.

Furthermore, the FT said García sought to play down any perception of Inditex as an exception. “Increasing inventory at the beginning of the season is something you are hearing widely from other market participants,” he said.

Inditex’s “long-haul” sourcing of basics from Asia runs in parallel to its quick-response production of fashion items at factories in Spain and Portugal, as well as sites close to Europe in Turkey and Morocco.

The Spanish company said the value of its inventory at the end of July was €3.67bn, about 43% higher than at the same time last year. But García added that in the time since then the size of the inventory had come down and stressed that the increase in production was in line with strong sales trends.

Inditex recorded record results for the first half of 2022, with sales up 25% year-on-year, hitting £12.8bn and generating record profit of £7.4bn. Its gross margin of 57.9% is the highest it has seen for seven years.

The record results have been driven by a focus on opening up new stores across 24 geographies, but the fashion retail group has also seen online sales continue to rise, growing 11% year-on-year and likely to account for at least 30% of total sales by 2024.

Image Credits:
Inditex

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SECTOR FOCUS – Supply chain issues
Supply chain
24 Aug 2022

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