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Zara, H&M shore up defenses as internet threatens

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CORUNNA Mar 19, 2018 - 12:00 am GMT+3
by Mar 19, 2018 12:00 am

Logistics investments, new technology... Faced with fierce online competition from the likes of Amazon, affordable fashion giants Zara and H&M are shoring up their defenses, trying to use their stores to boost internet sales. Separated by thin partitions, 15 little photo studios used exclusively to update the website line up in a corner of Zara's huge headquarters near Corunna in Spain's northwest. Under a constant barrage of camera flashes, models strike pose after pose to get seven photos showing the piece of clothing from all angles. In total, 1,500 photos are put online twice a week to match the speed at which articles of clothing are replaced in-store.

"Online sales are becoming an element that is contributing significantly to the company's growth," said Pablo Isla, CEO of the Inditex group which owns Zara among other brands like Massimo Dutti, said this week at the annual results' presentation. In 2017, these represented 10 percent of sales, a figure unveiled this week after years of secrecy over a crucial sector that Inditex only entered in 2010, on the late side.

Sergio Avila Luengo, an analyst at IG Markets, said gaining "more visibility online" was the main challenge for Inditex if it wants to remain "competitive in the long term." He said the retail giant started having trouble clearing its stocks for the first time in 2017 due to competition from Amazon, which sells everything from books to clothes. For its part, Sweden's H&M, Inditex's arch-rival, has recognized that a drop in profits in 2017 was due in large part to online competition. The clothing market "is in big transformation," CEO Karl-Johan Persson said in February.

"It is happening fast and it is challenging everyone.

"We know about the big online platforms, I'm thinking Amazon and (China's) Alibaba, affecting our industry," he said, adding smaller niche online players were also "a force to be reckoned with."

Faced with this threat, H&M devoted 45 percent of its investment to the internet in 2017, or close to 600 million euros, for a new photo studio and personalized apps for its clients.

These services may be crucial for customers but they represent a major logistics challenge, especially when faced with Amazon which already has "a much bigger logistics structure, already adapted to all sorts of different products," said IG Markets analyst Avila Luengo.

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