The innovations that helped Inditex return from the pandemic were years in the making, but came about just in time. For about a decade, the world’s largest clothing retailer has been working to unify its online activities with its network of more than 6,000 stores around the world.
The Spain-based group has taken an important step in that process – starting with hundreds of millions of tracking devices and ended up with massive computing power – just before Covid-19 transformed trading.
As a result, Inditex was able to sell stock from stores closed during the worst moments of the pandemic, to push stock down and increase profits in the wake of the crisis, and to pursue its quest for personal and online shopping. , to strengthen.
“We have been working for years on this integration between the physical and the digital world,” Pablo Isla, Inditex’s executive chairman, told the Financial Times. “The last two years have seen the culmination of this process, but also its acceleration.”
Inditex is far from alone in its digital drive, with companies across the planet accelerating their online efforts to tackle the pandemic. Some critics suggest that Inditex’s model, which still relies heavily on brick-and-mortar retailing, may struggle in the future to keep pace with outlets available only digitally. Others argue that its brand of just-in-time fashion is inherently unsustainable, despite efforts the group has made to reduce its environmental impact.
Yet Inditex’s integration of its stores and online operations stands out just as much. In some ways, it is today the central feature of the company, a group created and still controlled by Amancio Ortega, Spain’s richest man, as a vertically integrated business that places a premium on fast production and on customer preferences. rather than drivers’ preconceptions. .
The group’s physical-online integration was made possible by a combination of factors: the detection devices; a common database for the company’s entire inventory, known as a single inventory system; and an internal digital platform that accommodates almost all of the group’s activities.
In many ways, the starting point is tracking technology, known as radio frequency identification, or RFID. The RFID devices, which contain miniature circuits and tiny antennas, are hidden in clothing security labels and are recyclable, keeping costs low.
Yet Inditex, which handles more than 1 billion garments a year, uses about 300 million RFID devices. By tracking the location of all the company’s goods until they are in the hands of customers, the devices provide valuable information to Inditex and allow the group’s 6,650 stores to act as mini warehouses from which orders can be shipped.
The devices send their location at various points in the life cycle of an Inditex hull or jacket – from the factory, when groups are sent by metal scanners before shipping, to stores’ back rooms and display areas, where staff do inventory checks several times per day by swinging electromagnetic magic wands to the garments.
The system was rolled out by the end of 2019 across Inditex’s network, which includes Zara stores, but also brands such as Stradivarius and Pull & Bear. The timing was crucial – when the pandemic closed 95 percent of Inditex’s stores, from April 2020, the single inventory system meant that stores’ inventory could be used to meet a large increase in online sales, which last year from 14 to 32 percent of Inditex’s group revenue increased.
The impact this year was also significant. In results reported in September, Inditex surpassed pre-pandemic revenue, profits and cash holdings – a milestone yet to be reached by competitors such as H&M. Between May and July, sales reached € 6.99 billion, 1.4 percent above the previous peak for the equivalent period, in 2019.
Analysts attribute the figures to reviving consumer demand, a store optimization program that amounts to fewer, bigger, more efficient outlets, and the single inventory system – which helped the group reduce inventory by 4 percent from 2019 levels, despite the increase in revenue.
“Sales are ahead of where they were in real terms two years ago and I don’t think many retailers have reached that position at this stage,” said Anne Critchlow, an analyst at Société Générale, on the September results.
Isla, who has headed the company since 2005, explains the importance of the refurbished system. “The single stock was essential in 2020, but it is the key to our overall approach; it offers our online customers not only what we keep in our online warehouses, but the product in the stores.
“During the season, there may be a product that is no longer on display in the store, because new collections have arrived, or there is not the full range of sizes, but thanks to the single stock system, we can continue to offer it to our online customers.
“This is very good from the point of view of customer service and very positive for the company in terms of gross margin, because it extends the life of the product and the possibility of selling it at full price.”
Inditex also seeks to apply this integrated approach at the level of customer experience. Although there are national variations, the group within countries offers the same range of products online and in person, with customers tasting clothes in stores before buying them online, or vice versa.
Physical stores sometimes even mimic the online exhibit, displaying a series of different looks side by side, almost as if the consumer were flipping through it, rather a wall of the store dedicated to a specific collection.
And thanks to a system available in nearly 500 locations in 21 countries – which the company calls “store mode” – buyers can use the Zara app to track which store holds a particular garment and where in the store it can be found word. The system is also being rolled out at the group’s other brands.
The sheer scale of Inditex’s needs places great demands on the group’s data and computer resources, which the company says it meets through its IT architecture, the Inditex Open Platform. Managers compare it to a huge digital building that houses various departments, from design to logistics to finance; operations in different countries and languages; and the data underlying the single inventory system.
It is also a relatively recent innovation. Over the past five years, as part of a € 11 billion investment program, about 95 percent of the group’s activities have migrated from a third-party platform to the Inditex Open Platform.
The company says the process should be completed by next year and that it will give Inditex the ability to scale up its operations. “With our open platform, we have up to 10 times more capacity in terms of number of transactions per minute,” says Isla, arguing that the platform enables Inditex to process sales much faster than competitors during peak sales times, such as Black Friday.
He adds that due to micro-services – individual features or applications within the overall platform that accommodate different departments’ needs – the system can be easily adapted to suit vendors or new technology groups working with Inditex.
But Inditex, a company that often shies away from publicity, remains reluctant about the broader meaning of the path it has outlined. “I will never say that,” says Isla, when asked what lessons Inditex’s technological changes in the pandemic era have for other businesses. “I’m talking about what is mine, Inditex, what we do. I can not give advice to other companies. “