Inditex has discovered that its giant stores are less and less profitable. The problem is that you can’t close them

Barclays has put his finger on the sore of the Inditex business model. His analysts question whether the megatiendas of the textile giant can continue to generate the productivity improvements that have promoted their growth during the last decade, according to Five days.

The origin of the doubts is in its weak growth of the start of the fiscal year, which has slowed that until now it was a strong and almost uninterrupted growth.

What has happened. Between 2019 and 2024, Inditex has increased its sales by 37% despite reducing the number of stores by 29%. The average size of its establishments grew 23% to 836 square meters, but sales growth is deflated: 11% in March 2024 to 4% in March this year.

Why is it important. The figures show an uncomfortable paradox:

• While online sales grow with higher margins and minor costs …
• … physical megatiendas devour resources and generate decreasing profitability.

However, closing those megatiendas, in emblematic or high visibility locations, with very high costs that eat a good part of the margin, could be counterproductive.

The context. The Inditex megatiendas They are not just stores: they are Showrooms strategic Its real function goes beyond maximizing sales per square meter, they also serve to legitimize online prices.

A jacket of 80 euros on the Zara website seems reasonable because the customer can touch it, try it and validate its quality in a store, especially in a 1,000 square meters in the center of Madrid or Barcelona. And because of the fact that this brand is there, conquering that space.

In detail. The model works like this: Megatiendas create the perception of premium brand that justifies online prices. It is not something that has invented Inditex or exclusive to fashion stores. McKinsey already talked about this phenomenon Before pandemic.

Without that physical presence, Zara would lose some reputational credibility in the face of much cheaper purely digital competitors such as Shein. Physical spaces act as confidence anchors that allow to collect higher prices on the digital channel.

Yes, but. The equation is complicated when the profitability of these Showrooms It deteriorates. Barclays estimates that the growth of sales per square meter will decelerate 8% historical annual to 3% in the next four years.

Maintaining very expensive spaces that do not generate proportional direct benefits is a bit more difficult to sustain in the long term.

Turning point. Inditex will possibly redefine your megatiendas without loading your strategic value. Closed would save costs but destroy a part of the credibility that supports online prices. Keep them as the margins are erodes. The departure is to reinvent them as brand theaters that justify their cost through their impact on the digital business.

It is something very similar to what happens with telecos stores, especially Flagship: They maintain strategic establishments in central and privileged locations for a more reputational and Awareness (Brand recognition, perception, prestige) that by pure profitability.

Outstanding image | Inditex

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