Zara Swung Its Hips And Impressed Investors

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What's going on?

Inditex – the owner of Zara and the world’s largest clothing retailer – saw its shares jump almost 2% on Wednesday as it reported financial results and placed new emphasis on online sales.

What does this mean?

Inditex is doing a very good job of growing its sales: they were up 17.5% last year which helped the company’s profits grow by 15%. Inditex says that it’s succeeding by having its online platform and physical stores work together to sell clothes. For example, customers exchanging an item in-store that was initially bought online often purchased more items. Going forward, Inditex won’t be opening as many physical stores as previously anticipated as they focus on using online sales to drive more sales per store.

Why should I care?

The bigger picture: The fact that this model is working for Zara could be good news for other retailers. For example, Macy’s believes that its online offering can be combined with its in-store experience to drive sales in a way that isn’t available to an online-only retailer such as Amazon. Perhaps this is one reason why Amazon is, reportedly, about to open hundreds of physical book stores (and, later on, other types of stores).

For you personally: More online sales should mean cheaper clothes. Opening and running stores is expensive – if the process can be more digitized then retailers like Inditex should be able to cut costs and, therefore, sell clothes to you for less. Indeed, one major analyst thinks that Inditex has already been lowering prices in order to drive customers to its stores (from competitors). As other retailers, likely, adopt this model, it could be good news for the rest of us.

Originally posted as part of the Finimize daily email.

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