Zara'S Parent Company'S Profitability Is Under Attack.

According to the world clothing shoes and hats net, the competition is becoming increasingly fierce.

Industry, Spain is fast fashion.

In the first half of the year, Inditex group of the parent company still handed in a more beautiful report card, but also encountered great trouble.

The company said it was affected by exchange rate fluctuations and the gross profit margin fell sharply, which means its fast fashion.

Profitability is under attack.

Affected by currency exchange rate fluctuations, the Inditex group's gross profit margin fell to 56.4% in the first half of this year.

Especially in the second quarter, its gross profit margin dropped to 54.8%, exceeding analysts' expectations, while net profit increased by only 1.5% to 712 million euros.

Societe General analyst Anne Critchlow said: "the low gross margin in the second quarter is worrying. The market will pay particular attention to how the index will develop in the coming year, and more importantly, the market has realized that the strength of the euro may continue to exert pressure on sales."

More than half of the sales of Inditex group are generated in non euro currency, so the weakness of these currencies will affect the profits of the financial statements.

Among them, Inditex group accounted for 8% of the sales in the Chinese market, accounting for 4% in the US market and 4% in the Russian market.

Because most of the sales are generated in non euro countries, Inditex has a greater impact on the exchange rate than other retailers. In addition, the cost of the company in the euro area is also greater because the headquarters and logistics facilities of the company are located in Spain.

Agence France-Presse analyst Anne Critchlow has expressed concern about the decline in profitability of Inditex group, indicating that the fluctuation of the euro exchange rate will further weaken the price advantage of Zara and other fast fashion brands in the market. It is estimated that the gross profit margin of Inditex group will decline further in the second half of this year.

The challenge to Zara also includes the price war in the fast fashion industry.

Since 2015, Muji has started to cut 20% of the more than 260 categories of goods in China, with the aim of further expanding consumption through price advantage.

Spain's fast fashion Mango announced earlier that its leisure series price cut was down by about 15%, while UNIQLO was also implementing price reduction measures. Its parent sales group chairman and CEO Ryui Seiso said that consumers did not agree that new products were equivalent to high prices, and that the fashion retail environment was very difficult now. It was a mistake for the company to raise prices in this environment. H&M was improving the price performance of its products by attracting cross-border cooperation.

In addition, Zara is not a worry in China. Some analysts have pointed out that Zara is facing a threat in the Chinese market, and the mainstream view may not be noticed yet.

First of all, China's e-commerce and O2O (online to offline) may weaken the traditional advantage of this fast fashion giant.

Fashion retailers are the primary source of change in e-commerce and online to offline activities in China.

Firstly, the way of contact with consumers is changing.

Consumption is no longer just a walk into a shopping mall, and then into a good store, and now consumption experience has become a combination of shopping malls and smart phones and online ecosystem.

What will be the eventual evolution of this offline and online blending mode is yet to be seen, but China's retail industry is one of its biggest goals.

Besides, the apparel supply chain has been affected by new technologies and may even change.

This brings the question: can the fast fashion global operation mode be reformed through technology? Can Chinese companies acquire the traditional advantage of fast fashion giants through technology? From last year's Tmall double 11 data, we can see that Zara has no advantage and is left behind by its competitors and some domestic brands.

In addition, it is not clear from the data that Zara can get the same profit in China. In particular, it is not sure that it can also see the increase of customers' arrival in Chinese companies, which leads to the rise of brand value.

China's fashion cycle has been very fast. Apparel brands actually carry out most textile production in China. Therefore, it is not clear whether Zara can maintain a high income and total profit margin in China, and the total profit margin in other parts of the world is generally 60%.

According to data monitoring, since January this year, the price of clothes sold by Zara in the Chinese market has fallen by 9% to 14% on average, which may reflect from the side that the group has not reached the expected growth rate in China, and has begun to feel the fierce competition between the industry and domestic clothing brands.

However, in the global fast fashion industry, ZARA relies on its unique business model to maintain its advantages.

In the first half of July 31st, sales of all brands of Inditex group increased in all regions, and overall sales rose 11.5% to 11 billion 670 million euros, gross profit increased 11% to 6 billion 600 million euros, net profit increased 9% to 1 billion 370 million euros, while sales of same store recorded a 6% increase, while its main competitor H&M declined 4% over the last quarter.

The picture shows the Inditex group's main performance data for the first half of fiscal year.

The picture shows sales figures of Inditex group's brands in the first half of the year.

Despite the decline in profitability of Zara and other brands, the group revealed that its brand's sales in autumn and winter were stronger than expected, and its sales increased by 12% over the same period last year from August 1st to September 17th, higher than analysts' expectations.

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By brand:

Zara is still the most profitable brand in Inditex, with sales rising 11% to 7 billion 737 million euros, accounting for 66.3% of total sales.

Pull&Bear sales increased 12% to 765 million euros, accounting for 6.5% of total sales.

Massimo Dutti sales increased by 10% to 791 million euros, accounting for 6.7% of total sales.

Bershka sales rose 14% to 1 billion 16 million euros, accounting for 8.7% of total sales.

Stadivarius sales recorded an increase of 9% to 664 million euros, accounting for 5.7% of total sales.

Oysho is the most significant brand in the period, with sales surging 18% to 271 million euros, accounting for 2.3% of total sales.

Zara Home sales increased by 12% to 383 million euros, or 3.2% of total sales.

Inditex Group Chairman and CEO Pablo Isla issued a statement after the announcement that the group's performance in the first half of the year is basically satisfied, the result further confirms that its brand online and offline business strategy adopted is sustainable.

During the period, 59% of Inditex's sales came from the European market, including Spain. In Asia Pacific region, including China and other emerging markets, sales accounted for about 25% of total sales and 16% in the Americas.

The picture shows the proportion of sales of Inditex group from various regions in the first half of fiscal year.

According to the financial report, Inditex opened 113 new stores in the first half of this year, which are located in Astana, Mumbai, India and Kazakhstan.

As of the end of the reporting period, Inditex's brand has 7405 stores in the world.

Pablo Isla said the group will continue to expand its overseas market and is expected to open new stores in 35 countries.

Among them, India has become a new focus of Zara's efforts this year. The official website of the brand in India will be launched in October 4th. Zara will become the first fast fashion brand to launch an e-commerce platform in India.

It is noteworthy that while actively expanding the scale of online brand business, Zara is also constantly upgrading the environment and services of offline stores.

It is reported that the first batch of brand new stores has been officially opened, the style is more concise and bright than before, and new self-service pickup machines and self checkout machines have been added in the store to enhance the shopping experience of consumers.

Despite the double-digit growth of Inditex sales in the first half of the year, its declining profitability has made investors worry about the fast fashion business.

After the release of the earnings report, Inditex group's share price fell 2.28% to 31.94 euros per share, and its current market value is about 105 billion 800 million euros.

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