Zara Combats Retail Slump with Massive Stores
Zara’s is trying an unusual strategy as brick-and-mortar retailers are desperate for more foot traffic – bigger stores.
Zara’s newest store in La Coruna, Spain, which opened in September, is five stories with more than 54,000 square feet and is serving as a model for other flagship stores. Meanwhile, the women’s clothing and accessories retailer, owned by Inditex SA, is shuttering smaller stores, although it hasn’t said how many, according to the Wall Street Journal.
The idea is that the larger stores will encourage customers to browse more, and therefore buy more. The move is one answer to retailers’ urgent question of how to stop plunging sales being lost to online shopping channels. Zara’s strategy to set itself apart also includes faster clothing production so that its products are cycled in and out of its stores faster than its competitors’ apparel. (See also: Retail Deathwatch Continues.)
So far this year, several retailers have already succumbed to dour retail trends. Retailers that have filed for bankruptcy in 2017 include Gordman Stores (GMAN), HHGregg Inc., RadioShack, The Limited Stores and Wet Seal. (See also: Year of Retail Bankruptcies Looms.)
This past earnings season, a slew of retailers, especially mall-based and women’s apparel retailers, reported disappointing losses and sales declines. Most recently, Guess Inc. (GES) on Wednesday reported fourth-quarter revenue growth of 3 percent year over year, although that was driven by an 11 percent increase in Europe and a 27 percent increase in Asia. In the U.S., revenue declined 6.5 percent. (See also: Guess Drops to a Multi-Year Low on Downgrade.)
“In the Americas retail, where the retail environment remains challenging, we are focused on profitability improvements,” Guess CEO Victor Herrero said in a statement. “We will continue to negotiate rent reductions whenever possible and plan to close 60 stores in fiscal 2018. And finally, we will remain focused on implementing supply chain initiatives that should drive profit improvement in fiscal 2018.”
Zara’s is aiming to avoid Guess-type losses with its plan for larger flagship stores and rapid inventory turnover.