Inside Inditex’s $2 Billion Logistics Expansion
Zara parent Inditex is doubling down on its logistics capabilities, spending 1.8 billion euros (roughly $2 billion) over the next two years to build three new distribution centers and expand another one of its facilities.
The expansion plan will be split equally in increments of 900 million euros ($981.5 million) across 2024 and 2025.
More from Sourcing Journal
Inditex will build a second distribution center in Zaragoza, Spain, complementing the roughly 3.5 million square foot logistics hub it already operates for Zara in the city. The new Zara distribution center will be about 3.1 million square feet, feature three levels of storage and include 113 loading docks.
The Spain-based fashion firm estimates that it will generate 1,500 jobs when the facility operates at full capacity, and between 300 and 400 jobs will be created in the opening phase.
The company is also constructing two facilities in Valencia, one each for Bershka and its footwear manufacturer Tempe. For Bershka, Inditex will build a 1.25 million square foot distribution center, while Tempe will establish a 1.5 million square foot logistics hub.
Alongside the new construction efforts, Inditex will also expand a currently operating Zara distribution center in Lelystad, The Netherlands, by 1.3 million square feet.
Most of these projects will be gradually operational as early as the second half of 2025, Inditex CEO Oscar Maceiras said in a Wednesday earnings call. In total, Inditex operates 12 logistics centers.
“The objective of this logistic expansion plan is to strengthen Inditex’s capacity to capture the ample global growth opportunities in the medium and long term,” said Maceiras. “These investments will have the highest status of sustainability and use the most up-to-date technology. I would like to finish with a brief comment on our current performance.”
Inditex is kicking off 2024 strong, having generated an 11 percent constant-currency sales increase in the period between Feb. 1 and March 11 compared to last year.
This is despite the ongoing Red Sea crisis, which has resulted in one-week product delays for Inditex as most container vessels carrying Inditex goods are making their way around Africa instead of passing through the Suez Canal.
“For the time being, there seems to be no risk of disruption to transport chains and no lack of availability of vessels and/or containers,” the company said in its annual report. “Shipping costs may have risen as a result of higher fuel consumption and the extraordinary cost overruns. Our operations have not been significantly impacted by this situation so far.”
Even with the Red Sea-related delays, Inditex chief financial officer Ignacio Fernández said in the call that the business experienced a “normalization in supply chain conditions” when compared to the prior year, when excess inventory plagued the apparel and fashion industry. Total inventory at Inditex was 7 percent lower at 3 billion euros ($3.2 billion) as of Jan. 31 versus the same date in 2023.
For the final quarter of 2023, Inditex saw sales jump 8.7 percent to 10.3 billion euros ($11.3 billion) on a 23.5 percent jump in net income to 1.3 billion euros ($1.4 billion). The company’s performance sent the stock up as much as 8 percent Wednesday.
The retailer, which also consists of fashion brands like Bershka, Stradivarius, Massimo Dutti and Pull&Bear, plans for annual space growth of around 5 percent in the three-year period from 2024 to 2026 with space contribution to sales expected to be positive, said Macieras.
In 2023, Inditex saw 2 percent net space growth among its brands, albeit 2 percent fewer stores by the end of the year. The fast-fashion company had 192 store openings, 231 refurbishments, 84 store enlargements and 350 closures, taking its total store footprint from 5,815 to 5,692. Zara comprises 1,811 of those physical locations.
As part of Inditex’s reshuffling of its store deck, the company will allocate another 900 million euros ($981.5 million) in 2024 capital expenditures. This spend will be mainly dedicated to the optimization of the Zara parent’s commercial space, integration of technologies like RFID and the company’s proprietary integrated stock management system (SINT), as well as the improvement of its online platforms.
The logistics upgrade comes amid criticism thrown at Inditex’s supply chain because the fashion giant does not publicly reveal its suppliers. Competitors like H&M, Mango and Primark post their supplier lists, leading investors to question why the Spain-based retail giant hasn’t done the same.
The company did not address the recent criticisms in its earnings call. According to the Inditex annual report, the retailer has 8,123 factories in its supply chain, and 1,733 suppliers.
